[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
2000 SOCIAL SECURITY TRUSTEES' ANNUAL REPORT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON SOCIAL SECURITY
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
APRIL 6, 2000
__________
Serial 106-37
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
66-258 CC WASHINGTON : 2000
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Social Security
E. CLAY SHAW, Jr., Florida, Chairman
SAM JOHNSON, Texas ROBERT T. MATSUI, California
MAC COLLINS, Georgia SANDER M. LEVIN, Michigan
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois BENJAMIN L. CARDIN, Maryland
KENNY HULSHOF, Missouri
JIM McCRERY, Louisiana
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C O N T E N T S
__________
Page
Advisory of March 30, 2000, announcing the hearing............... 2
WITNESSES
Social Security and Medicare Board of Trustees:
Stephen G. Kellison, Former Public Trustee................... 7
Marilyn Moon, Ph.D., Former Public Trustee................... 6
SUBMISSION FOR THE RECORD
TREA Senior Citizens League, Alexandria, VA, Michael F.
Ouellette, statement........................................... 25
2000 SOCIAL SECURITY TRUSTEES' ANNUAL REPORT
THURSDAY, APRIL 6, 2000
House of Representatives,
Committee on Ways and Means,
Subcommittee on Social Security,
Washington, D.C.
The Subcommittee met, pursuant to call, at 10 a.m. in room
1100, Longworth House Office Building, Hon. E. Clay Shaw, Jr.,
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON SOCIAL SECURITY
CONTACT: (202) 225-9263
FOR IMMEDIATE RELEASE
March 30, 2000
No. SS-14
Shaw Announces Hearing on
2000 Social Security Trustees' Annual Report
Congressman E. Clay Shaw, Jr., (R-FL), Chairman, Subcommittee on
Social Security of the Committee on Ways and Means, today announced
that the Subcommittee will hold a hearing to examine the findings of
The 2000 Annual Report of the Board of Trustees on the financial status
of the Social Security Trust Funds. The hearing will take place on
Thursday, April 6, 2000, in the main hearing room, 1100 Longworth House
Office Building, beginning at 10:00 a.m.
Oral testimony at this hearing will be from invited witnesses only.
Witnesses will include the Social Security Public Trustees who helped
draft The 2000 Annual Report. Any individual or organization not
scheduled for an oral appearance may submit a written statement for
consideration by the Committee and for inclusion in the printed record
of the hearing.
BACKGROUND:
The Social Security Board of Trustees recently released The 2000
Annual Report on the financial status of the Social Security Trust
Funds. The Trustees' projections show that Social Security's financial
outlook has improved slightly relative to last year's projections.
Based on intermediate assumptions about economic and demographic
trends, the Trustees project that Social Security will begin running
cash deficits in 2015-one year later than projected in last year's
report. The Trust Funds are expected to be depleted by 2037-three years
later than projected last year. At that time, annual tax revenues will
be sufficient to pay 72 percent of annual expenditures. The improvement
in Social Security's financial outlook is mostly attributable to
improved economic assumptions and several changes in the methods used
by the Trustees to make projections.
Despite the near-term improvement in Social Security's financial
status, the Trustees conclude that the Trust Funds are not in ``close
actuarial balance'' over the next 75 years, the traditional measure for
the financial soundness of the system. The Trustees repeated their call
to make timely changes to the Social Security program so that changes
can be phased in and workers can have time to adjust their plans to
account for the changes. The Public Trustees noted that ``. . .a few
good years do not reduce the inherent uncertainty about the future.''
In announcing the hearing, Chairman Shaw stated: ``While the near-
term prognosis for Social Security appears slightly improved, its
underlying vital signs remain critical. In fact, the Trustees' Report
shows that Social Security's cash flow problem will get worse with each
passing year after 2015. We cannot rely on economic growth from one
year to the next to change that. Without responsible reforms that save
Social Security for 75 years and beyond, this long-run picture will
only get worse with each passing year.''
FOCUS OF THE HEARING:
The Subcommittee will examine the findings of The 2000 Annual
Report of the Board of Trustees on the financial status of the Social
Security Trust Funds.
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April 20, 2000 , to A.L. Singleton, Chief of Staff, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
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noted above.
Chairman Shaw. If the hundreds of people in the audience
will take their seats, we can get started. Despite the light
turnout this morning, this is certainly one of the more
important things that we do.
Today's hearings feature the public trustees who help
compile the new 2000 Social Security Trustees' Report. Their 5
year service has now come to an end, and we thank them for
their outstanding work. Their insights will certainly help us
better understand the current and projected condition of the
Social Security program.
Most attention this year focuses on the trustees' estimate
that the Social Security fund will extend to 2037, that is 3
years beyond the previous estimate of 2034. That is a positive
development, but we need to consider some context. Social
Security's soundness always has been measured over 75 years, or
long enough to span most people's working and retired years.
Obviously, paying full benefits for only 37 years falls well
short of that standard.
Current retirees need not worry about their benefits. But
many workers under the age of 50 and most workers under the age
of 40 can expect to see the year 2037. What will their Social
Security benefits be? How should they plan their retirement and
their savings? Our inability to answer these simple questions
is one reason why the trustees again, and I quote, ``Urge that
the long range deficit of both the OASI and the DI trust fund
be addressed in a timely way.''
But that is still only half the picture. As the trustees
note, in only about 15 years, Social Security will cost more
than taxes bring in. After that, we can raise taxes, we can cut
benefits, or we can borrow more each year to make up the
difference. What will that Congress do? And that difference is
very real. In 2015, benefits will exceed taxes by $7 billion.
And that is going to widen to a $318 billion gap in the year
2037. That $318 billion, spelled with a B.
In 2037, that will be like shutting down the Department of
Defense and sending the money to Social Security. Between these
years, we need to find a total of $4 trillion to pay full
Social Security benefits. And that is trillion with a T. It is
good we are using today's Social Security surpluses to pay down
our current debt, which will strengthen our economy for the
long run. But no amount of debt repayment or economic growth
can substitute for real improvements to make Social Security
sound for 75 years and beyond.
For those who see this year's report as cause for delay and
inaction, there's one simple fact to remember. We now need to
find more than $1 trillion more than last year to pay full
Social Security benefits over the next 75 years. In spite of
all the rosy headlines, Social Security's long-run deficit
increased from $20 trillion to $21 trillion almost without
notice.
So the clock is ticking on us. And the price tag of saving
Social Security for all generations keeps going up with each
year that we delay. We are in good times, we are in times of
surplus. Now is the time to act. I would hope that we would
take the trustee's report not as necessarily good news, but
also while we are happy that the life is being extended,
there's also some real warnings out there that all of us need
to take note of and to answer.
Mr. Doggett.
Mr. Doggett. Thank you very much, Mr. Chairman.
It is really good to have you here with good news, very
good news. I believe that you bring us better news, in fact,
than any of the Social Security Trustees' Reports in the last 7
years. This is the smallest actuarial deficit and the latest
date of trust fund exhaustion that we have had since your
report in 1993.
I agree fully with the comments expressed by our Chairman.
What we need is thoughtful and deliberate action, but indeed we
need action to address the long term problems. At the same
time, we need to realize that this is not the kind of emergency
or crisis situation demanding inappropriate solutions that some
have advocated in the past. I believe that your 2000 trustee
simply confirms what some of your prior reports that haven't
had quite as good bit of news for us, that the challenges that
Social Security faces are significant, but there are ways to
manage them.
Consequently, we ought to avoid radical restructuring of
Social Security. We ought not to substitute for a system that
has been very, very successful, perhaps one of the most
successful programs that this Congress has ever initiated, that
provides progressive, guaranteed and life-long benefits. We
ought not to substitute that proven system with one that junks
it and says that every person who retires or becomes disabled
is in there to fend solely for themselves, with some kind of
individualized, privatized system that destroys what Social
Security was all about.
Radically restructuring Social Security would subject the
most dependable element of our workers' retirement, the only
source of income, at least 90 percent of income, for millions
of single, older women in this country. It would subject those
people to incredible risks and would impose enormous transition
and administrative costs to American workers.
As I'm sure our witnesses have heard, we have heard expert
testimony in the Subcommittee previously from one former
associate of Jack Kemp that no American living today, indeed,
no American living before the year 2025, would actually benefit
from junking the current Social Security system and
substituting a partially privatized system. We view this 2000
Trustees' Report as being of extreme importance, also because
of the message it conveys about economic growth.
To the extent that we can sustain economic growth, as we
have had in this unprecedented prosperity of the last few
years, to the extent we can continue to heed the advice of
Chairman Alan Greenspan, who only recently testified to the
Senate Aging Committee about the importance of increasing our
national savings and avoiding risky tax cuts in favor of
reducing the national debt, that may well be one of the most
significant steps that we can take here in Congress to continue
to bring more good news from the trustees of Social Security.
We thank you for your participation this morning. Thank
you, Mr. Chairman.
Chairman Shaw. Thank you, Mr. Doggett. If I can have the
privilege of adding to your remarks, I totally agree with what
you said when you stated that we should never junk the existing
system and we should not privatize it. The existing system must
stay in place, and we need to adopt a middle of the road
process by which we can save Social Security without changing
in any way the basic structure of the system, the investment
within the Social Security system.
I think the President has talked about privatizing or
partially privatizing by investing the trust funds in corporate
assets. And I would oppose that. I quite agree with Mr.
Doggett, we should not privatize the Social Security system
when we find that we can do it by a middle of the road
approach, by developing a process by which it can be shored up
but in no way changed structurally itself.
And with that, I will welcome the first panel, Mr.
Kellison, who is a trustee of the Social Security Board of
Trustees, and Dr. Moon, who is also a trustee of the Board of
Trustees. We welcome both of you. We have the text of your full
statement, which will be made a part of the record. And I would
invite you to proceed as you might see fit.
STATEMENT OF MARILYN MOON, PH.D., FORMER PUBLIC TRUSTEE, SOCIAL
SECURITY AND MEDICARE TRUST FUNDS, BOARD OF TRUSTEES
Ms. Moon. Thank you. When we flipped a coin, I guess I won
this morning, to go first. I wanted to reiterate, Mr. Chairman,
as you said, that our terms ended when we signed the report on
the 30th of March. This is a duty that has been a pleasure to
do. We have both learned a great deal, and then I think both of
us have been very impressed by the care and objectivity that
goes into the discussions about the assumptions that underlie
this report.
I believe that it is an extremely important role the public
trustees play, to try to be not only there to assure that care
and objectivity happens, but to participate fully in that
discussion. And it is our hope that new trustees will soon be
named, so that they can be a full part of that process for next
year's report. That process begins pretty early in the fall in
terms of discussions about assumptions.
So we are hopeful to see new people come on board. We also
believe that it is important to have new blood and new ideas,
because these are very difficult issues to grapple with.
When we think about the trust funds, we note how difficult
it is to make 75 year projections. There are many very fine
economic forecasters and actuaries out there, but many of them
are very nervous about making 75 year projections. But as
you've also noted, this is an important thing to do, not only
to indicate potential problems, but also to provide assurances
to younger persons that the system is intended to go on
indefinitely into the future.
We view these trust fund reports as an early warning
system, telling us when there are changes that are needed with
enough advance warning that rational and reasonable changes can
be made. We also note that we believe that there are needs for
incremental changes in the assumptions. Very good economic
times are sometimes tempting to build into the trust fund
projections. But over a 75-year period it is very difficult to
sustain some of the good economic news, for example, of 2 or 3
years, just as it probably means when the news is not so good
for several years, we shouldn't be unduly pessimistic.
We also note the enormous uncertainty in these reports. We
don't believe that they are truth, but as I indicated before,
an early warning system to capture our attention appropriately
on an annual basis.
As you've also mentioned, the news is considerably better
this year for the Social Security trust funds. For the OASDI
funds, when combined, the date of exhaustion is now 2037. And
the date where costs will exceed revenue is now extended to
2015. It also means that the long term deficit of the trust
funds is just 1.89 percent, rather than 2.07 percent. Those
are, I think, numbers that underscore the importance of
economic growth and what that has meant for the changes in the
trust funds.
If you look specifically at OASI, the old age and survivors
program, there are more revenues coming in than anticipated in
the past because of the good economic news. By 2016, though,
costs will exceed tax income, but income and the accumulated
assets should last until 2039.
The deficit in OASI is 10 percent less than last year. And
again, I would note that although we made important changes in
the assumptions, we believe that the changes were made on an
incremental basis.
In sum, from my perspective, the good economic news does
have an important impact on the trust funds. It does not wipe
out the long term concerns that are there. It does give us the
time to talk and have a good debate about what the appropriate
solutions are, as both you, Mr. Shaw, and Mr. Doggett have
noted.
I'm going to leave to my colleague, Mr. Kellison, some of
the more graphic details.
STATEMENT OF STEPHEN G. KELLISON, FORMER PUBLIC TRUSTEE, SOCIAL
SECURITY AND MEDICARE TRUST FUNDS, BOARD OF TRUSTEES
Mr. Kellison. Thank you, Marilyn, and thank you, Mr.
Chairman and Members of the Subcommittee. It is a real honor
and privilege to be able to be with you today to report on the
fifth and final Trustees' Report that Dr. Moon and I have
participated in.
Picking up where Dr. Moon left off, I would like to add a
couple of comments on the disability, DI program. It is a
program that hasn't received a lot of discussion in the last 2
or 3 years. But it does have the earliest date of exhaustion of
any of these programs, 2023, with income first falling short of
outgo in the year 2007, only 7 years from now.
This program is clearly a smaller program than the OASI
program, but it does bear careful monitoring. In the past,
disability experience has tended to fluctuate a fair amount,
often for no obvious reasons. Also, we are in a very strong
economy right now. Past experience would indicate that as the
economy might weaken, disability experience would tend to
deteriorate somewhat. So we would encourage the Subcommittee to
keep a close monitoring of the disability insurance program, as
well as the old age and survivors insurance program.
Dr. Moon has given you the overall numbers for the OASDI
program, in terms of exhaustion dates and actuarial balance. We
might review very briefly for you what contributed to the
change from the prior year. There really were four factors that
went into the change. The first one is the strong economy, that
is, strong economic growth. Basically higher levels of
productivity in the economy, certainly very positive, combined
with low unemployment rates and low inflation, have produced
considerably positive effects on the system.
The second major factor influencing the results went the
other way a little, and that would be the demographic changes.
We did feel that it was appropriate to put in faster rates of
improvement in longevity. This is obviously good for people,
although it does increase the costs to the system somewhat, if
people are going to live longer in retirement. And we did feel
some further increases in life expectancy than what had been
assumed before were warranted.
On the other hand, we did put in a small increase in
fertility rates, based on recent birth patterns over the last
decade. And that tends to offset the longevity increase
somewhat, but the net effect of those two demographic changes
is still an overall minus.
The third factor influencing the results was the addition
of a 75th year into the projection period. That is a negative
year, the year 2074 combined with a good year 1999, falling out
of the projection period. So this rolling forward 75-year
methodology does each year bring in a negative year. And that
certainly contributed a minus.
Finally, the fourth factor involved several methodology
changes. There were quite a few different factors coming into
play, largely having to do with newer data, better sampling
techniques, improved modeling techniques, improved software, a
variety of things like that. So the methodology changes this
year contributed positively.
The net effect of all four of these, when they're
aggregated, was an overall net positive, which did, as Dr. Moon
said, extend the life of the trust fund by about 3 years. It
extended the date at which revenue first falls short of
expenditures by 1 year, to 2015, and did reduce the long term
actuarial deficit by about .17 percent of payroll.
My overall assessment of these results obviously is that
the last two or 3 years have been very positive for the system,
largely due to the strong economic growth. However, I think it
is important to note that the long term demographic challenge
that the system faces is still very much in place; namely, the
retirement of the baby boom generation, followed by relatively
low birth rates. Today, the system has a ratio of 3.4 workers
per beneficiary. At the end of the projection period, that will
fall to about 1.9.
So the system still basically, in the long term, is being
driven by major demographic factors in the population. Strong
economic performance can improve this situation and help
finance these benefits, but it will not completely solve this
problem.
Our recommendations for you going forward is to always keep
the long term view in mind. I think the 75 year projection
period is a key part of what this activity is all about. We
would recommend avoiding getting caught up in short term
phenomena. Right now we are in a period of very strong economic
growth. Ten years ago, on the other hand, rates of productivity
were basically flat. There were corporate downsizings, there
was a lot of gloom and doom that the economy had entered, a new
period in which a stagnant type of situation existed.
There is a tendency to overreact to both good times and bad
times. We would caution against that. We think that we need to
keep the long term view in mind. And there is a value, we
think, in making the changes in the assumptions incrementally
rather than abruptly. The experience evolves over time, and
this annual review is an important part of continually
monitoring the experience each year as it develops.
We are heartened that there has been a constructive
political debate starting on how this system can be dealt with.
No consensus has yet emerged from that debate. These particular
trust fund reports do not point to any particular solution.
There are a variety of ways in which the program can be brought
back into long term balance.
We strongly encourage that this debate continue. We
certainly agree with the Chairman that this is not the time for
delay and inaction even though the news is good. It is
important that the system be brought back into balance. The
earlier action is taken, the less drastic the changes have to
be. The longer that action is deferred, then the more
significant the changes will have to be.
Also, there's a real value, we believe, in whatever changes
are made to phasing them in smoothly and not abruptly, so that
people will have significant time to plan for their own
retirements, so that the rules of the game basically aren't
changed abruptly for people who are at or nearing retirement
age.
It is important that we continue to work to restore
confidence in this system, particularly among the younger
generation.
In closing, I would like to commend the professionalism of
the work which is done in the Office of the Actuary at the
Social Security Administration. Their efforts in producing the
materials that Dr. Moon and I and the other trustees review is
invaluable. It is high quality work. I think the country is
very well served by the professionalism of that staff and the
process by which these reports are prepared and the assumptions
and methodologies are set.
In closing, it is a true honor and privilege to have been
able to serve for 5 years as a public trustee. It has been a
great experience. I will certainly second Dr. Moon's comments
that we believe it is very important that new public trustees
be appointed. I think they are an important part of the process
to continue to ensure the integrity and objectivity of the
process by which these assumptions are set and the reports are
prepared.
Thank you very much, and we would both be happy to
entertain any questions you might have.
[The prepared statement follows:]
Statement of Stephen G. Kellison and Marilyn Moon, Ph.D., Former Public
Trustee, Social Security and Medicare Trust Funds, Board of Trustees
Mr. Chairman and Members of the Subcommittee:
As you know, our terms as Public Trustees ended with our
signing of the 2000 Annual Report on March 30. Thus, we are
appearing here today at your request as public citizens. Of
course, our deep interest in the Social Security program and
its financing did not end last week, and we are happy to
testify regarding the financial status of the Social Security
Trust Funds as shown in the 2000 Annual Report of the Board of
Trustees.
At the outset we note that our goal as Public Trustees was
to ensure the integrity of the process by which the annual
reports are prepared and the credibility of the information
they contain. We believe that the Public Trustees' role is
important and strongly urge the President to nominate and the
Senate to confirm new Public Trustees promptly so that they can
be full participants in next year's report. Public Trustees are
part-time officials, must be of different political parties,
and should have technical expertise in the financing of social
insurance or related programs in order to represent the public
interest in this important process of public accountability.
In our normal activities, Mr. Kellison is an actuary and
consultant and Ms. Moon is an economist and researcher, both
with extensive public and private experience in Social Security
and Medicare. As Public Trustees we also approached our work on
a bipartisan basis because we are convinced that this is the
only way in which the financing problems facing Social Security
and Medicare can be solved. The passage with bipartisan support
of the Balanced Budget Act of 1997, which has so dramatically
improved the financial status of Medicare, illustrates this
point cogently.
As Public Trustees over the last five years, our primary
activities were directed at assuring that the Annual Trust Fund
Reports fully and fairly present the current and projected
financial condition of the trust funds. To this end, we worked
closely with the Offices of the Actuary in the Social Security
and the Health Care Financing Administrations to ensure that
all relevant information is considered in the development of
assumptions and methods used to project the financing of these
vital programs. Mr. Chairman, we would note for the record what
we are sure you and this committee know well: it is an
extraordinarily complex task to make financing projections for
these programs for the next 75 years. It is only through the
high professionalism and decades of experience of the Social
Security and Medicare actuaries that such projections are
possible. And we can attest that this work has proceeded on a
most careful, nonpartisan basis. But it is critical to remember
always that these projections ultimately are only estimates and
must necessarily reflect the uncertainties of the future.
In fact, as good as it has been the last 5 years'
experience reminds us that the rate of economic growth has
always varied over time, and that a few years or even decades
of performance in one direction do not tell us what the future
will be. For example, in the early 1990s many economists
believed that the United States had after 1973 entered a future
of much slower economic growth. Now, many think the current
fast rate of growth may persist indefinitely. Our experience
convinces us that for the Trustees' 75-year projections, the
responsible approach is to make changes in the economic and
demographic assumptions on an incremental basis. As the reports
are updated each year, an incremental approach still allows new
information or experience to be reflected relatively quickly
when appropriate.
Thus, the projections in the trustees reports are most
useful if understood as a guide to a plausible range of future
results. And, as this hearing illustrates, the reports serve as
an early warning system that allows us the opportunity to make
changes in a timely and responsible manner.
The Old-Age and Survivors Insurance Trust Fund
In the 2000 report, the Old-Age and Survivors Insurance
(OASI) Trust Fund, which pays Social Security retirement and
survivors benefits, shows a positive balance at the end of 1999
of $798.8 billion with a net increase in that year of $117.2
billion. The fund's assets now equal over 2 years of projected
benefit costs. The OASI fund has been taking in more in tax
revenues than it has been spending for a number of years and is
projected to continue in that mode for 16 years. As the baby
boom generation begins to reach age 65 after 2010, however,
OASI benefit costs each year will increase rapidly and,
beginning in 2016, will exceed annual tax income. However, the
accumulated assets of the OASI fund, interest on those assets
and tax revenues are projected to cover benefit outlays until
2039, three years longer than projected in the 1999 trustees
report.
Although the assets of the OASI fund are projected to be
exhausted in 2039, tax income provided under current law would
equal nearly three-quarters of full benefit at that time. By
2074, however, the portion of benefits that tax income would
cover is projected to decline to about two-thirds. Over the
full 75-year period, the OASI fund shows a deficit of 1.53
percent of payroll, which is 11\1/2\ percent of the projected
summarized 75-year cost of the OASI program, and is 10 percent
less than the deficit shown in last year's report.
The Disability Insurance Trust Fund
The Disability Insurance (DI) Trust Fund also showed a net
increase in 1999 of $16.5 billion and ended that year with a
positive balance of $97.3 billion. As this committee is well
aware, disability costs are more difficult to project than are
retirement and survivors benefits. Historically, the Social
Security Disability Insurance program has experienced periods
of growth and decline for which causes cannot be established
with certainty. In the early 1990's the number of workers
applying for disability benefits increased rapidly, and there
was great uncertainty whether this was a temporary or a long-
term phenomenon. Actual experience since 1993 shows that
applications for disability insurance benefits leveled off in
1994 and have actually declined 16 percent by 1999 despite the
fact that more people are moving into the prime ages for
disabilities. It seems likely that the tight labor market has
contributed to the lack of growth in disability insurance
applications. The total number of disabled workers receiving
benefits has continued to increase, however, because more
people have come onto the rolls each year than have left.
The disability program has experienced significant and not
fully explained fluctuations over the last two decades. The
trustees therefore recommend that the program be monitored
closely in coming years. The 2000 Trustees Report intermediate
projections show that tax income to the DI fund will exceed
expenditures through 2006, but that full DI benefits can be
paid until the fund's assets are exhausted in 2023. Over the
75-year projection period, the DI fund shows a deficit of 0.37
percent of payroll, or about 16 percent of the program's
projected 75-year cost.
Combined OASDI Trust Funds
If the DI and OASI trust fund projections are combined, the
exhaustion date for the combined funds is 2037, 14 years later
than for the DI fund and 2 years sooner than for OASI. On a
combined basis, expenditures first exceed tax revenues in 2015.
From 2016 through 2024 interest income will be needed to
supplement current tax income to meet costs, and in 2025
through 2037, current tax income, interest income plus a
portion of the trust fund assets will be needed to pay
benefits. This is the third year in which the combined OASDI
trust fund exhaustion date has been pushed back, reflecting the
strong economic growth we have experienced during these years.
Considered together, the OASI and DI programs have a projected
long-term deficit of 1.89 percent of payroll, as compared to a
deficit of -2.07 in last year's report.
Reasons for Change in Actuarial Balance
The primary reasons for the reduction in the projected
actuarial deficit in the 2000 trustees report are the continued
good economic experience in 1999, improvement in the projected
economic performance in the future, and advances in projection
methods. In particular, the assumptions in this year's report
reflect consideration of the recommendations last October of
the Technical Panel on Assumptions and Methods convened by the
Social Security Advisory Board, and of the changes also
announced in October by the Bureau of Economic Analysis (BEA)
that had the effect, among other things, of increasing the
annual historical growth rate of productivity. Thus, compared
to the 1999 report, this year's report generally reflects
assumptions of faster economic growth.
On the demographic side, the assumed rate of improvement in
life expectancy was increased by about one-third, in the
direction but not to the extent recommended by the Technical
Panel. The fertility rate also was increased somewhat to
reflect recent actual experience, and this change somewhat
offsets the effect of the life expectancy change. Finally, a
number of separate improvements in the data and methods used to
project the number of covered workers and their earnings
levels, the distribution of widows and spouses, short-term
interest rates, and long-range average benefit levels had the
effect of improving the actuarial balance. The positive effects
of these changes were somewhat offset by the negative effect of
modifications in the methods for projecting the number of new
disabled-worker beneficiaries. Such improvements in the methods
used by the actuaries occur almost every year as better data
and procedures are developed. Over the past decade, such
changes have occurred in 8 of the 10 years, improving the
actuarial balance in 4 years and worsening it in 4 years. The
cumulative negative effects of the changes in methods, however,
have been almost twice as large as the positive effects. As the
listing of changes in the 2000 reports illustrate, every aspect
of the assumptions and projections methods are reviewed in
preparing each year's report and changes are made as necessary
to provide the best projections possible.
Process for Constructive Change
As trustees we were heartened by the debate that has
occurred over the last 5 years about the future of Social
Security because that debate did begin to focus on what kind of
program would best provide necessary economic security for
current workers and their children in old age. But often that
debate has seemed to stall, as exaggerated claims are made by
both sides. These issues are too important to be left to the
vagaries of partisan politics. Also, the strong economy of the
last 4 years has weakened the argument that Social Security
must be radically changed because it is absolutely
unaffordable. What needs to emerge from the debate is change
that has broad support and that can restore confidence that
Social Security will be there for future generations.
The improved financial projections mean that there are many
ways to put Social Security back in fiscal balance. The task is
to choose an approach on positive grounds rather than settling
for a particular approach just because it will produce
``enough'' savings. But as we noted earlier, a few good years
do not reduce the inherent uncertainty about the future. We
sincerely hope that the debate about the future of Social
Security continues and provides the information base for the
public to decide soon what kind of changes they believe will
serve them best.
Conclusion
We have been privileged to take part in the thorough and
careful process by which the annual reports are prepared to
provide this vital public accounting, and we have been
impressed with the care and high degree of professionalism of
the actuarial staffs who assist the trustees. We strongly
believe that these reports serve as a nonpartisan early warning
of the need for changes to ensure continuation of these
programs and not as evidence of their failure to protect future
generations.
Based on our experience as trustees over just the last 5
years, it is overwhelmingly clear that Social Security cannot
be insulated from social and economic change in our country in
the future, just as it has not been in the past. The strength
of the Social Security program has been that it can adapt as
our national circumstances change. It is the acceptance of the
necessity for change by all of us as individuals that is most
difficult. This can be eased only by having the information we
need to be able to understand why change is necessary and in
which direction it should take us. This committee serves a
crucial role in developing the necessary information for Social
Security policy development, and we welcome the opportunity to
participate in this hearing to discuss the dimensions of Social
Security's financing problem.
We have attached the four-page ``Message From the Public
Trustees'' that is included in the Summary of the 2000 Annual
Reports, as well as our biographical information. We thank you
for the opportunity to present our views and will be pleased to
answer any questions.
[An attachment is being retained in the Committee files.]
Chairman Shaw. Thank you, Mr. Kellison. Thank both of you
for your very fine statements.
Dr. Moon, your Ph.D., I believe, is in economics. I have a
masters degree in accounting, so you and I are not going to
agree on very much. But I think we can explore for some common
ground, if I may, for just a moment.
I would make the assumption that there's nothing in your
remarks that should indicate that we should just stay the
course and continue to do what we are doing and pile up the
deficit in the out years. I also would assume, or I would ask
you, the figures that I used in my opening statements, I
believe they came from your report, I would assume that you
agree upon the tremendous deficits that are out there, if we
don't do anything. Am I correct in that?
Ms. Moon. Yes. There will be very large deficits over the
long run that would be difficult to deal with if nothing is
done until those deficits begin to pile up.
Chairman Shaw. I'm going to ask you now, and I know this is
difficult for economists, but I think you're up to it, think as
an accountant for just a few moments. And I want to take you to
the year 2015. And now we are going into 2016. And according to
the report, at that time the Treasury bills are going to have
to be invaded. We are going to have to start cashing in those
Treasury bills.
Where is that money going to come from? It is a dumb
question, but it has got a very simple answer.
Ms. Moon. Yes. Well, the money comes from either higher tax
revenues or changing those bonds from being held by the trust
fund to rolling over and creating a new publicly held debt.
Chairman Shaw. So it's either going to be tax dollars or
debt?
Ms. Moon. Yes.
Chairman Shaw. We'll have a basic assumption here that no
Congress is going to change the benefit structure. I assume
that the report indicates, or the report makes that basic
assumption, so we are going to hold to that.
Ms. Moon. Well, the report makes that assumption. Certainly
that is one issue that people talk about in terms of another
alternative and some people have proposed modest changes in the
benefit structure as well.
Chairman Shaw. For one, I don't think it will ever happen,
and I certainly don't intend to support that as long as we know
that there are other ways that we can go.
So taking that into hand, would the effect on the taxpayer
be any different at all if there were no Treasury bills?
Ms. Moon. I believe that the Treasury bills are a very
important signal to people of the importance of this program,
that they are a commitment to support this program over time.
They mean that currently, we are paying higher taxes than
necessary to support the current program. I think that is
totally appropriate, since many of the folks who are paying
higher taxes right now are my generation, baby boomers.
Chairman Shaw. I agree with everything you're saying. But
you didn't answer the question. And remember, you've got an
accounting hat on now, not an economist's hat. And that is,
would it have any different effect on the taxpayer, with or
without the presence of the Treasury bills?
Ms. Moon. Ultimately, in that year, when there is a
deficit, the taxpayer will have to either pay additional
amounts in higher taxes, or new debt will have to be created.
And that would not be different.
Chairman Shaw. So the long term effect on the American
taxpayer is the same, with or without the Treasury bills. So
following that through, what is the significance of the fact
that we are not going to run out of Treasury bills until some
years later, other than extending a visible sign of commitment
by this Congress and this government to tomorrow's retirees?
The Treasury bills themselves, the presence of the Treasury
bills is just that, and that only. Because the taxpayers are
going to have to come and rescue the system, so that the cash
flow is going to run huge deficits in the future that are
either going to have to be bonded off by more debt or benefits
will have to be paid by increasing taxes, whether it be FICA
taxes or whether it be income taxes, or some other taxes that
the Federal Government might think of. The taxpayer is going to
have to come and bail this system out, beginning in the year
2016. Is that correct?
Ms. Moon. That is essentially correct, yes.
Chairman Shaw. OK. Well, that is the point that I want to
make. And the only reason I'm making it is not to create an
argument, but to simply say that we are all in agreement that
we've got to get this thing solved. Because beginning in 2016,
I mean, I will now announce that I will not run for office in
2016. So I will not be here. But I will probably, if I live
long enough, and I hope I do, and I think I will, I'll
certainly be around to watch this. And I don't want to shove
this problem off to my kids and my grandkids. I'm sure none of
us do.
So many people think that we don't need to worry about this
until 2030-something, and I know the President has talked about
2050-something, by putting more Treasury bills, and the Vice
President has talked about creating more Treasury bills.
But that doesn't bail the system out. The taxpayers are on
the hook beginning in 2016. And we really need to hammer on
that point and say, we've got to do something.
Now, I'm not necessarily saying that I have the answer,
Chairman Archer has the answer, or Mr. Doggett has the answer,
or Mr. Portman or Mr. McCrery or anyone else that is on this
Committee or serves in this Congress. But we need to attack the
issue, and we need to do it early. And I assume you agree with
that?
Ms. Moon. Yes, I think that is right.
Chairman Shaw. Good, thank you.
Mr. Doggett.
Mr. Doggett. Thank you, Mr. Chairman.
First, let me just say that I think there is a significant
difference in some of the proposals that have been advanced,
last year's USA accounts, this year a slight variant of that
from the administration, to supplement the existing Social
Security system and give people an opportunity to have
individualized accounts to supplement Social Security versus
some of the alternatives that have been advanced to take money
out of the trust fund and use it for individualized or
privatized accounts.
I don't see how you could possibly extend the life of the
current Social Security system if you were taking from it in
order to have individualized accounts, whether it's partially
individualized and privatized or wholly privatized. It seems to
me that is only going to reduce the ability of this fund, be it
2015, 2016 or thereafter, to meet its obligations.
But Dr. Moon, I want to focus your attention for just a
moment if I might on the statements that are in the report
about the importance of continued economic growth to provide
promised benefits. Chairman Greenspan, when he testified
recently to the Senate Aging Committee, also noted that the
goal of Social Security and Medicare reform must be to increase
the real resources available to meet needs. And he also pointed
out that transferring moneys from the on budget to the off
budget Social Security accounts could make it politically more
likely that the large projected unified surpluses will in fact
actually materialize.
Do you agree with Chairman Greenspan's thoughts on that?
Ms. Moon. I believe that any policy that results in buying
down the publicly held debt, reducing that, making sure that we
are doing reasonable things to invest in the future of our
economy, will make Social Security more affordable, make
everything more affordable.
You don't have to have enormous economic growth in any
given year if you have good, consistent economic growth in some
very good years. As we've seen with this trust fund report, you
can have a major impact on future liabilities. So I think that
is got to be one major part of any solution, that is an
emphasis on economic growth as helping with this policy.
The issue of how you view this trust fund and the
transfers, I think is a very tricky one. I do think that it's
important to retain a sense that this is a high priority item.
We recognize that in the future there are going to be large
draws on this program. And I view the trust fund as a way of
signalling that.
Mr. Doggett. And I believe in the past, you've argued in
favor of, if we can't do a full 75 years of solvency, at least
do something to make improvements.
Ms. Moon. I think to wait until you have the perfect
solution that gives you 75 years is not necessarily the right
thing to do, particularly if there are changes that all sides
can agree make sense to do, it seems to me that they should
proceed. There are clearly some kinds of adjustments that
people talk about or changes that may bring, be contradictory
to one type of an approach or another. So it seems to me that
one way to think about this is to potentially do things that
there is some agreement on, and do them as soon as possible.
Mr. Doggett. Is it your belief that the basic approach that
the President has suggested, while it does not assure a full 75
years, by reducing debt, by dedicating the interest savings to
Social Security, that this will both promote economic growth
and extend the life of the Social Security trust fund?
Ms. Moon. It extends the life of the Social Security trust
fund. I believe it would enhance economic growth, making the
issues that we'll have to face more affordable. It is not in
itself a solution. It is a step in the direction of a solution.
Mr. Doggett. I know that our Chairman in his comments and
questions to you has just focused on this 2015, 2016 era. And
while I certainly agree that is important, some Republican
members have focused on it so much, on grounds that the trust
funds are not really real assets, they're basically
meaningless, on the one hand. And on the other, they've told us
that they're providing great protection to future Social
Security beneficiaries by locking up what is meaningless.
Let me ask you if you view the trust funds as being
meaningless.
Ms. Moon. I do not believe that they are meaningless. And I
believe that in the same way that we create Treasury bills and
sell them to individuals with an intention to pay in the
future, we create the trust fund and an obligation with an
intention to pay in the future.
Mr. Doggett. And if we eliminate or at least significantly
reduce the debt held by the public by the year 2013, won't that
promote economic growth and put us in a much better position to
meet any problems that we might encounter in 2015 or
thereafter?
Ms. Moon. I believe that is true as well.
Mr. Doggett. Thank you very much. Thank you, Mr. Kellison.
Chairman Shaw. I'd like to, Mr. Doggett, correct you on one
thing. I don't think anybody said they were meaningless assets.
But we've had numerous witnesses, including, I believe, Dr.
Moon, question whether or not Treasury bills held by the
Federal Government are real economic assets.
I don't think anybody said they're meaningless. In fact, I
agreed with Dr. Moon in that it is a symbol of our commitment
to future retirees. And a visible commitment. But the question
is, how do you use those bonds, how do you use the resources.
And the real economic assets are going to have to be extracted
out of the hide of the taxpayer beginning in 2016. So that is
the point.
But I don't want anyone to leave this hearing thinking that
anybody up here has said that the Treasury bills are
meaningless, because they certainly are not. Also, I want to
agree with you, Mr. Doggett, where the carve-outs would be a
problem. That is why Chairman Archer and I have not supported
carve-outs, that we've done it completely with add-ons. I would
welcome your co-sponsorship of our bill. I haven't really gone
in depth with you about it, but it sounded like you were
singing our song. And let's just see how close we are some day.
Mr. McCrery.
Mr. McCrery. Thank you, Mr. Chairman. This is an
interesting discussion, as always, when we get together and
talk about Social Security.
However, it's going to get less and less interesting as
time goes on, and these longer term problems that we can now
sit here in our secure seats and talk about will be much more
exigent.
So you know, we talk about doing things incrementally. But
I would ask the two panelists, what's been done incrementally
since, say, 1990 to help this problem?
Mr. Kellison. Well, in terms of legislative changes, not
much.
Mr. McCrery. Well, what, if any? What? You say not much. I
want to know what, incremental changes, legislative that have
been made.
Mr. Kellison. I think that is really the only way you can
make changes in the program on either the benefit or the
revenue side, primarily, is through legislation. And there's
been very little that is been substantive that would affect the
program in the last decade.
Mr. McCrery. Well, what has been done? You said very
little. I'd like to know what that very little is.
Mr. Kellison. I think basically nothing.
Mr. McCrery. That is the answer I was looking for. Nothing
has been done in the last decade, incrementally or big picture
wise. Nothing has been done legislatively.
We've gotten lucky, because the economy has been good
through the decade. And that has improved these numbers that we
talk about almost in the abstract. But we haven't done
anything, incrementally or otherwise. But we talk a lot about
it.
The fact is, we can talk until doomsday, and doomsday will
come. These figures should be frightening.
The Chairman and Ms. Moon agreed that in the year 2016,
when we have to start redeeming the bonds in the trust fund,
that it can be done only two ways, either increase taxes or
increase the publicly held debt. That is not correct. We could
cut spending, couldn't we, Ms. Moon?
Ms. Moon. Yes. As I indicated--
Mr. McCrery. So that is a third option. We wouldn't have to
increase the publicly held debt, nor would we have to increase
taxes. We could cut defense spending or education spending or
environmental spending. And who here thinks that we are going
to do much of that?
Well, we might, if things are just right politically for a
year or two or maybe five. But eventually, the pressure is
going to be so great, as evidenced by your own numbers, the
debt, the deficit, the cash deficit, is going to be so great
that it will be impossible to cut spending, and we will have to
raise taxes or cut benefits or just increase the Federal
deficit.
So I hope that Mr. Doggett and Mr. Shaw can get together,
and all of us, and quit this partisan bickering and whether
this plan is better or that, and say, we've got do something.
And I don't really care what it is. We've got to do something
to solve this problem. I'm tired of sitting here and talking
about it in the abstract. Eventually this is going to cause a
huge problem for our society, if we do nothing.
Same thing with Medicare. Medicare and Social Security are
like time bombs, and they're ticking. If we do nothing, except
pat each other on the back about the good economy, then these
two programs will ensure that we don't have a good economy.
They will ensure that we have a terrible economy, and the
standard of living in this country will go down. The dollar
will be not worth very much. And it will be our fault, because
we talked and did nothing.
So with that happy note, Mr. Chairman, I will yield back my
time.
Chairman Shaw. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman. And I appreciate the
fact that you continue to focus on 2014, now 2015, rather than
2037 or 2039, because I think it's important in terms of
focusing this Congress. And I am concerned, when the President
talks about the fact that we don't need to worry about Social
Security for another 40 years, because that is just not the
case.
And Mr. McCrery just made the case again that our choices,
in a very short period of time, a decade and a half, are going
to be limited, first, and second, very painful. And the sooner
you begin to adjust, the more likely it is we can avoid that
fiscal train wreck.
Ms. Moon, you talked earlier about in the future, in
response to Mr. Doggett, large draws on this program. It's a
fiscal nightmare, isn't it? I mean, if we don't do something,
the escalation of the insolvency problem is so great that baby
boomers, my generation, who will then be retired and sending
all those e-mails to all those Members of Congress who are
going to succeed Clay Shaw and myself, they'll have a lot to
say about that.
And I don't think it's going to come out of the benefit
side. I think it is going to come out of the hide of the
American taxpayers, those who are left working and paying
taxes, which will be a smaller percentage of the population as
compared to now. And it is a huge issue.
So I want to thank you, Clay, I know it probably gets a
little old going back to that every hearing, but to focus on
it. And I want to thank you all for giving us another report. I
guess if I could summarize what I see in the report, it's very
little has changed. We've moved from solvency about a year,
based on some better economic assumptions and slightly
different modeling.
But I hope nobody in the press is writing that our problems
are solved. I've seen some reports more focused on the Medicare
projections than the Social Security projections saying, gee,
everything's great now. I just hope that is not the report. I
basically see very few reasons for optimism to come out of this
report, but more reasons, as Mr. McCrery said, for us to get to
work and do something.
I do think that going to Mr. Doggett's point about the USA
accounts, we need to realize that sort of approach does nothing
to affect the solvency of Social Security. Is that correct, Ms.
Moon, Mr. Kellison?
Ms. Moon. Yes, if it's done outside of the system, it does
not affect the solvency of the program. It does not, though,
take resources away from Social Security, either, which I think
was Mr. Doggett's point.
Mr. Portman. Well, it does, though, if you follow the
President's logic, which is he uses general revenues. It's $250
billion over 5 years. It's got to come from somewhere. Where
does it come from?
Ms. Moon. It would certainly come from the revenues of
other parts of the Federal budget, but not necessarily--
Mr. Portman. Bingo. And in a balanced budget era, we don't
have $250 billion out there. I mean, we could change spending
patterns. We could not do the marriage penalty relief, I
suppose. There are other things we could do.
But the point is, if you look at the President's approach,
it's basically moving one pot of money to another. He comes up
with an arbitrary number, which is the interest savings on the
debt. You can bump the number you want. I mean, correct me if
I'm wrong, but every proposal has some transition costs. That
is an interesting number, but it's changing the compact that
FDR made, which is that this is not going to be in general
revenue program, it's taking money out of general revenues, as
do other proposals, including ones that are supported by
Republicans.
But it doesn't help the solvency one bit. And it will hurt
in the sense that it's taking money away from general revenues
that otherwise could be used for Social Security. And a big
chunk, a bigger chunk than any other tax proposals out there.
It's also interesting to me, Mr. Doggett, you said that the
personal accounts do nothing to extend the life of the trust
fund. And you know, if you look at the Archer-Shaw proposal, I
know it's proposed by Republicans, but it's not inconsistent
with anything you've said. Look at every single approach out
there. Every one has a transition cost. The Archer-Shaw one is
a 2 percent tax credit. And what does it do? It gets a higher
rate of return, so that over time it absolutely affects the
solvency of the program.
In fact, the non-partisan analysis coming from the Social
Security Administration and from the folks here on the Hill who
project what the economic forecasts are going to be are that it
not only affects the solvency, but over time, when you look
long term, out 50 years, it results in no solvency problem at
all, because you get that higher rate of return year after
year, and the government will have to pour in less and less of
the Social Security payroll taxes into people's retirement
because of these higher rates of return.
Granted, there is a transition. And the transition is
funded how? General revenues, right? So this notion that
somehow personal accounts don't solve the problem, I mean, the
only way you solve the problem is with general revenues. With
personal accounts, at least you're only using general revenues
for a short period of time to get over that hump. And then you
have a solution to the problem that I think is very creative
and frankly, given the choices, raising taxes, cutting
benefits, I think is by far the preferred option.
So I would just encourage my friends on the other side of
the aisle to take a serious look at this proposal. Because I do
think it's not a Republican proposal or a Democrat proposal,
although some Republicans are calling a Democrat proposal,
while Democrats beat up on it.
And I'm sorry to talk so much and not ask more questions.
But I have read your testimony. What I am concerned about your
testimony is where you say that the improved financial
projections mean that there are many ways to put Social
Security back in fiscal balance. The task is to choose an
approach on positive grounds, rather than settling for a
particular approach, because it will produce enough savings. I
don't know what that sentence means.
And since it's both your testimony, either one of you can
respond to it. I will not take any more time, but if you could
just tell me what that means, I think it would be interesting.
I mean, a particular approach that just creates enough savings,
I hope we are going to have an approach that will create enough
savings. Why is that a bad thing? What do you mean by that?
What can I read into what you are saying?
Ms. Moon. What we were trying to say is that the trust
funds are out of balance, and something will need to be done.
But we don't believe that they are so far out of balance that
there is out there only one solution and no other solution that
can solve this problem. What we were trying to say is that this
should be an empowering kind of an issue in terms of thinking
about the future of Social Security, that there are several
options that you could use. And you need to choose and make
some tough choices. But there's no one that says, this is the
only thing that can solve this problem.
Mr. Portman. Mr. Kellison? But you have to choose one, you
just said. I don't know quite what that means. I think the word
empowerment is interesting, too, because then that's consistent
with the personal account idea, empowering people to save more
for their own retirement, which we should be doing in our
private pension side, as well, where we have enormous
opportunity to provide the backstop to Social Security.
But Mr. Kellison, what did you mean by that sentence?
Mr. Kellison. I think Dr. Moon has captured it. It
certainly was not a call to inaction by any means. I think it
was basically a statement that recognized that there are
different solutions for this issue that have been proposed,
that a consensus has not really emerged behind any one set of
proposals, and that there are multiple ways in which the
program can be dealt with.
Now, none of them are painless, however, as you well
pointed out. And I strongly would reiterate the need, as
several of you have expressed, about taking some action
forthwith on this program. The longer that there is a delay in
taking action, the more significant changes will have to be to
bring the system back into balance.
And that is the risk of looking at this report in sort of a
good news way that might lead some to say, well, we can delay
having to deal with these issues. That's a mistake. Because the
issue is there, the demographic profile of the population is
there. And the longer that action is delayed, the more
significant the change is going to have to be to fix it then. I
think that's clear.
So perhaps, those words were chosen poorly, if they've
conveyed an attitude that we can just kind of muddle along and
not do anything about it. That was not the intent.
Mr. Portman. Well, thank you. Thank you, Ms. Moon. Thank
you, Mr. Kellison. I appreciate and agree with your statement.
Chairman Shaw. Thank you, Mr. Portman. I just wanted to
underscore, I don't think we've talked enough about what Mr.
McCrery has talked about, and that is, the economic nuclear
explosion that is out there that our kids and our grandkids are
going to have to find shelter against if we don't do anything.
And it is.
The figures, and I'd like to ask my economist friend, I use
the figure in my statement that by the time you get to the year
2037, that there's going to be a shortfall, cash shortfall of
$318 billion that's going to have to be made up in some way.
What would you project? And you all are fortune tellers, that's
what we look to economists for. Do you agree with Mr. McCrery
that this is something that's going to have a tremendous
negative effect on the strongest economy on the face of this
Earth?
Ms. Moon. I guess I look at it a little bit differently.
Because we have an aging society, we're going to have an aging
society. There are going to be a lot of us baby boomers around.
I think there are going to be a lot of different challenges, of
which I actually believe Social Security will be a relatively
modest one.
I think one of the challenges is, how do you keep, how do
you use productively the millions and millions of people who
will be in their retirement years and encourage them to remain
active in some way, either in the labor force or in volunteer
activities.
There's an enormous richness that we should not let go and
we should not discourage people from participating in. At the
same time, I think we should not also bash the generation
because they stay alive in retirement and think of it as a
nightmare. Because it's actually what we have all wished for,
and that is longer life expectancy. It's going to create a
number of challenges, and there are some things that we are
going to deal with.
If we have strong economic growth, $318 billion will not
seem like a great deal of money. And that clearly is one piece
of this whole puzzle. So it is very difficult to imagine what's
going to be viewed as affordable or unaffordable in 30 years,
or even in 20 years.
Chairman Shaw. Dr. Moon, I don't know anybody that said
living longer is going to be a nightmare. I'm just talking
about not planning. To come up with all these rosy things like
volunteerism and all these things that you think it's going to
do, do you disagree that the deficits will increase from $20
trillion to $21 trillion?
Ms. Moon. No, I don't disagree.
Chairman Shaw. You don't think that we've got a projected
deficit? I believe your own trustees' report projects deficits
over 75 years in that amount if we don't do anything. And I
think I got that from the Social Security Administration.
Ms. Moon. And I'm not saying we should not do anything.
What I'm trying to say is--
Chairman Shaw. But do you disagree with that type of
deficit if we don't correct this, if we don't do something to
shore up the Social Security program?
Ms. Moon. No, I don't. And that's why we're here saying we
should--
Chairman Shaw. Well, you take a stab at it. How many
trillions of dollars are we looking at over the next 75 years,
if we just do nothing?
Ms. Moon. Well, I think you have the figures in front of
you, and I don't have them in front of me. I'm not disagreeing
with your figures. And I'm not disagreeing that this is a
substantial issue.
Chairman Shaw. Do you disagree with the figure that I'm
giving you? I mean, I got it from the Social Security
Administration. I'm not smart enough to think that up.
Mr. Kellison, perhaps you'd like to--do you have a memory
of that particular figure?
Mr. Kellison. I don't have the numbers right in front of
me, but I think your numbers sound about right. I don't
disagree with them. If that was your source, I think that would
be our source, too.
Chairman Shaw. You know, one of the things, and I'll make
just an across the bow blast right now of everybody who's
running for President, nobody has stepped up to the bag and
said, we have to correct this now, and here's what I'm going to
do. And I can tell you, the American people are looking for
that. And once the word goes out that they know that we are in
deep trouble starting just 15 years from now, the American
people expect their leaders to do this.
The President of the United States told me and Chairman
Archer at the Blair House Conference that we had just a year
and a few months ago that he did not want us to come forward,
that he wants to put together the plan and take the leadership.
Every significant change in the Social Security system that has
been made in my memory, and probably in the entire existence of
the program, has been with the leadership of the White House.
And we've yet to get that, even though we've received the
commitment of the President. All we hear, the only thing we're
hearing from the White House is more Treasury bills, which we
know, and we certainly established, does not solve the problem
in 2016, or investing the Social Security trust funds in the
stock market. And that's something the American people are not
going to tolerate, and I will certainly oppose as long as I'm
in the Congress or have anything to say about it.
So, we put a plan out there, and we're looking for support
on the Democrat side, just like welfare reform. It has to be
done in a bipartisan way. And unless you have bipartisan
cooperation, it will never get done.
And whether it's the Archer-Shaw plan, whether it's some of
the other plans that are out there, this Congress has to act.
Because there is an economic disaster that's out there. And I
don't care what kind of rosy assumptions you make, I'm not
going to leave this to my kids in 2016 and beyond, and my
grandkids, in 2016 and beyond. That just is not something that
this Congress should do.
We've got good times, we've got great opportunities. We've
got surpluses, and now is the time to step up to the plate and
solve this question. That's what we're here for, to make these
hard decisions. That's what the White House is, they're
supposed to give us some leadership. The Founding Fathers saw
that, even though they propose and we dispose. It's time that
we do get together and pull this thing together.
I think this has been a very good hearing. Do any of the
other members have anything to say before we adjourn?
Mr. McCrery. Mr. Chairman?
Chairman Shaw. Yes, Mr. McCrery.
Mr. McCrery. Just a note, Ms. Moon said that, I think in
2037 there would be a $318 billion deficit, is that what you
said?
Ms. Moon. I think I was reiterating what Mr. Shaw said. I
didn't have the number in front of me.
Mr. McCrery. Oh, OK. Is that what you said, Mr. Chairman?
Is it $318 billion in 2037?
Chairman Shaw. Right.
Mr. McCrery. OK. And Ms. Moon said, well, you know, who
knows, given continued economic growth, how significant a $318
billion deficit will be in 2037. I know what you're talking
about, and I agree. But lest anyone in the audience or in the
press listening thinks that these numbers are not adjusted for
inflation, they are. So we're talking about $318 billion in
today's dollars. And we don't know what the figure will be in
2037, but it will be more than $318 billion in 2037 dollars.
So I just wanted to make that clear. All these numbers
we're talking about are inflation adjusted, or not inflation
adjusted, they're in today's dollars. So the $21 trillion
accumulated deficit between 2015 and 2074, it's $21 trillion as
we think of dollars today, not as we will think of them in
2074.
Thank you.
Chairman Shaw. I think it's also important to realize, and
Dr. Moon, I'll certainly say this to you, you talk about
increased economic growth. Economic growth is already in your
report. And there is an assumption for that. And quite frankly,
Mr. Kellison, all you can do is guess since neither one of us
are medical scientists, and I don't think medical scientists
can even project, but I think your life expectancy figures are
low. I think we can look to live much longer than even your
assessment of the possibility of increased life expectancy.
So it may be that $318 billion is too low. It may go way
beyond that, as we do enjoy longer life, longer retirement. So
we've really got to do some changes here that will save Social
Security for all time.
We appreciate the work you have done on the report. I think
you have certainly given us some excellent information, and we
appreciate your being here this morning. And if there's no
other comments or questions from the members, we will be
adjourned.
Thank you.
[Whereupon, at 10:59 a.m., the hearing was adjourned.]
[The following questions submitted by Chairman Shaw and the
responses of Dr. Moon and Mr. Kellison follow:]
Responses to Questions for the Record to Marilyn Moon and Stephen
Kellison following Social Security Subcommittee hearing on April 6,
2000
1. Are Social Security's growing cash deficits an indication that a
pay-as-you-go system is not sustainable when the population is aging?
Do you think we need some saving within Social Security, in some form,
to make the program viable in the long run?
Social Security annual balances are projected to be positive until
2025 and the steep rise in program costs will slow dramatically once
all of the baby boom generation reaches retirement age in about 2030.
Aging of the population thereafter is projected to result from
increases in life expectancy and therefore be quite gradual. Thus, the
projected aging of the population is not an indication that Social
Security is unsustainable. The real question is what the cost of the
program will be 20 or 30 years into the future in relation to the
nation's wealth and other demands, such as health care, at that time.
As the 1999 Technical Panel noted, there are ways to reduce the
uncertainty in program costs due to uncertainty about future
demographic change by automatically adjusting program rules for
increases in life expectancy or adjusting tax or benefit formulas over
time. In regard to trust fund savings, the current buildup of trust
fund assets invested in U.S. Treasury bonds is a form of saving within
Social Security and will help pay benefits when the annual cash flow
turns negative. Further build up of trust fund assets would require
reductions in current benefits and/or increases in revenues to the
trust funds: this is one option for extending the solvency of Social
Security but only one of many that should be explained to the public
and considered in any financing reform legislative package.
2. In the Trustees' Report and in your written testimony, you
express concern about the significant fluctuations in the disability
program over the past two decades, and you recommend close monitoring
of the program in the coming years. What would be the best way to
monitor the Disability Program? Does SSA need to undertake new research
or analyses specific to this issue?
The best way to monitor the disability program over the short run
is to follow the monthly update of program experience provided by the
SSA Office of the Chief Actuary to the committee and at www.ssa.gov/
OACT/STATS/dibStat.html. For the longer term projections of disability
costs, the research contract SSA has underway to evaluate the incidence
of disability in the U.S. population is most promising but will take
several years to complete.
3. You mention that while you are heartened by the debate that has
occurred over the past 5 years about the program, you say that the
debate has often stalled, as ``exaggerated claims'' are made by both
sides and that these issues are too important to be left to the
``vagaries of partisan politics.'' Here is your opportunity to set the
record straight -which ``exaggerated claims'' are you referring to and
how have they stalled debate?
The exaggerations in the debate about Social Security financing
reform range from ``nothing needs to be done'' to ``invest in equities
and you will get rich.'' Debate through ``sound bites'' such as these
do not give the public the information it needs to evaluate reform
options--it can however stall the political process of developing
consensus by seeming to offer simple solutions to issues that are
complex and subject to uncertainty
4. Social Security's financial status improved slightly in this
report. The most positive impact on the program's financial outlook was
created by a change in the methods used to make future projections. Can
you explain these changes? What would Social Security's 75-year deficit
have been if the Trustees used the same methods they used in last
year's annual report?
Rather than try to condense the description of the changes in
actuarial methods and other factors that affected the actuarial balance
in the 2000 OASDI Annual Report, we respectfully refer you to pages 130
-132 of the report. We would note that improvement in actuarial methods
occur in almost every report as new data and techniques become
available. Over the past decade, changes in methods that increased that
actuarial balance have totalled 0.63 percent of taxable payroll, and
those that have decreased the deficit have totalled 0.36 percent of
payroll. Changes in actuarial methods in the 2000 report improved the
actuarial balance 0.17 percent; without those changes the deficit would
have been -2.07 (totals do not add due to rounding).
5. We are now experiencing the country's longest economic
expansion, yet Social Security is still insolvent in the long run.
Should we rely on a strong economy to ``grow our way out of this
problem?''
It would be inadvisable to stop the debate regarding the best ways
to improve Social Security's financing and rely only on continuation
over the next 75 years of current rates of economic growth. The rate of
growth in real earnings in the U.S. over the last 4 years is higher
than for any similar period in over 30 years, and if we could maintain
for the next 75 years such a rate of growth we would more than
eliminate the projected Social Security financing problem. However,
even the optimistic economic assumptions in the 2000 report do not
project long-term average economic growth to be nearly as rapid as that
we have experienced over the last 4 years.
6. The 1999 Technical Panel made several recommendations regarding
the methods and assumptions used in the Trustees' Report. Can you
please go through each of the Panel's recommendations and explain: (1)
which recommendations were incorporated; (2) which recommendations were
not incorporated, and (3) why were these decisions made? In addition,
did the Trustees implement any changes in assumptions or methods that
the Technical panel did not recommend?
It is difficult to compare the Technical Panel's recommended
economic assumptions with those used for the 2000 Annual Reports
because after the Panel reported the Bureau of Economic Analysis
released significant changes in national economic data that changed,
among other things, the historical rate of growth in U.S. productivity.
The Panel said that there was ``significant uncertainty both as to the
level of future productivity and our ability to measure it....'' and
recommended that the ultimate assumption regarding the rate of average
annual growth in real wages, which are strongly influenced by
productivity and are key to trust fund revenue projections, be
increased from 0.9 percent to 1.1 percent The productivity assumption
in the 2000 report was increased by 0.2 to 1.5 percent per year, and
the real wage assumption was increased to 1.0 percent per year. The
Panel also recommended that the assumption regarding the rate of
interest on bonds held by the trust funds by lowered by 0.3 percent per
year, from 3.0 to 2.7 percent. The rationale given for this
recommendation was to derive it by subtracting the assumed rate of
inflation from the assumed nominal long term interest rate. Subsequent
discussion of the Panel's recommendation in January by experts invited
by the Social Security Advisory Board found strong disagreement with
reducing the assumed interest rate on trust fund bonds to 2.7 percent
because of substantial market evidence that a rate of 3.0 or higher is
more appropriate. Thus, the real interest rate assumption of 3.0
percent per year in the 1999 Annual Report was not changed for the 2000
report.
The most significant recommendation regarding assumptions made by
the 1999 Technical Panel was to double the assumed average decline in
mortality rates from those in the 1999 Annual Report. As Public
Trustees we have followed debate about this assumption by outside
experts carefully and have found that there is a wide range of views
about the prospects for faster increases in life expectancy over the
next 75 years. The Technical Panel thought that life expectancy in the
U.S. would speed up as it has in such countries as Japan and France in
recent decades. Other experts believe that biological and social
factors may slow future rates of decline in mortality (i.e. increase in
life expectancy) in the U.S. The fact that decline in the mortality
rate among those age 65 and older has averaged only 0.56 percent per
year since 1982, in part because for the first time in a century the
rate of increase for older women has fallen below that of older men,
raises serious and unanswered questions about current as well as future
prospects for more rapid increases in life expectancy. After careful
consideration of the disparate views and evidence regarding future
increases in longevity, the assumption on the average decrease in
mortality for older people (the age group in which most of any decrease
must occur), the assumption in the 2000 report was increased by about
30 percent, from about 0.5 percent for women and men considered
together in the 1999 report, to about 0.65 percent per year in the 2000
report.
The 1999 Technical Panel considered but did not recommend an
increase in the fertility rate (the 1995 Technical Panel had
recommended an increase from 1.9 to 1.95 children per woman). Based on
the continuance in the most recent data of fertility rates just over
2.0 percent, the fertility assumption in the 2000 report was increased
from 1.9 to 1.95 children per woman.
7. Several proposals have been introduced that would broaden the
scope of the information provided in the Trustees' Report. Should the
Trustees' Report include (or more clearly explain) certain information,
such as the: (1) the long-term sustainability of the Social Security
program, (2) the program's unfunded liability, (3) rates of return for
different cohorts, and (4) the effect of newly enacted Social Security
provisions on the budget and national saving?
The 1999 Technical Panel generally sought ways to improve the
presentation of the Social Security program's financial status and
outlook, including the critical issues of the uncertainty involved in
any projection and of the sustainability of the program at the end of
the 75-year projection period. The issue of sustainability at the end
of the period is presented in discussion of actuarial estimates in the
2000 report. There was not time to fully consider and make extensive
other changes in the presentation of the annual report for 2000, but we
understand that such changes will be studied for the next report. Of
the specific areas you asked about including in the report, the long-
term financial status--whether described as income compared with costs,
sustainability or something else, is an objective of the report and
needs to be conveyed as clearly as possible. The program's unfunded
liability is a much more complicated concept, which can be defined in
several ways and is difficult to comprehend for most of us. The
unfunded liability is therefore not likely to help the public
understand Social Security's long-term financial status, but it could
be considered for inclusion in the annual report. The issues of rate of
return and the effect of Social Security on the budget and national
savings are, in our view, not proper subjects for inclusion the annual
trustees report on the financial status and outlook of the trust funds.
Rather, those issues could better be presented in the Economic Report
of the President as they concern not the trust funds but national
economic matters.
8. You state that the trustees reports serve as an early warning
system that allows us the opportunity to make changes in a timely and
responsible manner. Based on your service as Trustees, what changes
would you support.
We would hope that the President and the Congress would make
programmatic changes in Social Security whenever changes that make
sense and have public support are identified. As we said earlier, the
recent retirement test legislation could be seen as such a change. The
financing plans offered by the 1995 Advisory Council included several
programmatic changes that could be considered. What we are most
concerned about is the seemingly pervasive assumption in discussions of
Social Security financing reform that the only way to proceed is to
develop a package of proposals that will, at the time of enactment, put
the program into perfect 75-year actuarial balance. That is the model
of the 1977 and 1983 legislation and of the 1995 Advisory Council
plans. We think that the enormous uncertainty that exists about the
future makes waiting to devise the ``perfect'' plan a much less
desirable goal than making changes whenever they achieve the necessary
public support.
[A submission for the record follows:]
Statement of Michael F. Ouellette, Director of Legislative Affairs,
TREA Senior Citizens League, Alexandria, Virginia
TSCL Members
[In District]
Representative E. Clay Shaw, Jr., Chairman.......... 4,000
Representative Robert T. Matsui, Ranking Member..... 2,980
Representative Sam Johnson.......................... 1,842
Representative Michael Collins...................... 2,133
Representative Rob J. Portman....................... 3,070
Representative J. D. Hayworth....................... 5,247
Representative Jerry Weller......................... 3,776
Representative Kenny C. Hulshof..................... 3,549
Representative Jim McCrery.......................... 1,713
Representative Sander M. Levin...................... 3,480
Representative John S. Tanner....................... 2,357
Representative Lloyd Doggett........................ 1,944
Representative Benjamin L. Cardin................... 2,915
Mr. Chairman, The TREA Senior Citizens League (TSCL)
appreciates the opportunity to submit testimony to your
subcommittee's hearing to examine the findings of the 2000
Annual Report of the Board of Trustees on the financial status
of the Social Security Trust Fund. In this regard, TSCL is
grateful for the chance to offer a number of insights and
recommendations for the subcommittee's consideration. TSCL
hopes that this testimony will be beneficial to the members of
this subcommittee during their deliberations.
TSCL is a non profit, issues advocacy organization
representing over 1.5 million members and supporters and is
dedicated to serving its members by defending and protecting
their earned retirement benefits. The League is registered to
conduct grassroots fundraising, public education and lobbying
activities in nearly every state, and does not solicit nor
accept any money from the federal government. For your
information, over 39,006 of our members are constituents of
this subcommittee's members. TSCL sincerely thanks the members
of this subcommittee on the decision to hold a hearing designed
to closely scrutinize the current near-term prognosis for
Social Security as well as the long-run solvency picture
associated with the benefit. TSCL fully agrees with the Board
of Trustees recommendation that as reform of the Social
Security program is considered, it will be imperative that
changes can be phased in gradually and workers will have time
to adjust their plans to account for the changes.
INTRODUCTION
Mr. Chairman, TSCL welcomes the Social Security Trustees
Report showing that the Trust Fund will not become bankrupt
until 2037 instead of 2034 as reported one year ago. But that
date is deceptive. The SS Trust Fund's (SSTF) solvency has
nothing to do with the federal government's ability to pay
retirees full benefits as promised. The crucial date is really
2015.
In 2015, SS spending on benefits will begin to exceed
revenues. The government at that time will need to draw on
special issue Treasury bonds that represent I.O.U.s from other
parts of the government to the SSTF. Before 2015, the
government will have to choose between cutting future benefits
to retirees, raising taxes or finding ways to increase the
rates of return earned on retirement money to finance full
benefits.
Measures To Protect Social Security
TSCL supports current the Social Security ``lock box''
measures to set aside Social Security payroll taxes in order to
pay down federal debt. This will do far more to help put the
nation's retirement system on sounder footing than would
cutting taxes, but it does nothing to provide for unfunded
liabilities to future retirees, nor does it insure that current
retirees will receive full benefits as promised.
Surveys of TSCL members overwhelmingly favor reform of the
Social Security system. Assuming that there would be no change
to their current level of benefits, about 69 percent of TSCL
members would favor some form of personal retirement accounts
for younger workers.
Because 2015 is the crucial date rather than 2037, TSCL
urges this subcommittee and the Congress to move ahead with
measures that would protect the financial solvency of SS and
thus insure that SS pays full benefits as promised. Action
taken now will allow adequate time for careful study of
proposals, full and open debate, and for changes to be enacted
gradually over a period of time to avoid creating another ``
NOTCH'' in benefits.
Gradual Change Important To Prevent A Notch In Benefits
TSCL urges this subcommittee and Congress to enact reforms
gradually, in small incremental steps. Changes to Social
Security that are too drastic, over too short a period of time,
may create a ``Notch'' in benefits. TSCL points to the Social
Security changes of 1977 as a case in point.
A Notch creating a disparity in benefits between retirees
born 1917 through 1926 and those born before and after them
arose from legislation enacted in 1977. The legislation altered
the way Social Security benefits were computed beginning with
people who became eligible in 1979--only two years later.
Disparities in benefits are often very large, in some instances
exceeding $200 a month, and were not intended by Congress.
TSCL maintains that Notch Reform, in which benefit
disparities would be addressed and corrected should be included
as part of any Social Security reform. Two bills currently in
the House, H.R. 148 and H.R. 568, as well as the Senate bill,
S. 390, would offer those born from 1917 through 1926, or their
surviving beneficiaries, the option of choosing Lump-Sum
payments, paid over four years, totaling $5,000 or improved
monthly benefits over a four-year period.
The total number of those born during the Notch period of
1917 through 1926 is now estimated at about 9 million.
Accordingly TSCL estimates the cost of ``Lump-Sum'' Notch
reform to $45 billion.
The Congressional Budget Office (CBO) projects that our
total federal budget surplus for 2000 will be $161 billion,
$147 billion of which is Social Security payroll taxes. The
CBO, in fact, projects the budget surpluses will continue over
the next 10 years. The above Notch Reform bills would require
financing over a four-year period. The revised estimated cost
of Notch Reform is $11.25 billion per year over 4 years.
Senior COLAs
A commonly mentioned reform to Social Security is to change
the Consumer Price Index (CPI). Some economists have charged
that the CPI overstates inflation and thus overpays Social
Security COLAs. TSCL maintains this is not the case.
Social Security COLAs are indexed to a CPI that does not
even survey the market basket of seniors, but that of Urban
Wage Earners and Clerical Workers, the CPI-W. The CPI-W
specifically excludes the market basket of those receiving
pension income such as Social Security. It does not accurately
reflect the rapidly rising costs of health insurance or
prescription drugs because workers are more likely to have
employer-provided insurance and do not purchase prescription
drugs as frequently as seniors do.
A study of the Consumer Price Index for Elderly (CPI-E)
consumers confirms that inflation for seniors is rising more
quickly than for the general public. The CPI-W thus understates
inflation for seniors. According to the Bureau of Labor
Statistics over the period from 12/82 through 9/99, the CPI-W
increased a total of 68.1%; the CPI-E increased 78.5% for a
difference of 10.4 percent. The medical care component for the
CPI-W increased 159.7% and the CPI-E increased 169.3%.
TSCL studies have found that if the CPI-E were used to
index senior COLAs instead of the CPI-W seniors would have
received $5,480.10 more over the 16 years for which the
government has tracked the senior CPI, as illustrated in the
following table:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage
Average Average difference
Year Monthly CPI-W* Monthly Actual between CPI- Monthly Yearly
Benefit w/ Benefit with CPI-E* W and CPI-E Difference Difference
CPI-W CPI-E
--------------------------------------------------------------------------------------------------------------------------------------------------------
1984........................................................ $487.00 3.5% $487.00 4.3% 22.86% $- $-
1985........................................................ $504.05 3.1% $507.94 3.8% 22.58% $(3.90) $(46.75)
1986........................................................ $519.67 1.3% $527.24 2.5% 92.31% $(7.57) $(90.87)
1987........................................................ $526.43 4.2% $540.42 3.9% -7.14% $(14.00) $(167.97)
1988........................................................ $548.54 4.0% $561.50 4.2% 5.00% $(12.96) $(155.57)
1989........................................................ $570.48 4.7% $585.08 5.0% 6.38% $(14.61) $(175.27)
1990........................................................ $597.29 5.4% $614.34 6.0% 11.11% $(17.05) $(204.57)
1991........................................................ $629.54 3.7% $651.20 4.7% 27.03% $(21.65) $(259.85)
1992........................................................ $652.84 3.0% $681.80 3.2% 6.67% $(28.97) $(347.61)
1993........................................................ $672.42 2.6% $703.62 3.1% 19.23% $(31.20) $(374.40)
1994........................................................ $689.90 2.8% $725.43 2.9% 3.57% $(35.53) $(426.35)
1995........................................................ $709.22 2.6% $746.47 2.9% 11.54% $(37.25) $(447.00)
1996........................................................ $727.66 2.9% $768.12 3.0% 3.45% $(40.46) $(485.49)
1997........................................................ $748.76 2.1% $791.16 2.4% 14.29% $(42.40) $(508.79)
1998........................................................ $764.49 1.3% $810.15 1.8% 38.46% $(45.66) $(547.95)
1999........................................................ $774.43 2.4% $824.73 2.6% 6.79% $(50.31) $(603.69)
2000........................................................ $793.01 ......... $846.18 ......... ............ $(53.16) $(637.97)
Total benefits lost over 16 years $5,480.10
Average loss per year over 16 years $342.51
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSCL supports the creation of more fair Social Security
COLA by indexing it to the CPI-E as proposed in ``The Consumer
Price Index for Elderly Consumers Act'' (H.R. 1422) introduced
by Representative Bernie Sanders (I-VT) and Rep. Robert Ney (R-
OH).
In addition, the CPI has already undergone a series of
technical change during the 1990's to address the problem of
so-called over-statement of inflation. These changes have had
the cumulative effect of slowing the rate of growth in the CPI
by about 0.8 percentage points. In the July 15, 1998 report by
the Congressional Budget Office forecasts were revised in part
to reflect these changes. The CBO noted that, `` Because of
changes the Bureau of Labor Statistics has made or plans to
make in how it measures the CPI, the 2.7 percent inflation
projected for 2000 is comparable to 3.4 percent inflation
calculated on the basis of measurement techniques used before
1995.'' That equals a 0.7 percentage point correction.
Last year the CBO revised their forecasts once again
stating that, ``the CBO has increased its estimate of the
technical adjustment by less than 0.1 percentage point a year,
on average for the 1999-2009 period.'' This brings the
cumulative effect of the changes to 0.8 percentage points.
TSCL has studied the effect a more slowly growing CPI has
on the retirement benefits and found that the average retiree
stands to lose more than $4,444 over the next ten years. The
table below shows the effect of a 0.8% CPI correction:
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Average Monthly CPI Assumption Benefit Benefit the
Year Benefit Old Method Increase Following Year
----------------------------------------------------------------------------------------------------------------
1998........................................ 765.00 1.9 14.54 779.54
1999........................................ 779.54 3.1 24.17 803.70
2000........................................ 803.70 3.3 26.52 830.22
2001........................................ 830.22 3.2 26.57 856.79
2002........................................ 856.79 3.3 28.27 885.06
2003........................................ 885.06 3.3 29.21 914.27
2004........................................ 914.27 3.3 30.17 944.44
2005........................................ 944.44 3.3 31.17 975.61
2006........................................ 975.61 3.3 32.20 1007.80
2007........................................ 1007.80 3.3 33.26 1041.06
2008........................................ 1041.06 3.3 34.36 1075.42
2009........................................ 1073.33 3.3 35.42 1108.75
2010........................................ 1108.75 3.3 36.59 1145.34
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Average Monthly CPI Assumption Benefit Benefit the
Year Benefit New Method Increase Following Year
----------------------------------------------------------------------------------------------------------------
1998........................................ 765.00 1.3 9.95 774.95
1999........................................ 774.95 2.4 18.60 793.54
2000........................................ 793.54 2.5 19.84 813.38
2001........................................ 813.38 2.4 19.52 832.90
2002........................................ 832.90 2.5 20.82 853.73
2003........................................ 853.73 2.5 21.34 875.07
2004........................................ 875.07 2.5 21.88 896.95
2005........................................ 896.95 2.5 22.42 919.37
2006........................................ 919.37 2.5 22.98 942.35
2007........................................ 942.35 2.5 23.56 965.91
2008........................................ 965.91 2.5 24.15 990.06
2009........................................ 988.13 2.5 24.70 1012.83
2010........................................ 1012.83 2.5 25.32 1038.15
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Old Method New Method Monthly Annual Benefits
Year Benefit Benefit Difference Lost
----------------------------------------------------------------------------------------------------------------
1999........................................ 779.54 774.95 4.59 55.08
2000........................................ 803.70 793.54 10.16 121.88
2001........................................ 830.22 813.38 16.84 202.09
2002........................................ 856.79 832.90 23.89 286.64
2003........................................ 885.06 853.73 31.34 376.05
2004........................................ 914.27 875.07 39.20 470.42
2005........................................ 944.44 896.95 47.50 569.95
2006........................................ 975.61 919.37 56.24 674.87
2007........................................ 1007.80 942.35 65.45 785.40
2008........................................ 1041.06 965.91 75.15 901.78
2009........................................ 1075.42 990.06 85.36 1024.27
2010........................................ 1108.75 1012.83 95.92 1151.04
Ten Year Loss (total, year, month) 1999-2008 4444.16 444.42 37.03
2000-2009 5413.35 541.33 45.11
Five Year Loss (total, year, month) 1999-2003 1041.74 208.35 17.36
2000-2004 1457.08 291.42 24.28
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TSCL is not only opposed to using the CPI-W as an index for senior
COLAs, but also favors a moratorium on further corrections to the CPI
until the Social Security COLA is indexed to the CPI-E.
Conclusion
In closing, TSCL wishes to thank the members of this subcommittee
for holding this important hearing. In this regard, TSCL believes that
the future of Social Security will depend on continued efforts of this
subcommittee to protect the existence of the program. Continued
combative efforts may give the Congress the levels of funding needed to
pass legislation that would:
Provide relief to a group of Social Security recipients who
were born in 1917 through 1926 who have been receiving less in their
retirement benefit due to the changes that were made in 1977 to the
Social Security benefit formula. These ``Notch'' babies, as they are
referred to, consequently have less in disposal income than many of
their contemporaries and are facing much more severe financial
hardships than others. The passage of H.R. 148 or H.R. 568 could
greatly assist these ``Notch'' victims by providing a $5,000 settlement
paid at a rate of $1,200 annually for 4 years.
Provide Social Security recipients with an annual Cost-of-
Living Adjustment (COLA) based on CPI-E calculations that accurately
reflect or take into account the buying habits of seniors. Senior
citizens are affected differently than other consumers by changes in
the cost of certain goods or services. Passage of H.R. 1422, The
Consumer Price Index for Elderly Consumers Act, would be another major
step in the right direction to help ease the financial devastating
situations older Americans currently face.
Mr. Chairman, TSCL suggests that the insecurity associated with the
current Social Security system creates an environment of stress that
take a real toll on the health and welfare of older Americans. Seniors
simply must be given assurances that their earned retirement benefits
will remain intact instead of living in constant dread and fear of
loss. The very fact that this subcommittee is moving to protect their
benefits in order to meet their needs means a great deal to older
Americans and their families. Again, TSCL appreciates the opportunity
to present a number of views on behalf of its over 1.5 million members
and supporters to this subcommittee.
Thank You.
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