Copyright 2002 Federal News Service, Inc. Federal News Service
February 28, 2002, Thursday
SECTION: CAPITOL HILL HEARING
LENGTH: 23646 words
HEADLINE:
HEARING OF THE SOCIAL SECURITY SUBCOMMITTEE OF THE HOUSE WAYS AND MEANS
COMMITTEE
SUBJECT: SOCIAL SECURITY IMPROVEMENTS
FOR WOMEN, SENIORS AND WORKING AMERICANS
CHAIRED
BY: REPRESENTATIVE E. CLAY SHAW, JR. (R-FL)
LOCATION: B-318 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON,
D.C.
WITNESSES:
JO ANNE BARNHART, COMMISSIONER OF SOCIAL SECURITY;
PANEL:
ANNA JANIS,
MEMBER, UNITED SENIORS ASSOCIATION;
FRANK
ATWATER, PRESIDENT, NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES;
NIESHA WOLFE, MEMBER AND OWNER, WOMEN IMPACTING
PUBLIC POLICY, OKLAHOMA CITY, OKLAHOMA;
HANS
RIEMER, SENIOR POLICY ADVISOR, INSTITUTE FOR AMERICA'S FUTURE;
NANCY PFOTENHAUER, PRESIDENT AND CEO, INDEPENDENT
WOMEN'S FORUM;
JOAN ENTMACHER, VICE PRESIDENT AND
DIRECTOR, FAMILY ECONOMIC SECURITY, NATIONAL WOMEN'S LAW CENTER;
DAVID C. JOHN, SENIOR POLICY ANALYST, HERITAGE
FOUNDATION
BODY: REP. E. CLAY SHAW, JR. (R-FL): Good
morning.
We seem to have a great deal of interest in
today's hearing. I think it'll be a most interesting hearing. I'd like to
welcome each and every one of you.
Strengthening Social
Security is a goal of many of us in this room. It is a most important program
and it provides income security to nearly 46 million American people that would
not have it, but for Social Security. It is particularly important to women, who
live longer, earn less, take time away from the workforce to care for kids, and
have less pension and asset income than men do.
Social
Security lifetime inflation adjusted benefits, spouse and survival benefits and
progressive benefit formula provide critical protection for women and without
Social Security more than half of elderly women, more than half, would actually
live in poverty in their senior years. Ms. Janis, who will testify today, will
share her perspective about the importance of Social Security and how it has
affected her life.
Although Social Security has
successfully provided an effective safety net for two-thirds of a century,
Social Security is facing serious financial challenges. Beginning in 2016,
payroll taxes won't be enough to cover promised benefit payments and Social
Security will have to tap the trust fund in order to continue full benefit
payments. In 2038 the trust fund will be exhausted and the payroll taxes taken
out of the wages of our hard earned working kids and grandkids will only be
enough to cover 73 percent of the benefits and even less than that in the future
years.
If we fail to enact plans to save Social
Security, the consequences will be devastating for millions of Americans,
especially devastating for women. For these reasons, restoring Social Security
to solvency for the 21st century and beyond is a national priority for the
public, for the Congress and for this president. We need to set aside politics
and demagoguery and get down to the business of saving Social Security.
Our focus today, however, is to find common ground in
advance of major reform to begin improving the program by enhancing Social
Security benefits for women, assuring seniors that promised benefits will be
paid and better educating the American people. I'd like to repeat the first part
of that sentence: our focus today is to find common ground in advance of major
reform.
There are numerous proposals for improving
women's benefits and while such proposals will cost tens of billions of dollars
and increase the threat of insolvency, there are some inequities in the program
that could be addressed now without jeopardizing the financial position of the
trust fund. I believe that women should not have to wait for comprehensive
reform for us to make some helpful changes.
Today we
will hear from several experts who will offer opinions for us to explore. As we
look for ways to improve Social Security for women, we must also assure seniors
that strengthening Social Security does not mean weakening their economic
security and we must educate the public about Social Security's financial
future. Conflicting facts reported in the print media and the television has
made our job most difficult. It has fuelled seniors' concerns that cuts to their
benefits are imminent, despite commitments by the House of Representatives and
by this president that their benefits will not be touched.
Today we will hear ideas on how to express the commitment to preserve
seniors' full benefits and how to improve information provided to the public in
the Social Security statements and the trustees' reports. I hope areas of
agreement, such as improving women's benefits will form the foundation for the
kind of bipartisan partnership we'll need to save Social Security. The
subcommittee has a history of working on bipartisan bases to change people's
lives by removing barriers so individuals with disabilities can
return to work, removing their earnings penalties for seniors and combating
waste, fraud and abuse. I hope we continue, in that spirit, to build on our past
successes and reasonably address ways to strengthen Social Security for the next
generation.
I yield to the gentleman from California,
Mr. Matsui.
REP. ROBERT T. MATSUI (D-CA): I thank the
gentleman from Florida, the chairman of the committee.
I appreciate the fact that he's holding this hearing. I might first of
all just point out that -- and I appreciate the gentleman's remarks -- I think
working in a bipartisan fashion is critical and obviously it's very important
because this is a very serious issue; one that undoubtedly all of us as
Americans must really attempt to deal with in a very comprehensive way.
My concern at the outset of this hearing is the fact that
it seems to have changed its character. I knew we were going to talk about older
women, and I think we should, as a very major issue. On the other hand, up until
about 7:00 last night, we did have three witnesses on our chairman's side of the
aisle, two of which were going to discuss the so-called 'certificates of
guarantee.' And we had 10 Democratic witnesses that were planning on testifying
and I know we're out of session down there, so there's all of that -- so there's
some desire perhaps to expedite the hearing, and so the chair suggested that the
13 witnesses, 10 Democratic witnesses and three Republican witnesses not
actually appear, and certainly that's understandable.
Particularly if they could come at some future time.
But there's no question that the issue of the 'certificate of
guarantees' were on the table. In fact, I have written to Secretary O'Neill just
three days ago suggesting that he have a position at the hearing and perhaps
COMMISSIONER Barnhart will be able to discuss that during her testimony. But the
fact of the matter is, as we understand it, that the certificate will probably
be coming up sometime soon. I know that the majority leader Mr. Armey had talked
about it and there's been some discussion that perhaps it could come up on the
suspension calendar time in the next week or so. And as a result of that, I
think we do need to talk about this because just as we had the lock-box, now we
have the certificate of guarantee, we do need to really flesh out some of these
issues. I think this is a very serious issue and we don't want to handle it in a
way that perhaps is treating it rather cavalierly and so I think we need to talk
about it.
I did get a Congressional Research Service
report and analyze Mr. DeMint's bill and they said it would confer no additional
property rights nor contractual rights on anyone who receives these
certificates. And so I guess the certificates will be about as valuable as the
piece of paper they might be sent on. The intent of the DeMint legislation is to
send it out to every recipient who is receiving Social Security at this time
guarantee their benefits for some indefinite future and then any new recipient
who goes on the roles would also receive such a certificate. Mr. Armey really
wants to do this badly because he thinks it's very important. And I would treat
this a little, Mr. Chairman, like the lock-box. We passed the lock-box signed by
the president on three separate occasions, locking up the surplus of Social
Security.
Now we invaded that lock-box. I might just
show the consequences of that lock-box and what has happened over the last 14
months or so. When Mr. Clinton was president we actually put that surplus to use
by reducing the debt and now we are invading the Social Security surplus in a
rather substantial way as the right hand orange column will show. We're deeply
into the Social Security surplus and the consequences of that is the next chart
-- if the gentleman will show the next chart.
Essentially, families that are making $30,000 a year, their payroll
taxes are going into the so-called Social Security Trust Fund. The first
stimulus package that the republicans passed last year would have provided Enron
Corporation with $254 million immediate tax relief by retroactively applying 16
years, the alternative minimum tax. And that would have meant, had Mr. Daschle
not stopped and been criticized for stopping all these wonderful pieces of
legislation, but had Mr. Daschle not stopped that legislation in the Senate
side, then it would have taken -- believe it or not 130,000 families making
$30,000 a year, their payroll tax money, their hard earned payroll tax money
that they thought was going into Social Security would have been just enough to
pay for the $254 million tax cut for Enron Corporation. That was a consequence
of breaking the so called lock-box and invading the Social Security surplus.
It's my hope, Mr. Chairman, because we really shouldn't be
spending our time with certificates and lock-boxes and things of that nature,
that we should put the president's three proposals that were part of the Social
Security Commission and put that in legislative language Mr. Chairman, and then
let us vote on those proposals that the president has presented. Let us vote on
Mr. Armey's proposal that he is now counting as a very significant piece of
legislation.
I think it's important that we do real
substitutive work rather than tinker around with certificates that have no
property rights or legal rights or contractual rights so I welcome these
hearings. On the other hand, it's my hope that we really get into real issues
rather than paper and lock-boxes that no one on your side of the aisle had
intended to keep.
Let me conclude that if you do bring
up the certificate of guarantee for every Social Security recipient, Mr.
Chairman, I hope it's not put on the suspension calendar. I hope that you allow
as a full debate and offer amendments on the floor so that we can really have an
opportunity to talk about this. The mere fact that 10 of my colleagues on the
democratic side wanted to actually testify today on this issue indicates the
interest that we and Congress have. And I really welcome Mr. Armey's desire to
debate this whole issue in the 2002 election and it's his idea not mine. Because
I think the American public has to be involved. The president has said that as
soon as these mid-term elections are over he's going to move on privatizing
Social Security and I think we have an absolute right and obligation as members
of the Congress representing 260 million Americans to debate this issue so that
when the decisions are being in 2003 at least the American public will know
exactly what we're doing and why we're doing it.
REP.
SHAW: I would like to re-read two paragraphs of my opening statement.
Our focus today, however, is to find common ground in
advance of major reform to begin improving the program by enhancing Social
Security benefits for women, assuring seniors that promised benefits will be
paid and better educating the public. This subcommittee has a history of working
on a bipartisan basis to change people's lives by removing barriers so
that individuals with disabilities could return to work removing the
earnings penalties for seniors and combating waste and fraud and abuse.
Now, the reason, and I'd like for the benefit of everybody
here, that there were 10 witnesses on the other side, and I'm really looking
forward to the Democrat witnesses because I am sure that there must one of them
that has a plan to save Social Security, and I am looking forward and bringing
that plan to this committee where we can have open and thorough discussion of
it. Because of that and because so members will be leaving today because the
House is through voting for the entire week, I have set Wednesday aside so that
we can come in and hear from the members.
Also, just
one comment with regard to the lock-box, it was never signed into law by the
president because it was filibustered in the House by Mr. Daschle -- I mean in
the Senate by Mr. Daschle. Now, I think that all of us like to talk about the
lock-box but I think it's also important to say that even if it had become law
there were two important exceptions in that.
One was
the fact that if we went to war the lock-box would no longer would apply or in
the case of economic problems -- and we certainly have a double hitter going
here today. But COMMISSIONER Barnhart, I'd like to --
REP. MATSUI: If I may, Mr. Chairman, because just to make a point of
clarification. On 25 February, just three days ago, we received from your staff
a tentative witness list and Mr. DeMint, it says will endorse certificate
legislation in his testimony, sponsor of H.R. 3135 and then Mr. John --
REP. SHAW: And I'm sure he's going to be here Wednesday
--
REP. MATSUI: Well -- no, I understand that but all
of a sudden since 7:00 last night now we're talking about another issue.
REP. SHAW: No, at 7:00 last night I offered to come in
early this morning and have all of these witnesses by starting the hearing
earlier, and as accommodation to you, we decided to put the thing over until
next week.
REP. MATSUI: No, that's fine. We have no
problems with that. But I think what we're talking about here is the subject of
the hearing and there's no question that this hearing -- what's going to be on
the whole issue of the certificates of guarantee. I don't -- look change your
mind. It's wonderful that you have because I don't think they mean anything but
the fact of the matter is that some witnesses may want to talk about this.
REP. SHAW: Well, I don't know what I changed my mind on
but I'm hopeful that we will have a constructive hearing this morning and that
we can try to depoliticize this issue, at least long enough to save Social
Security for our kids and our grandkids and not get bogged down on this.
And I'd like to welcome the new commissioner of Social
Security. This will be her first appearance before this committee, and I hope
you'll have a favorable impression of us. We're expecting great things from you
and believe it or not, despite some of the rhetoric that you've heard already
this morning, we do try to work together on important issues and we recognize
the importance of the work that is before you and we are certainly looking
forward to your testimony.
Welcome.
COMMISSIONER JO ANNE BARNHART: Thank you, very much, Mr. Chairman.
Mr. Chairman, Congressman Matsui and members of the
subcommittee, I thank you for this opportunity to speak with you today on some
important issues. We're now preparing for a national discussion about how to
ensure that the Social Security system is financially sound when today's younger
workers are ready to retire. But there are also some short term topics to
address. One is the importance of Social Security to women.
The Social Security benefit formula has been structured to provide a
higher replacement rate to low earners since the program's inception in 1935,
and this feature is particularly important for women who tend to have shorter
careers and to earn less on average than men do. Also, because women tend to
live longer than men, Social Security's automatic cost of living adjustments or
COLAs can be vital for maintaining purchasing power for women. For example, a
$100 monthly payment that began in 1975 would today be $347. Social Security
benefits for family members of retired, disabled and deceased workers also can
be especially important for women. Women are more likely than men to receive
spouses or widows benefits because their lower earnings often mean that their
benefits as a spouse or a widower are higher than the worker's benefits that
they would receive based on their own earnings record.
Divorced women also benefit greatly from Social Security protection.
Today, a woman who was in a marriage that lasted at least 10 years could be
entitled to retirement benefits based on her spouse's work record. Before
Congress changed this provision in 1977, 20 years of marriage were needed.
Today, consideration is being given to possible
incremental changes that would affect women. Some changes would affect larger
groups of women and have a high cost. Other changes would be targeted to more
limited groups and have smaller costs. I believe that any high cost proposal
should be considered in the context of comprehensive program reform. Given that
the Social Security program is not in long range actuarial balance it seems
appropriate that significant changes to the program should be evaluated when
we're considering other elements in the future modernization of Social
Security.
But lower cost proposals could be targeted to
relatively small groups and, for the most part, proposals for incremental change
are well targeted to address concerns of small groups of people, most of them
women. However for the women affected, these changes could make a substantial
difference in their economic security. I'd like to give you just one example of
such a situation, if I may.
One such proposal would
address the requirement for disabled widow or widower's benefits and the law as
enacted in 1968, states that a disability must occur no later than seven
years after the worker's death, or after a surviving spouse child and care
benefits were payable. And the intention was to provide disability
protection for widowers, or widows, until they have a reasonable opportunity to
earn disability protection on their own. However, sometimes now, a worker
who's disabled after age 50 may actually need to work up to 10 years in order to
be fully insured, so that would argue for shortening that time period. This is
only one example. We would be glad to work with the committee as you consider
such proposals that would improve the protection afforded women under Social
Security.
Another issue I would like to discuss is the
Social Security statement. As you know, the statement gives estimates of Social
Security retirement, disability and survivor benefits that workers, and
their families, could be eligible to receive. This statement also provides
information about Social Security's future financing, and it points out changes
that will be needed. It is not easy to communicate complicated financial
information to a diverse public, in a way that is understandable, but Social
Security has worked hard to ensure that the Social Security statement does
that.
During my confirmation process, the issue of this
statement came up time and again -- members from both sides of the aisle asked
about my plans for this statement, and I consistently stated my intention and my
firm belief that I would ensure that the statement serve as a factual document
for use in individual's financial planning in the future. I'm in the process,
now, of reviewing the current statement and I do expect to make some revisions
in content, but I would like, today, to repeat my commitment to ensure that it
is a factual document about how the program operates, how the program is funded
and the level of benefits that the individual receiving the statement can expect
to receive.
Although reasonable people can disagree
about how best to restore Social Security's long term solvency, I do believe
there is clear agreement that benefits of current beneficiaries are to be
preserved and protected. Indeed, in President Bush's Principles for Reform, his
very first principle is that modernization must not change Social Security
benefits for retirees and near retirees. I understand the motivation of many
members of Congress to give current Social Security beneficiaries a reassurance
that they will continue to receive their full benefits, however, I believe I
would not be doing my job as commissioner if I did not raise what I consider to
be valid and real concerns.
For example, would such a
written reassurance be legally binding on future Congresses, and would it
require the government to use general revenue transfers to fill such assurances
when, if in absence of any action of the Congress, the trust funds become
exhausted? Also, I'm concerned about possible unintended consequences, such as
creating undue alarm, particularly among those who are nearing retirement age
but who don't receive a written notice in a given year.
Also as commissioner I must note that sending notices to 46 million
beneficiaries would take millions of dollars from administrative funds that
could be used in other ways, such as processing claims, working
re-determinations, or handling public inquiries. And the experience of Social
Security has shown, that notices actually generate more workload for our field
officers and our toll-free number at a time that we are struggling to deal with
current workloads and maintain a high level of service -- there would be an
extra workload.
Social Security touches the lives of
most Americans. The very range of issues that we are discussing today is really
just one indication of the range of circumstances of those who benefit now from
Social Security and will continue to benefit in the future.
Mr. Chairman, Mr. Matsui, members of the subcommittee, I thank you
again for allowing me this opportunity to testify and I appreciate the
opportunity to discuss the issues we have before us today and I will be happy to
try and answer any questions that any of you may have for me.
REP. SHAW: Commissioner, I'd like to just clear up one thing -- and
that Mr. Matsui talked about it and you touched on it in the latter part of your
remarks. The Republican conference has not taken any position with regard to the
issuing of certificates. There's some members that have come up with the idea,
and it was a point of discussion -- it was never intended to be a major part of
discussion for this particular meeting. I think this particular meeting is
really dealing with major, major things that need to be done that actually will
affect the financial well-being of people on Social Security, particularly
women.
And I would like to also say that if this matter
is going to be brought up on suspension any time in the near future -- nobody's
told me about it and I'm chairman of the subcommittee, so I assume that if that
decision were going to be made or was in process that I would be hopeful, so
we're not spending the administrative funds at this particular point.
You spoke of this, in your remarks, but I think it's very
important that we really underscore, and that is that the president has said
that there shall be not any benefit cuts for those retired or near retirement,
when it comes to Social Security reform. And what is the best way to assure
retirees that their benefits will not be cut, and what is SSA doing to assure
seniors that their benefits are safe?
MS. BARNHART: Mr.
Chairman, I think that is such an important question, and actually I think that
many of the things that you spoke to in your opening statement speak to that. I
think the first thing is, as we pursue this discussion and the debate about
reform for Social Security in the future, it's important that it be factual, as
you and Mr. Matsui said, I think bipartisanship is extremely important and, I
think quite frankly, for all of us on all sides, to refrain from engaging in
volatile rhetoric which sometimes causes alarm among senior citizens and most
definitely current beneficiaries.
I do appreciate your
re-statement of the president's principle -- it was the first of his principles,
that modernization must not change Social Security benefits for retirees or near
retirees, and I would hope that we would continue, as an administration, to make
that a point of constant reminder as this debate and any discussion about the
future of Social Security continues.
Regarding any
other overt-type action in terms of reassuring current retirees, I do think that
the very fact that the Congress deals with, and the administration work
together, work to solve the future financing issues for the Social Security
program, will be reassuring to current beneficiaries, not only for themselves
but also for future generations, for their children and their grandchildren. I
know I'm very fortunate to have both of my parents still with me, as well as my
in-laws. I have a 13-year-old son, and they're much more concerned about what's
going to happen when Niles (sp) retires, than about themselves, right now, and I
do think that if they think he's taken care of, they won't be worrying about
themselves. So I think those are important things.
In
terms of providing some sort of communication, we do put out a cost of living
notice to all of our current retirees and beneficiaries every year and that
might prove to be an appropriate form for some sort of reassurance or language,
but you know, I'd really have to look at that.
REP.
SHAW: You're thinking of your 13-year-old son. I'm thinking of my 13
grandchildren, and I don't think that number's going to keep up with your son's
age as he gets older.
(Laughter.)
But I would like to, I'd like to be able to, working with Mr. Matsui
and others, to extend the president's comments, and that is there will be no
benefit cut for those retirees today or tomorrow. So that your 13 year old son
doesn't, who won't be facing retirement for many years, and my 13 grandkids can
also be assured that they'll have the same Social Security benefits as I will
have, as a person who is nearing age 65.
I think it's
also terribly important for us to recognize -- in 14 years, 14 years from now,
there will not be enough FICA taxes coming in to pay the benefits, and you'll be
coming to the Treasury, with your Treasury bills, and start cashing them in. And
you will need to do this in order to keep pace with the benefits that have to be
paid in Social Security and the Congress is going to have to figure out where
it's going to get the money in order to redeem these Treasury bills, so that you
can, or your successor, will continue to pay those particular benefits.
I know you're not going to be out of Treasury bills for 30
some years, but you can't send Treasury bills to the retirees -- you've got to
send them cash money. And this means, and I look at this as a 14 years -- within
14 years we've got to start planning on how we're going to pay those benefits 14
years from now. And time, time really moves awfully quickly and I'm really
hopeful that we can reach some type of a bipartisan agreement.
This is very similar to when I went through welfare reform -- it
wasn't until we got the Democrats aboard that we were able to pass a bill -- I
chaired that particular committee and we wrote a very good bill, and President
Clinton came aboard, and I think most of the Democrats on this committee came on
aboard, and as a result, it's been one of the most successful programs, most
successful piece of legislation that we had. And it was truly, in the end, it
was truly bipartisan and the American people had confidence in it and it
worked.
The same rule of thumb has got to apply here,
for the Republicans cannot go it alone in drawing up a Social Security Reform
Bill, and the Democrats can't go it alone. We've got to work together to do it.
Not only because we'll get a better product that way, but we'll also have the,
we'll have the confidence of the American people and the seniors that we have
produced a good product, and as you said, we've got to take the political
rhetoric out of it and work together in order to get this done.
Mr. Matsui.
REP. MATSUI: Thank you, very much,
Mr. Chairman. I appreciate your comments, Commissioner, in terms of the whole
issue of the certificates because these are the same concerns that many of my
colleagues and I have been raising about it and so I appreciate it that you
raised the fact that you raised a number of different red flag issues about it
and perhaps that will slow this process down because again, I think that your
observation about unduly alarming the American senior citizen community could be
one consequence of that.
And I do want to congratulate
you as well for being commissioner. We worked together under prior
administrations and we've always -- I've always enjoyed working with you.
MS. BARNHART: Thank you very much.
REP. MATSUI: We're talking about women and senior citizens and
obviously the whole issue of income security. Women make on the average,
unfortunately 70 percent of what the male counterpart makes. Is that correct,
pretty much?
MS. BARNHART: It is true that women make
significantly less than men as a percentage, yes.
REP.
MATSUI: And so over the life time of one journey, women will accumulate less in
one's account if we have privatizing part or all of Social Security. Is that a
generally correct observation in terms of the amount of money accumulated, same
occupation, same income level, same kinds of jobs?
MS.
BARNHART: I --
REP. MATSUI: I know it's hard to tell
but generally I think both people would logically say yes to that --
MS. BARNHART: It is hard to generalize but today women
definitely have less in pensions, they participate to a lower degree in private
pensions. They have 47 percent I think of women who are in private pension
whereas 53 percent of men -- you know -- or the rate of participation in the
pension plans.
REP. MATSUI: It's really astonishing
because when I came to Congress in 1979 women made approximately 60 percent of
what the male counterpart made and now it's only 70 percent so there wasn't much
progress over the last 20 plus years.
Women are on the
average, work 14 years less than their male counterparts. Now that may change
for this coming -- current generation of women but at least historically over
the last 30, 40 years or so because women enter child bearing and child bearing
periods obviously -- women have historically spent more time caring for their
elderly parents, both the husband's and theirs. And so they work on average
about -- at least from a historical pattern 14 years less than their male
counterparts and that also has an impact on the amount of money they would
accumulate from private Social Security accounts. Is that correct?
MS. BARNHART: And it does -- it does also Mr. Matsui with
regard to Social Security today. Although there is some adjustment in terms of
dropping off the lowest five years and in fact some of the proposals, as I
understand it, on the table in terms of women deal specifically with the child
care situation.
REP. MATSUI: Right. So women on the
front end actually work less and they make less than their male counterparts and
so they'll have less in their accounts when they're retiring even though they
may be the same age as their counterpart. Now on the other side of it, women
live approximately six to eight years longer than men on average. Is that
correct?
MS. BARNHART: Actually, my most latest -- the
latest statistics I have on that, anticipating there would be interest that
women right now have -- that women who today are 65 are expected to live 19.1
years and men are expected to live 15.7 years, those are the exact numbers.
REP. MATSUI: So it's about four or five years, but women
do live longer than men on average. Now in terms of women and their -- if you
have private accounts and I know this isn't necessarily an area that you're an
expert on because you're administering the program and it's probably better if
someone from Treasury or perhaps HHS. But when the accounts are accumulated at
the end and you begin to receive your income from those accounts, whether you
annuitize them or not, they're not -- I don't know of any accounts like that
that are indexed for inflation.
Is that correct?
MS. BARNHART: I really -- I would not want to mislead the
committee. I mean, you very correctly say that this is not my main area of
expertise and I'm really not trying to beg the issue with you but really just to
be clear that I really couldn't speak to that. But I would be more than happy to
find out -- I would be happy to respond to any of these things in the record on
behalf of the administration, Mr. Matsui.
REP. MATSUI:
And I appreciate -- no intending on to put -- trying to put you on the spot or
anything like that because I understand your situation. I do know for a fact
because I checked with a lot of insurance companies and actuaries that there's
no such policy that you can convert a trust account made up of private Social
Security accounts and then set those up into an income bearing account that
takes into consideration inflation. It's just too speculative most of these
insurance actuaries say. Because women live longer then the value of their
accounts reduce if their private accounts -- over a period of time their life
more than the average male. Is that correct?
REP. SHAW:
You can answer that.
MS. BARNHART: Well I certainly
understand the basic mathematical concept. I get where you're going with
that.
REP. MATSUI: The only reason I'm raising this is
because this is a hearing on women and there's a lot of my colleagues on the
other side of the other -- even the president talking about privatizing Social
Security and I think we need to come to grips with this issue. We need to talk
about this issue and debate it over the next few months until we actually try to
address this issue from a legislative perspective because women will be hurt by
privatization because they don't work as long as men, they make less than men
and then they obviously they live longer so they wont' -- their accounts will
not obviously sustain it. I mean if they live five years longer at a 4 percent
interest rate, that's a 20 percent reduction in the level of their benefits. And
so these hearings are important because we need to talk about these options that
are being raised. Whether it's privatization or other options that many of my
colleagues are talking about now. And there's no question that privatization
will do significant damage to women in terms of income security and retirement
benefits.
REP. SHAW: Did you want to comment?
MS. BARNHART: I just want to say one thing, just generally
speaking. While I am not an expert on each of the proposals -- and there are
many, many as you know, not only those that the commission has published in its
report but also that members of Congress have put forth. But it is my
understanding that most of the proposals for reform do look at maintaining some
of the -- I guess ought to call equity establishers for women. I can't speak to
the specifics of those but would be happy to provide that kind of analysis for
you for the record if that would be helpful. And many of the things built into
Social Security today, it's my understanding some of the reform proposals would
propose to continue those kinds of --
REP. MATSUI: Let
me talk about that because I analyzed Mr. Armey's proposal at length and he's
been saying that this is a bold approach. The problem with -- and I'm sure
you've looked at that. Mr. Armey's proposal would require, believe it or not, an
infusion of general fund monies into the Social Security fund of $20 trillion
over the next 75 years. $20 trillion -- I mean it's mind boggling. I told that
to Mr. Gephardt this morning and he didn't believe me.
And also would require the Social Security Trust Account to actually
borrow from the so-called private accounts and how they get set up it's a
wonder, about $21 trillion. And so I don't know -- maybe it is credible. Maybe
some folks think that that's credible because we're running the deficit now,
we're not running surpluses and even when we had surpluses it wasn't in the
trillions -- $20 trillion. And so -- you know, these proposals are fine by
someone's going to have to tell me how we're going to pay for them because it's
wonderful -- Mr. Shaw has a proposal that it cost $8 trillion --
REP. SHAW: That's not quite the deal.
REP.
MATSUI -- $3.6 trillion plus loss of interest because it will be borrowing from
the equity markets and so someone has to tell us how we're going to pay it.
That's why we need to bring those bills to the floor and vote on them instead of
just talking about them. We need to actually vote on these pieces of legislation
-- the president's proposal is three different plans that came from his
commission. All of them require significant cuts, 46 percent cuts in some
benefits and one -- Plan 2, infusion of $6 trillion worth of general fund
monies. These aren't credible plans and that's why when we talk about them we
have to talk about them with some skepticism.
MS.
BARNHART: If I may just make one point of clarification, and that is the
commission reports -- the commission proposals as I understand the situation are
that there are three approaches the commission has put out was possible ways to
approach it.
At this point where I sit, I don't see
those as the president's plans specifically. He has, to your point Mr. Matsui --
you've laid out six principles for reform that do include the establishment of
voluntary personal accounts and that these commission approaches are various to
get there but I look forward, frankly, to providing whatever expertise we can
from the Social Security Administration, from our actuaries. And as you know,
the actuaries do analysis of legislation for you, others members and as well as
for the commission. I was actually in fact at a very lengthy analysis which is
included in the appendix in the commission report that speaks to some of the
issues you've raised here today in terms of the long term financing
implications.
But I look forward to being a part of --
providing whatever kind of expertise we can to inform that discussion and debate
as we move forward to resolve the situation.
REP.
MATSUI: If I may -- I'm sorry, Mr. Chairman.
REP. SHAW:
Well, I've already let you go over five minutes.
REP.
MATSUI: But then you're saying if the chairman -- I mean if the president is not
embracing these plans then does he have any other plan to speak of?
MS. BARNHART: Well, again, from where I sit, Mr. Matsui,
my understanding is the commission laid out the three different approaches --
there are three different models, I guess, as they call them. They suggest these
are possible approaches that could be used and have called for a year of debate
and discussion, and my impression is, that's what we're doing now. We're
starting the debate and discussion -- there are going to be -- there are a whole
range of proposals, including the one from the chairman and, you know, others
that will be looked at and discussed and that at this point in time the
administration doesn't have a specific plan.
REP.
MATSUI: Okay.
MS. BARNHART: That's the clarification I
wanted to make.
REP. MATSUI: That's extremely helpful
and I really appreciate that because I've been criticized for not having a plan
and the president does have one, and so obviously he doesn't have one and I
don't have one, so we're equal.
REP. SHAW: I do.
REP. MATSUI: Thank you.
REP.
SHAW: And I would welcome, welcome you aboard. I do want to point out that the
commission did recommend increasing benefits to widows, increasing minimum
benefits and providing, or accounts to be equally divided between the spouses
upon divorce. The bill that I have out there, which is out there for discussion,
and I would welcome such discussion, it does increase the women's benefits and
it does protect against all risk and it does guarantee, as much as Congress can
guarantee, that the benefits will remain the same. And it does not in any way
trust the privatized Social Security -- in fact it leaves it totally in tact, in
its existing state, and we simply add on a added segment to it.
To do nothing and to be without a plan means that the benefits are
going to be reduced by over 30 percent, or the taxes are going to have to be
increased and run a deficit of well over $20 trillion, so I think the math is
very simple.
Do you spend three, a little over three,
to solve the problem over a long period of time, or do you go in deficit over
$21 trillion -- such deficit would really bring our economy down -- or do you
reduce the benefits? I am totally against reducing the benefits when I know we
can solve the problem.
The simple math is there. We
have -- we had when Social Security started 40 workers per retiree; now we're
down to a little over three, before long it's going to be over two. You cannot
sustain a pay-as- you-go system with two workers per retiree, it's that simple.
Other countries are facing the problem and I hope we do too.
Mr. Johnson. And by the way, I am -- I was very lenient with the
ranking member, I let him go twice the allotted time. But I am going to increase
the five minute rule from this point forward.
REP. SAM
JOHNSON (R-TX): You don't want to start it over -- it's already gone?
REP. SHAW: Yes, well, we'll --I'm going to add -- I'll add
your 15 seconds back on.
(Laughter.)
REP. JOHNSON: It's alright. I was glad to hear your mortality take on
men and women -- I just saw my doc, he said I was going to live to be a 100 -- I
can hardly wait to get there. You know, you guys are going to really have to
foot the bill in Social Security.
You know, back in
1977, Congress created pension upsets. I hear more about that from women in my
district than anything else, and the windfall elimination provision. I think
they became effective in 1983 and obviously it's to prevent individuals who have
a pension earned outside of Social Security to benefit from the high replacement
rates meant for low incomes.
It's a static formula, in
my view, and I don't think it's treating people right to make that offset. I
wonder if you would comment on that one, and, two, can we work with you to fix
it?
MS. BARNHART: We would certainly be happy to work
with the committee to resolve any technical issues that, you know, arise from
pursuing this. As I'm sure you know, it has changed over time. Originally the
GPO was 100 percent, now it's two-thirds , and it may well be time to take a
look at that and, you know, we would be happy to provide what ever information
we can, as you consider that provision.
REP. JOHNSON:
Are you all looking at anything in that regard?
MS.
BARNHART: At the current time we are looking at a number of different proposals
but we don't have any particular package we're putting forward because we really
believe that anything we do that would have a vast affect on the cost of Social
Security substantial affect needs to be done in the context of reform. And I do
think, you know, includes the provisions for women as well as anyone else that
we would look at -- changes for the future.
We already
have a situation, as has been pointed out, where the trust funds will be
exhausted in 2038 -- we actually have to begin to call up the bonds in 2016, and
so adding to that long term financial liability, at this point, without
considering the context of the reform is something we'd rather not do. For some
of the lower cost things, and this one -- I guess the estimated cost for past
legislation you all considered, or at least, has been introduced, was $9 billion
over five years. That's, I think that's one we would want to up date -- we'd
want to work with you in providing, you know, cost estimates and talk about --
what the implications for the future.
REP. JOHNSON:
Well, do you think it's fair for a woman, who works in another job and earns a
retirement and pays into Social Security and considers that a retirement, for
her to lose some of her Social Security just because she worked in another
job?
MS. BARNHART: I think that really, looking back to
the intent of the proposal when it was first enacted, it, the idea was to treat
people who worked in non-covered employment comparably to those who worked in
covered employment, and as I say, there have been changes made over time. It's
my understanding, when Congress originally did it -- enacted the offset it was
100 percent, then years later took a look at it and decided that two-thirds of
the Social Security benefit was equal to approximately what the government
pension was, which is the reason that was selected, and so it may well be time
to take a look at that and update those figures.
REP.
JOHNSON: But you didn't answer my question: Do you think it's fair?
MS. BARNHART: Well, you know, it's interesting, because
I've asked similar questions myself, in all candor, talking with my staff, as we
look at some of these provisions -- just trying to understand the motivation for
-- what the original passage, and how we continue with them and so forth. And, I
think cases can be made on both sides, quite frankly, because you can also have
a situation where someone works just the minimum amount they need to in order to
be eligible for a Social Security benefit to augment and that's like where the
WEP, or the Windfall Elimination Provision comes into place. So I do think we
have to look at establishing a balance.
I mean, I think
America's founded on the principle, that, you know, if you work, you know, you
should be rewarded according to the work that you're doing and you should reap
the, you know, the benefits of that work. And from that standpoint, I understand
your concern, about, if you're working shouldn't you get it, but at the same
time, I think we have to look at it from the standpoint of the, you know, the
windfall side as well.
So I think, one of the things
that I've learned over the years, Mr. Johnson, is there is absolutely nothing in
Social Security that is simple and straight forward and not complex, and I'd be
happy to work with you and your staff in sorting out some of these issues.
REP. JOHNSON: Thank you, ma'am. Thank you, Mr.
Chairman.
REP. SHAW: Mr. Lewis?
REP. RON LEWIS (R-KY): Yes, commissioner, the Social Security statement
that's being sent out now -- you mention that there may be some revisions to
that statement. What kind of revisions are you talking about?
MS. BARNHART: Well, specifically -- I've been looking at the statement
myself and working on the statement, and we're not talking major, major changes.
Let me just start by saying that.
The kinds of changes
I'm looking at range from everything from taking the table of contents, which is
in the lower right hand corner and moving that up where people can see it
easier, and referencing the fact that it says -- it says, 'see what's inside,'
right now, with a little arrow -- I want to have, 'see what's inside,' then put,
'your personal information,' you know, your individual information -- something
that makes people want to open that statement up and look in it and realize that
it has things that are specific, specifically relevant to them.
I also -- looking at some of the charts that we present in there, in
terms of the benefits that can be expected -- I do think that it's important to
say, 'under current law,' that those are the benefits that would be available
under current law. So that people are aware of that.
And that -- one of the other things, is there's -- it's kind of hard to
describe it -- when you open it up, there's a table on the right, and right now
there's a paragraph where the information related to the fact that Social
Security is more than just a retirement program, but is in fact, a
disability program as well as a survivor program -- I've bulleted that
out so that that pops out a little more and makes it clear as opposed to just
kind of all being fuzzed up in one paragraph.
And the
final thing is the statement right now includes language that describes the
financing situation as we look to the future about 2016, about 2038 and
obviously that's updated depending on the trustees reports every year. And I'm
looking at trying to make that clearer. I will tell you I read that -- I tried
to read the statement from the standpoint of an average person who does not live
inside the beltway and does not come to hearings like this and engage in these
types of discussions and say, "Would I really understand what this is telling
me?" Because I do think it's people who understand.
At
the same time I'm being very careful to make sure that I'm not engaging in any
kind of rhetoric that would alarm people, unduly alarm people because I do think
we have a real responsibility, in particular as commissioner of Social Security
I have a real responsibility in anything I send out that my name is signed to,
to make it factual, to make it to the point, to sort of reassure appropriately
and not alarm unduly people.
REP. LEWIS: One of the
things that I find traveling through the district to town hall meetings and so
forth, that a lot of the recipients, they don't understand how the system works.
They don't understand it's a pay as you go. They think they're paying into a
retirement fund that's their fund, it's their account and they're going to be
paid back out of that account. And they don't understand that the reason Social
Security is in jeopardy is because we don't have 14 people paying into the
program now, we only have three, and that's diminishing very quickly. So I
wonder if there's any -- if there's been a polling or any information derived
from recipients about how much they understand how the program works.
MS. BARNHART: We do have -- there is an annual performance
survey that is done, it's called Public Understanding Measurement System. I've
been in this job about 11 weeks now. I was on the Social Security Advisory Board
coming in but I still want to clarify I'm still learning about everything in
detail.
REP. LEWIS: Sure.
MS.
BARNHART: The PUM system does a questionnaire of a statistically valid number of
individuals in 52 different jurisdictions and it asks, I think, 14 questions,
and if the individuals answer eight of the 14 questions correctly then it's
considered that understand about Social Security. I will tell you, being
perfectly honest about the situation, I've started to look at that as a
measurement because I'm not sure that the 14 questions really get at the
intricacies and the issues related to Social Security. And I've actually asked
my staff to take a look at whether or not we should not augment those to some
extent by doing a longer survey with a nationally valid statistical sample that
would allow us to probe issues a little more deeply, because, quite frankly,
I've had similar reactions that you have where individuals -- I've actually
received calls since I was commission with people asking me when they were going
to get the check for their husband's remaining Social Security or their father's
remaining Social Security because they died shortly after they retired. And I
had to explain to them that that was not going to be the case other than the
$255 death benefit. So I understand exactly what you're talking about.
REP. LEWIS: Thank you.
REP. SHAW:
It would be interested to send that questionnaire to Congress and see how many
of us get it right.
(Laughter.)
Mr. Doggett.
REP. LLOYD DOGGETT (D-TX): Thank
you, Mr. Chairman.
And thank you, Commissioner. I think
there's no doubt that even in your relatively brief service that you are already
having a big impact. When the House Majority leader, the leader of all of our
Republican colleagues here, comes out in favor of this political gimmick of
sending out the certificate to all of those currently receiving Social Security,
and it's pretty clear from all the discussions here that there's going to be a
major effort to force that through the House, perhaps even without an
opportunity for us to offer an amendment or discuss it for more than 20 minutes
a side, I have no doubt that your candid comments suggesting the problems
associated with that certificate filed in your written testimony and repeated
again this morning, contribute to what is obviously a backing down on advancing
that very ill advised proposal. But I do want to center not on Mr. Armey's
history going back to 1984 at least of antagonism to Social Security of which
this is only the most recent chapter, this whole certificate idea, on one word
that you mentioned that comes up again and again. It's come up in questions on
both sides this morning, and that is the word alarm. You indicate in your
testimony that one of your concerns about this ill advised certificate gimmick
is it would create undue alarm among those nearing retirement who do not receive
such a notice. As I understand it, the Armey proposal would only have sent the
certificates to the people who get a Social Security check now, not someone who
is 61 or 60 or as young as I am at 55, who might be nearing the point of being
eligible for Social Security but not actually receiving a check now. Is that
your understanding of the proposal?
MS. BARNHART: That
is my understanding of the proposal as introduced, yes.
REP. DOGGETT: And so it would have provided no guarantee, even as
meaningless as the guarantee might have been, to the 60-year-old, the
61-year-old, the 55-year-old. But in focusing on the matter of undue alarm, I
want to refer you back to that part of your testimony that refers to the first
principle for reform of the Bush program which is that there is no goal to
change Social Security benefits for retirees and near retirees. Now, Secretary
Thompson has told this committee in response to questions I asked him that the
near retirees mean people about my age and older -- people that are 55 and
older, maybe you go as low as the lower 50s.
Under the
president's principle of reform, he is offering no guarantee of Social Security
benefits to anyone not my age. In other words, if you're someone who has been
paying in as a worker to Social Security for 20 or 30 years but you don't get up
to the near retiree level, under the principles that the president has
announced, there is no guarantee whatsoever that you will continue to get your
Social Security benefits. In fact, I believe the guarantee is that you will see
your benefits cut under those proposals. If you can put the chart back up. I
think the chart showing the problems with the reversal in our progress toward
paying down the debt is troubling enough, but one of the specifics that I wanted
to ask you about that Mitch Daniels confirmed to our committee in his testimony,
is that the president's budget has not included a dollar -- as troubling as it
is, with the deficits as big as they're projected to be, it has not included one
dollar for the transition cost of moving to a private system, has it, the budget
that we have up before us this year?
MS. BARNHART:
Well, my understanding, quite frankly as I said to Mr. Matsui earlier, is that
at this point, the administration, the president's put forth his principles for
reform. There is no specific proposal.
REP. DOGGETT:
Right. He doesn't pick which of the three horses he'll run with -- probably as
the system, but under all three of them, the transition cost over 10 years had
been estimated at somewhere around a trillion dollars. And when you look at
those charts, Mr. Matsui as usual, has taken a fairly conservative approach and
he has not included the additional trillion dollars of red that will result from
transitioning to any of these proposals. I understand that the president does
not want to pick his plan until after the Fall elections are over, rather than
debating it in advance, but we're talking about a plan under any of these, or
under Mr. Shaw's approach, that involves significant transition costs that are
going to add even more to that red line and I can't believe, whether you add
those transition costs or you stick just with the conservative chart Mr. Matsui
has up there, that our ability to preserve and protect Social Security for your
13 year old grandchild is strengthened by that kind of approach to deficit
spending and not reducing the debt.
Thank you.
REP. SHAW: The time of the gentleman has expired. You know
it's interesting to look at that chart. I think you know, you probably -- I
can't dispute the accuracy of it, but it would certainly be more interesting if
you put under it when the Democrat had control of the spending and when the
Republicans had control of the spending.
Mr.
Hayworth.
REP. HAYWORTH: Mr. Chairman, I thank you.
I thank you for that and --
REP.
SHAW: Remove the chart.
REP. HAYWORTH: Especially given
-- you know, it's kind of interesting to hear the commissioner talk about the
effort to reduce incendiary rhetoric and I know that some of us here, from time
to time, get a bit impassioned but it is interesting to see the incendiary
rhetoric transferred to the heading of the audio visuals our friends offered.
I listen with interest to my friends from Texas and from
California and what's interesting I think, needs amplification and
repetition.
My friend, the ranking member, after going
through what he believed to be the deficiencies of the observations and
principles the White House has offered, made it clear that he had no plan. My
friend from Texas, again hypercritical of the principles, made it clear there
was no plan. And look, I think we all enjoy debates and rhetorical one-
upmanship and we can do that, and indeed there are forums on television to do
that. We're here in committee today, and perhaps it would be appropriate to try
and resist the temptation of street theater and actually try to work together to
solve the problem.
Someone one said, isn't it a shame
that youth is wasted on the young. I guess we could offer the same observation,
isn't it a shame that policy is always predicated on politics and yet in a free
society. Admittedly imperfect, but noble in its intended freedom, there are the
inevitable observations. So perhaps it would be nice, and again, Mr. Chairman,
just to point out as you touched on it when you as the chairman of this
subcommittee and the previous chairman of the Ways and Means Committee, Mr.
Archer of Texas, provided a plan, we reached out to our friends across the
aisle, far from the roar of the greasepaint, the smell of the crowd, we sat down
and went over some detailed plans and legislation. So plans are there and it
would be nice if the minority would proffer a plan so that we can discuss and
find consensus to the questions today.
Commissioner
Barnhart, thank you for coming and offering your points of view. We appreciate
your efforts. And my friend from Texas, Mr. Johnson. I touched on the challenges
that some women face, indeed talked about the challenges of pinching offsets as
we deal with the changing roles of women in society and the changing needs of
retirement. Are there changes that can be made for the better, affecting women,
that may not have an astronomical cost? Is there some low hanging fruit and some
policy initiatives that we ought to study that can be of immediate assistance to
women?
MS. BARNHART: I think there are at least a few
things. I could give you couple of examples. One is, right now, we have a
provision that requires that after a divorce a divorced spouse must wait for two
years in order to be eligible for benefits. And in cases where the ex spouse
remarries within that two year period, if -- the purpose of that two year wait,
by the way, was to make sure that people were not engaging in these so-called
sham marriages that were divorces actually -- and you know, sadly we do have to
take care and watch for those situations. But in the case where the other spouse
actually remarries, it's quite clear it's not a sham divorce because they
obviously aren't going to get married again. They've married someone else. I
think that's an example of one of the things that we could do.
Right now, a disabled widow must be at least 50 to apply for benefits.
Well there's nothing magic about 50 being the age at which one can become
disabled. So I do think, you know, you can obviously become disabled at a
younger age and I think, certainly as we look to the baby boom population and
the disability roles are expected to increase -- or you know applications
for disability -- 30 percent in the coming decades. So I think that is
one that we probably need to take a look at. And we have some examples -- those
are a couple. There are some items like that, that have so called negligible or
relatively very low cost, but I think if the committee is so inclined, we could
work with you, in terms of moving forward.
REP.
HAYWORTH: Well, Commissioner Barnhart, I think that's very encouraging and let
the record show, and again even given where we are on the calendar, and the
inherent temptation to play up differences, to put it diplomatically, maybe we
can work in this fashion, in a non- partisan way, to say okay, here are some
common sense measures where we can find common ground and move immediately to
make improvements. It's in that spirit I look forward to working with you, and
to my colleagues to my left.
Thank you, and thank you,
Mr. Chairman.
REP. SHAW: Thank you.
Mr. Becerra.
REP. BECERRA: Thank you, Mr.
Chairman, and Commissioner Barnhart, thank you very much. Congratulations by the
way --
MS. BARNHART: Thank you very much.
REP. BECERRA: -- and good luck to you as you continue
forward. And please know that we are very much looking forward to working with
you, as you move forward.
MS. BARNHART: I appreciate
that.
REP. BECERRA : I want to first complement you on
your responses to some of the questions because they are difficult questions
that are being asked and sometimes it's not a clear black and white answer and
it's tough. And we're probably going to put you on the spot on occasion, because
we're on the spot as well and we're trying to find what the correct answer is,
so we appreciate your efforts to try to give us as straight an answer as you
can, and also one that's also consistent with where we need to go in Social
Security.
Let me ask you a bit about the Social
Security statement -- contribution statement. You mentioned that you wanted to
make sure that whatever information was conveyed was factual. Please comment on
the following. As far as I can tell, other than the contributions history of a
worker, is there anything else that you could tell me that would be factual
information, with complete certainty. In other words, other than what they've
already given, can we tell them something else that would be 100 percent
factual.
MS. BARNHART: You make a good point. We do
include their earnings record actually. And that is very -- that is actually one
of the primary function of the statement. I think that's so important that you
point that out, because really, it's for people to make adjustments. To look at
it and say, these are not the right earnings.
REP.
BECERRA: And that would be -- an employee may argue that you didn't claim or
count a particular year's worth of work, or something else, but we'll know if
indeed that was there because factually we can determine that?
MS. BARNHART: Right. And we can make that adjustment prior to
retirement, which you know, simply speeds up benefits you know, on the backhand
so to speak.
We also provide information about the
status of the trust funds and so I think that needs to be factual, and it is
now. As I've said, I'm just attempting to make it clear, easier to understand,
because it's very tricky describing, you know when interest is going to be used
and when you know, trust funds will be exhausted, and those kinds of things.
REP. BECERRA: Let me stop you on that. When you say the
status of the fund -- the trust fund, you're again talking about what we know
has come in. Where you're talking about hard and fast numbers, factual numbers.
You're not talking about speculation here, that we're expecting these amounts to
come in. We're expecting to have 130 million workers who will contribute, on
average, this amount. You're talking about what did come in from the number of
workers that we did have?
MS. BARNHART: We're actually
talking about based on the actuary's report or the trustees report. That's what
we're talking about, which becomes basically, the definitive document put
together, you know, largely by our actuarial staff and has been extremely
accurate over the years because I've asked actually, to look at a 25 and 50 year
history of that and they do, you know, a superb job of that. It's updated every
year as you know. And then we do put what your expected benefits -- you know,
what you could expect your benefits to be. And that's the place where I thought
that I needed to footnote that and say under the current law, basically, these
are your benefits because that's the fact and that's what you're speaking to. I
don't want to put a lot of information in the statement. It requires so many
caveats that it confuses people even further. I want to put what people will be
interested in -- someone is going to be interested in knowing, I think, when
they're making Social Security contributions as how much they're contributing,
what wages it's based on and what they think they're going to get.
REP. BECERRA: Based on their past work experience --
MS. BARNHART: That's right.
REP.
BECERRA: It's a projection based on their past work experience.
MS. BARNHART: That's right. That's what we do. That's exactly right
because we have to flat line out from the current year to the future because we
have no basis for assuming that they're going to make more or less.
REP. BECERRA: Ten years ago, when I got here, we were
being told that the Social Security Trust Fund would be completely exhausted by
about the year 2030 or so, 2032. A few years later, with the economy beginning
to churn, we were told 2034 and then we were given a different estimate a year
or two later of 2035. And now we're told it's 2037 or so. All those estimates
are changing because of different economic conditions. So if we were to put in a
statement you can expect to receive X amount, we're only giving them an
expectation. It's not a factual piece of information. You're giving them a
projection based on your best actuarial guess --
MS.
BARNHART: And based on current law.
REP. BECERRA: --
and, as you said, you don't want to alarm seniors and I think, most seniors who
aren't within the Beltway here at these hearings probably would not understand
how one year, the Social Security Trust Fund is going to last until 2030 and
another year, it's going to last until 2037 and what does that mean for their
benefits. And having said that, can you give me a sense if you agree with the
previous statements made by the Social Security administration, I think, two
years ago when they were here before us testifying on making changes to the
Social Security statement, where they agreed with the General Accounting Office
or the auditing and inspection arm of Congress, where they also said that there
was no need to make changes to the Social Security statement.
MS. BARNHART: Actually, the General Accounting Office -- and my
understanding was -- and I was on the board of the Social Security Advice Board
at that time -- my understanding was that the GAO, in fact, did tell Social
Security they did need to make the statement simpler than they made in the
beginning. They worked to do that and believe me, that is the primary principle
for me. A factual, simple, easy to understand and the information related to the
trust funds that I'm talking about is in there now. It's just a matter of trying
to put in language that is a little easier to understand. One of the things I
should explain is I do think it's important too to construct the statement in
such a way so, when there are changes, when the trustee report comes out, that
those dates, if they change, may be inserted in there. In other words, we don't
put out all statements once a year, I mean, at one time. We put out statements
on a rolling basis approximately three months before the person's birthday. So
we have opportunities throughout the year to update, if we get better numbers,
you know, if we get something that's more -- for example, the trustee report
comes out in March. If it's made changes --
REP.
BECERRA: So my statement may look different some other one's statement and we'll
have to figure out why it is that they are different projections.
MS. BARNHART: That's right. But next year, hopefully, when
you get the statement -- that's why people call -- I don't know if you were in
the room when I made the comment that one of the issues about any notice we put
out is that it really increases our workload because people call the 800 number.
We estimate that every time we put out a notice, all the beneficiaries, it
increases -- well, we get about a quarter of a million more phone calls in the
weeks immediately following the notice which adds substantially to our workload
precisely for the reasons -- you know, as an example that you're bringing up
now, and then we answer those questions that our Teleservice Center
representatives -- when we put out a notice, they get something that says,
"That's what we put out. So when people call in, you'll understand." Because
that does happen. That absolutely happens.
REP.
BECERRA: Thank you and good luck.
Thank you, Mr.
Chairman.
REP. SHAW: The gentleman's time has expired.
Mr. Collins.
REP. MAC COLLINS (R-GA): Thank you, Mr.
Chairman and thank you, Commissioner. Pleasure to hear you today and have you
here. I'm reminded, as I hear a lot of talk here today about the comment that
the former commissioner, Mr. Appel (ph) made at the president's summit on Social
Security, several years ago, probably four of five years ago. When he referred
to the theme -- to the matter of trust -- and it is a matter of trust, a matter
of lack of trust. People have a lack of trust in the Congress and it's about
time, in the administration, to actually address problems that will be facing
Social Security in the future and some of the problems they face already. And
until we stop some of the rhetoric, we'll never be able to gain that trust well
enough to actually address the situation.
Some of the
rhetoric we always hear is that the Congress, particularly the Republicans, in
their budgetary process and in their funding and in their tax provisions, are
spending the Social Security trust funds. Nothing could be farther from the
truth. As those dollars come in through the payroll taxes, they are credited to
the Social Security trust funds. Now you can either leave those funds laying
dormant or you can, at the wisdom of the Congress few years back, invest those
to enter interest-bearing accounts and that's what happens. We invest them into
government securities, probably the most responsible security in the world that
you can invest in because there's people all over the world that invest in our
securities, so that it can draw interest and increase the amount of funds that
are in the trust fund. And as the benefits are structured -- under the
structures, the benefits come due and needed, securities are redeemed and
payments are made. The problem is that we all know that within the next fifteen
years, we will reach a peak in income versus outgoing or cash flow and we will
go into a deficit cash flow, meaning we will be redeeming more securities than
we have funds coming in through the cash flow.
As I
talk to people at home -- and I love to talk to seniors about Social Security. I
go looking for them. I don't run from the issue and I never have. I've been in
the Congress -- this is my tenth year. I've been on this committee since -- I've
been on Ways and means since '95. When I first came on it though, one really
wanted to be on it because it wasn't a sexy committee then. But now that we're
getting into the situation of the trust funds, and the rhetoric over the trust
funds and the problems that Social Security faces, it is a fun committee and
it's one that I, as I told President Clinton several years ago, one that I'm
very interested in because Social Security is my old age pension. I do not
belong to a pension program. I have an IRA, and based on the decline in the
market, it's worth about 40 percent of what it was two years ago because I get
faith if we can get some people in this town to listen to us and build this
economy back, it will more than flourish.
What I tell
people and explain to them, the real problem we're facing with cash flow is
today, we have 3.3 workers to one beneficiary. As we move forward over the next
three decades, that's going to change. It will be 2 workers for every
beneficiary. I joke with the young people when they're in the audience with some
seniors and tell them, "Be prepared. I'm going to move in with you in a few
years, because you and your wife will be responsible for me." Jokingly, a young
man said, "You're a good babysitter?" I said, "No, I'll be your baby." Because,
as I talk to people, I tell them too there are three age groups that we must
look at as we move forward with reform and reform will have to happen.
One, those who are current beneficiaries. Nothing will
happen to their benefits. They're guaranteed by law, the Social Security laws
and entitlements. Then there's my generation -- 57, getting close -- hope I'll
make it. There will be no change for my generation. If there is, it will be my
option. But I doubt there'll even be an option, so that we don't frighten people
of my generation. Then there's the generation behind me, the third age group
that we have to look to and develop a plan that will be a viable plan for them.
And that's the reason it's so important that we lay down the rhetoric and
develop a trust, a trust among ourselves that we can actually openly talk about
Social Security, talk about Medicare. As I say, I don't run from either one. I
go looking for people to talk to them about it, about both. But until we
establish that trust, we will not be able to address the issue.
Transition calls. Yes, there will be. That's why it's so important, the
sooner we do this, the sooner we put together a program, a viable Social
Security program and know the cost, the better off we will be. Certificate of
guarantee, we don't need that. The guarantee's in the law today.
The guarantee's in the Congress, in the willingness to work together,
to establish trust -- establish trust among the people and move forward with
reform that will work.
Thank you for your work.
MS. BARNHART: Thank you.
REP.
SHAW: And Commissioner, thank you very much, for spending this time with us
today. I think you have testified before other committees of Congress. I think
we behaved ourselves rather well on your maiden voyage before this committee. We
appreciate it and we certainly look forward to tapping into your resources, your
knowledge of Social Security, and your background, in order to try to save
Social Security, not only to improve it for women and today's beneficiaries, but
also to try to extend it so your 13 year old boy and my 13 grandkids will enjoy
the benefits of that. And I also -- I wouldn't want Mr. Collins moving in with
me.
(Laughter.)
And my kids
don't want me moving in with them, I can assure you of that. Thank you very much
for being with us. It's an honor to have you.
MS.
BARNHART: Thank you. Thank you, Mr. Chairman and Mr. Matsui. I've always enjoyed
my appearances at the committee and I particularly look forward to working with
the committee in my new capacity as commissioner.
Thank
you.
REP. SHAW: Thank you.
Right, the next panel. We do have a panel. It's a rather large panel.
Anna Janis who is a member of the United Seniors Association. Frank Atwater, who
is President of the National Association of Retired Federal Employees. Niesha
Wolfe, who is a member and owner of the Women Impacting Public Policy, Oklahoma
City, Oklahoma. Hans Riemer, who is a Senior Policy Advisor of the Institute for
America's Future. Nancy Pfotenhauer, who is the President and Chief Executive
Officer, Independent Women's Forum. Joan Entmacher, who is the Vice President
and Director of Family Economic Security, National Women's Law Center and David
John, who is a Senior Policy Analyst at the Heritage Foundation.
Welcome. Welcome, all of you. You may proceed as you see fit. Anyone
whose name I have mispronounced, you can correct it. It will appear correctly in
the record. We have your written statement, you may proceed as you see fit.
Because of the time problems that we have at this particular time, I am going to
strictly enforce the rule, so brevity is appreciated.
Ms. Janis, you've got us -- you've got me reading right to left.
MS. ANNA JANIS: Sorry.
I would
like to begin by thanking you, Mr. Chairman, on holding a hearing on the ways to
improve Social Security for women, seniors and working Americans. As a national
grass root leader of the United Seniors Association, I commend you for your
energetic constant support in strengthening Social Security. I encourage you in
your leadership, as Congress considers ways to improve and strengthen Social
Security for seniors, our children and our grandchildren. United Seniors
Association stands for uniting the generations for America's youth future.
My name is Anna Janis. I am retired and I live in
Louisville, Colorado. Mr. Chairman, I am deeply concerned about the future of
Social Security after 2016. I rely on my Social Security for 67 percent of my
income. The remaining 33 percent is derived from certificate of deposit
interest. Since I am in the 65 plus age group, I may not see the day when Social
Security pays out more than it makes -- than it takes in. However, I am still
concerned about its consequences for my retirement, not only for the financial
loss, but also the loss of freedom, independence and control of my destiny.
I must admit, that I did not think about Social Security
and retirement until I was forced to do so at the age of 51. I am like millions
of women who face similar or worse situations. It was necessary for me to enter
the job market for the next 14 years until retirement, and assume the obligation
of a daughter entering college and a son entering high school. I realized I
could meet this commitment and plan for my retirement, because the Social
Security system was well funded.
Widows and widowers do
face a dilemma. Under any fair and rational system, a person who dies after
years of contributing to the system would still receive substantial benefits but
the current Social Security system takes just the opposite approach. The death
benefits are not enough to even pay for funeral expenses and then, in some
cases, there are limited survivors' benefits. My experience has made me very
passionate to preserve Social Security, especially to have some peace of mind,
that I can count on receiving my Social Security check in the future. The need
is urgent and must be addressed immediately. I know that comprehensive reform is
going to take some time and should not be rushed into hastily.
However, I believe it is time for Congress to give seniors the peace of
mind they deserve by giving a written guarantee for their Social Security
benefits. Such a guarantee would reassure beneficiaries without making more
meaningful reform of the system more difficult or expensive. I am disheartened
that after paying Social Security taxes over my lifetime that I have no legal
right to my benefits. Unfortunately, the United States Supreme Court ruled in
Fleming v Nestor that Americans have no legal right to their Social Security
benefits. I am aware that legislation has been introduced that would provide me
with a written guarantee that nothing will jeopardize my Social Security
benefits not just for me, but for all the seniors so they will know they can
depend on Social Security for their income.
Another
problem is those who get divorced. If a wife chooses to be a homemaker, she only
qualifies for Social Security if she is married 10 years to a husband who has
qualified. While this may have made some sense at one time, it makes no sense
today when so many marriages end in divorce. I have heard that the average
marriage only lasts about seven years, three years short of the ten required to
qualify for Social Security. Suppose a young woman gets married shortly after
high school, works as a homemaker for nine years and gets divorced, then she
works for a few years and being young, remarries, but in nine years, divorces
again. She could easily be in her early 40s and still not qualify for Social
Security. If she were to become disabled, she would not qualify for
disability benefits under Social Security. The situation strikes me as
unfair. At the very least, Congress should allow the time a homemaker is married
to a worker paying into Social Security to count towards her qualifying
times.
All of these problems are exacerbated by the
financial crisis facing Social Security. You know that in about 15 years, Social
Security will have to start paying out more than it takes in. That makes a lot
of older workers and seniors nervous. The biggest disservice to seniors is to do
nothing. Facts are facts. Eventually, the trust fund will be exhausted and the
income from payroll taxes will only be enough to cover 73 percent of benefits.
The problem will continue to get worse. There must be a sustainable plan not
only for seniors but for our children and their children. The only proposal that
will ensure that Congress does not raid the Social Security surplus is enactment
of personal retirement accounts.
We must move from the
present debt building system to one that is wealth building. These accounts
could occur in an insurance premium that pay a substantial death benefit than
the low $255 Social Security actually pays. And the account balance would go to
the surviving spouse because he or she would have a private property right to
the money. Contributions could be split between the husband and wife, either at
the time they are made or in the case of a divorce. Splitting the funds means a
homemaker would get her fair share rather than being denigrated to a second
class citizen status. Okay. I just had the conclusion so that's fine.
Thank you, sir.
REP. SHAW: Thank
you.
Mr. Atwater.
MR. FRANK
ATWATER: Mr. Chairman, Mr. Matsui and other members of the panel, I am Frank
Atwater, national president and - got to get this mike over here. Please take
the time off the talk, please -- of the National Association of Retired Federal
Employees, NARFE and I'm testifying today on behalf of NARFE's more than 400,000
members and representing 2.4 million federal retirees.
I would like to first commend you, Chairman Shaw -- who I'm thanking
somewhere here -- for stepping up to the challenge of making serious proposals
for reforming Social Security. Although your bill H.R.3497 is so comprehensive
that there are surely aspects of it that will not be resolved in this Congress.
I do agree that we cannot afford to wait any longer to address some changes
which have considerable support for reform now.
One of
the issues which your bill addresses is the government pension offset of the
GPO. NARFE has long sought this provision of law which has denied many of our
older members the economic dignity they had been led to expect in retirement. I
therefore appreciate your invitation to appear before you today to reiterate
NARFE's support and to urge the subcommittee's immediate action on the GPO and
provisions which would enhance benefits for women and other retirees. When
Social Security was originally enacted, it provided the same benefits to workers
with and without spouses and provided no survival benefits. In 1939, spousal and
survival benefits were added to provide extra protection to workers with
families. But in the past two decades, some spouses and survivors have been
shortchanged on this extra protection.
The GPO went
into effect in 1983. Since then it has affected over 340,000 federal, state and
local retirees. This figure grows by approximately 15,000 each year. The GPO
reduces or eliminates the Social Security's spousal or survival benefits to
which an affected retiree may be eligible. Two-thirds of the monthly government
annuity that a public servant has earned is offset against whatever Social
Security spouse or survivor benefit might be payable. By all accounts the
two-thirds is an arbitrary percentage. As such we believe it can and should be
re-examined and relaxed. Of the approximately 340,000 affected beneficiaries,
about 80 percent receive no benefit at all. But I think it is crucial to
recognize that almost 70 percent of the 340,00 affected beneficiaries are
women.
Mr. Chairman and members of the subcommittee, I
know, as I'm sure many of you do, that the harshness of the current GPO causes
both fears and tears among thousands of older retirees. Fears for their
financial futures and tears of frustration that Congress has not acted to reform
this provision despite widespread support for doing so. There are today several
bills before Congress that would offer relief to the hundreds and thousands of
former teachers, cafeteria workers, postal workers, VA nurses, Social Security
employees and others who work long and hard to help support their families. In
fact, more than 300 members of this Congress have co-sponsored one or more of
the pending bills. The chairman's own Social Security Reform Bill proposes the
current two-thirds offset amount to a one-third offset. My written testimony
cites examples of what this particular change, a one-third offset versus a
two-thirds offset, might make in the monthly income of an affected widow.
In the interests of time, I will not read those two
examples but I can tell you that this change would help many. At a GPO before
this panel on June 27, 2000, a Mrs. Ruth Pickard (ph), a long time NARFE member
and a constituent of yours, Chairman Shaw, was with me. She spoke of raising her
children and working to make ends meet. Twenty- four years with the United
States Postal Service and 24 years in the private sector. She continues to work
today at the age of 75 because she says she cannot afford to stop and she
continues to pay Social Security taxes on her wages, but she will never reap the
benefits of these taxes. The current GPO prevents her from getting any spousal
benefit because two-thirds of the amount of federal annuity totally eliminates
that Social Security benefit. She gets her own benefit, but even that is reduced
by another offset that we heard about this morning, the windfall elimination
provision of the WEP also affects her.
Your proposal,
Mr. Chairman, with the reduction of a two-thirds to one-third GPO could quite
possibly allow her to receive her spousal Social Security benefit which could
provide her with a higher benefit than she currently receives from her own work.
Although not here with me today, Ruth joins me in thanking you, Mr. Chairman,
for realizing the need of GPO reform. Social Security actuaries projected
implementation of a one-third GPO provision which would increase the size of the
actuarial deficit by an amount estimated at .02 percent of the taxable payroll.
The Social Security system has endured and will continue to endure some serious
challenges over the next century. None of us can predict what this program or
what our economy will be like 75 years from now and probably none of us will be
around for that time either. One thing is certain: changes are inevitable. And
since we know that some of us seniors need help right now, I believe that we
must make those changes right now. And in an advisory announcement of this
hearing, Chairman Shaw, you stated information about Social Security benefit's
future is out there. But some question whether such information is sufficient or
widely understood. We should begin now to improve women's benefits, reassure
seniors that their promised benefits are secured and better educate Americans
about Social Security.
On behalf of the some 400,000
members of NARFE, Mr. Chairman, I am offering to assist in the effective
dissemination of factual information about Social Security and provide this
panel, and you sir, with any information that you might need that would help to
take care of the GPO.
Thank you very much, Mr.
Chairman.
REP. SHAW: Is that why you ran over a little
bit, but you were saying nice things about the chairman.
(Laughter.)
MR. ATWATER: Well sir, I had a
couple of more things to say, Mr. Chairman, but I kept seeing you wanting to tap
that.
REP. SHAW: I was tapping it.
MR. ATWATER: Well thank you very much, sir.
REP. SHAW: Ms. Wolfe.
MS. NIESHA WOLFE: If I
say nice things about you, do I get a extra minute also.
(Laughter.)
Good afternoon, Mr. Chairman and
members of the committee. My name is Niesha Wolfe and I'm the owner of a
certified public accounting firm in Kirksville, Tennessee. I'm also a member of
WIPP, Women Impacting Public Policy, and today I'm presenting testimony on
behalf of WIPP's 250,000 members. WIPP is a bipartisan policy organization that
advocates for women in business.
Obviously the stakes
for women in Social Security reform debate are extremely high. As has been said
many times here today, women are more likely to live in poverty during the
retirement years, than men. Sorry guys, but I guess we're definitely going to
live longer than you all are. I remind my husband about that all time. Anyway,
also too, women are comparatively more likely to rely on Social Security to
provide the majority of their retirement income.
Because of time constraints, let me just skip to our proposals and what
we recommend. Education, this has been mentioned here before is just -- it's
kind of a no-brainer. As we visit -- the leaders of WIPP visit with women's
business centers around the country, we realize, like myself, that we are first
generation business owners. And therefore, even though I consider myself learned
in this particular area, I realize that so many women business centers, even
though we are multi tasked, we have not educated ourselves on our retirement and
Social Security so we don't understand it. So education, I think, is very
important.
PRAs, personal retirement accounts, we feel
definitely that we should be allowed some sort of say so over these individually
directed PRAs. We've talked about the cash and balance of Social Security so I
won't hammer that, but we strongly urge personal accounts versus government
direct investment. An account that's modeled after the first savings plan will
protect property rights over personal account balances in the event of divorce,
which we've talked about, and this would result in a level of protection that's
greater than that present in the current system. These accounts are safe and
easy to manage. They should offer three basic investment choices. Stock index
fund, corporate bond fund and a government bond fund. Any of these would allow
the owner to earn more than what the current Social Security system pays on
current taxes.
Thirdly, I can't say this strongly
enough. Personally, I can get involved in this one. We strongly oppose an
increase in the payroll taxes. I'm sure any of you that have owned a business,
or have friends that own businesses, would probably would include everyone in
this room, know that no matter what your bottom line is, you always have to pay
payroll taxes.
And my business also involves helping
people get out of those wonderful dreaded penalties in interest because they're
one, two -- sometimes even a year late on paying their Social Security taxes.
It's an onerous thing. It's something that we all pay. We don't mind paying it.
I think we would be a little bit happier writing that check if we knew we had
some personal responsibility and some decision making over that.
If we increase the FICA tax, I can personally give you a percentage of
my clients that would go out of business. There's no doubt about it. We need to
guarantee a safety net or minimum government benefit for all retirees. Should be
very simple to develop a personal retirement account plan that includes a safety
net with the same guarantee level of retirement benefits that today's Social
Security promises. The big difference, and we've stated this here many times, is
that this reform plan would have assets to meet its obligations. And we've all
read the papers in the last couple of months and we know that doesn't always
happen, that we have assets.
Five, preserve the
benefits of retirees and near retirees. This has been said over and over again.
We know we're facing a crisis and we need to change this so that we have a
savings component of the Social Security system.
Six,
we oppose general revenue transfers which would primarily be income taxes to
Social Security if there are no structural reforms. And last, we do not believe
that the government should invest in the stock market.
We are definitely not advocating getting rid of Social Security. We
believe that Social Security should be preserved so future generations of women
are protected from poverty. A viable Social Security proposal will reduce the
projected growth of tax burdens upon future generations, for your 13 grandkids.
I don't have any yet, hopefully I'll have some soon. So it should protect mine
too.
The proposal structure must be fair and equitable
with a rate of return that enables the total benefits to equal the total tax
contributions.
Thank you so much, for allowing me the
opportunity to present these ideas to your committee. The members of Women
Impacting Public Policy stand ready to support any real structural, meaningful,
reform in the system and hope to work with you in the future.
Thank you.
REP. SHAW: Mr. Riemer.
MR. HANS RIEMER: It's Riemer, sir.
Chairman Shaw and members of the subcommittee, on behalf of the
Institute for America's Future, thank you for the opportunity to testify
today.
The Institute for America's Future is a public
policy organization focused on the needs of America's working families and we
are firmly opposed to privatizing Social Security, America's most important
safety net. Under privatization, a large amount of money would be taken out of
Social Security, in order to set up investments for younger workers. This drain
on Social Security caused by privatization is a dire threat to beneficiaries,
both current and future.
In response to this, the House
leadership would issue a certificate to current beneficiaries pledging that
their benefits will not be cut. But this promise is an empty one and a
misleading one. Much like the promise made to put the Social Security trust fund
in a locked box. Indeed, all Americans have reasons to be suspicious about empty
promises about Social Security from Congress and the administration. So far,
just about every pledge has been broken.
First, the
House leadership has already broken its promise to protect the Social Security
trust fund and the new budget shreds this promise entirely. Without question,
the nation's pressing needs to respond to the attacks of September 11th
reordered our priorities and erased our short term surplus. But the new White
House budget proposes over $600 billion in new tax cuts. One trillion when the
accounting gimmicks are removed. Paid for by draining additional Social Security
surpluses over the next 10 years. In breaking this locked box, the budget now
uses retirement funds to hide mounting debts. An Enron style accounting practice
that must change.
It would be generous to say that the
new budget proposals failed to address the challenge of the baby boom
generation's retirement. In reality, the budget's questionable accounting
practices are setting the country up for a wave of fiscal crises. Second, the
promise to protect benefits for current recipients while privatization drains
the trust fund, does not add up. Privatization would take about one trillion out
of the trust funds over the next 10 years. This money however, is actually the
reserved fund designed to pay benefits for those currently retired and about to
retire. Benefits that are also promised to be protected. It is not possible to
spend that money twice.
Keeping your promise,
therefore, requires large surpluses or new revenues. Neither of which can be
found in the current budget. There's no reason therefore, to take the promise
seriously. Third, the Bush commission proposed very large cuts in Social
Security benefits and a disguised increase in the retirement age. The Bush
commission's recent proposals for Social Security privatization include very
large cuts and guaranteed benefits for today's workers. As much as 40 percent
for future retirees. The commission also proposed to disguise increase in the
retirement age which could delay when workers become eligible for full benefits,
even beyond 70 years old.
The Bush commission cuts in
benefits, it should be noted, affect everyone, even those who do not choose
investment accounts, despite promises that changes would be voluntary. Moreover,
the Bush commission proposals, the same large benefit cuts proposed affect
disability and survivors recipients, despite promises to protect them.
This is truly an ominous precedent for the future.
Fourth, the Enron debacle illustrates the importance of having a strong
safety net in retirement. Investing in private equities is an inherently risky
proposition, and for most it is a necessary one. Very few have access to any
sort of defined benefit plan in the private sector. In such an environment, it
is even more important than ever, to maintain Social Security as a guaranteed
benefit. Workers need a strong safety net to fall back on. As the Enron case so
dramatically illustrates, 401(k)s are vulnerable to substantial losses. If
Social Security were privatized however, the basic level of guaranteed benefit
would not even be enough to keep most workers out of poverty. The appropriate
question for considering the future of Social Security is, what level of
guaranteed benefit is necessary in order to enable workers to maintain a decent
standard of living as they grow old. In my view, that level is what Social
Security currently promises, nothing less. You cannot cut back on Social
Security in order to make room for privatization and still have a system that
promises workers that after a lifetime of hard work, they will be able to live
their quiet years in some dignity.
Fifth, the best
recipe for addressing Social Security is still bipartisan dialogue. As much as
some in the leadership might wish, Social Security reform is unlikely to occur
in a divisive partisan environment. By pushing forward with a narrow agenda, and
using gimmicks such as the guarantee certificates, advocates of privatization
have undermined prospects that all sides will see themselves as participating in
a meaningful policy dialogue. Yet it is not too late for the president and the
leadership in both the House and the Senate, to set aside preconditions and work
towards common agreement. Indeed, that is the only way that we will ever see
meaningful progress towards strengthening Social Security for the future.
Thank you for the opportunity to present my views
today.
MS. NANCY PFOTENHAUER: Good afternoon -- I'm
sorry.
REP. SHAW: Excuse me, I'm going to have to leave
here and I'm going to turn the gavel over to Mr. Hayworth. I just wanted to --
and I'm breaking with my own rules here, but I want to know your definition of
privatization?
MR. RIEMER: Certainly. Privatization is
where money that would normally go into the Social Security trust fund is
invested by workers instead.
REP. SHAW: Okay. You have
no objection if the trust fund is left alone and all the money goes into the
trust fund with the federal government, through refundable tax credit, out of
its own general fund, invested in individual retirement accounts for American
workers, without in any way, disturbing the trust fund.
MR. RIEMER: If the accounts are designed to supplement Social Security,
I'm in favor.
REP. SHAW: You may be surprised sir, but
you agree with me.
(Laughter.)
REP. SHAW: Okay, Ms. --
MS. NANCY PFOTENHAUER:
Pfotenhauer.
REP. SHAW: Pfotenhauer. Thank you, very
much.
MS. PFOTENHAUER: I'm sure.
Good afternoon, Mr. Chairman, distinguished members of the committee.
My name is Nancy Mitchell Pfotenhauer and I'm president of the Independent
Women's Forum. On behalf of IWF, I'd like to thank you for the opportunity to
appear before you today, and for your attention to this very important issue.
As you know by my submitted testimony, I'm an economist by
training with 15 years experience in the U.S. Senate, the White House and the
private sector. My professional, and personal, interest in this issue dates back
to the late 1980s when I worked for Senator William Armstrong, who had chaired a
finance committee bipartisan taskforce, charged with making recommendations to
improve the Social Security system at that time. And while the committee work
engaged my mind it was actually the case work that made its way to me, that
ignited my passion for this issue.
Now you're probably
aware that most Senate DC offices don't deal with very much case work. Most of
it's handled back in the states and it's handled by staff who are closer to the
constituents and closer to the problems. So only the really hard cases filtered
through to the Washington office. And despite a, probably overly broad issue
portfolio, all of the case work that landed on my lap had to do with Social
Security. And all of those cases concerned women.
Now
rarely in my professional career have I felt such a profound combination of
impotency and despair at my inability to do anything to help these women,
despite tremendous efforts by our office, Senator Moynihan's office and the good
people at the Social Security administration, we were powerless to solve their
problems. So I thank you genuinely, for your attention to these issues and your
willingness to do something to mitigate the situation facing our elderly poor,
specifically women.
We're all aware of the sad story
the statistics tell us about the plight of elderly women so in the interest of
time, I won't repeat them here. And as you know, women are financially
disadvantaged under the Social Security system because we tend to work fewer
years, earn less and live longer than men. Married women who sacrificed time
with their families in order to help meet financial needs, are rewarded for this
sacrifice by paying billions of dollars into a Social Security system that will
disproportionately under compensate them because of the dual entitlement rule.
And as a married woman who balances the competing pressures of a full time job
with five children under the age of 14, let me tell you this sounds like a
pretty bad deal.
Women who have to take time out to
care for a child or a sick parent, will suffer because this lowers their overall
earnings upon which benefits are calculated. And if a woman outlives her
husband, as she is likely to do, her overall household benefit will fall
dramatically despite the fact that her overall expenses may not. Any woman who
works outside the home as referenced above, by choice or necessity, loses the
ability to qualify for both the spousal benefit and an individual benefit,
despite the fact that she's earned both. A few things could be done to mitigate
these problems relatively quickly.
Specifically, the
committee should increase widows' benefits from 100 percent of the deceased
worker's benefits to 75 percent of the couple's benefits. We should allow women
with disabilities at any age, to qualify for benefits based on the
deceased worker's earnings. This helps widows with disabilities who may
have insufficient wages to qualify for disability benefits.
Thirdly, we should remove the restriction that forces
women who have already gone through the economic and personal dislocation of a
divorce to wait two years to receive spousal benefits if their spouse remarries.
And finally, we should explore options to mitigate the earnings dip that affects
benefit calculations if a women takes time out of the workforce to care for her
children.
In closing, the Independent Women's Forum
believes that the ultimate answer for women lies in comprehensive reform of the
Social Security system. We do not believe any of the problems articulated above
occurred through any mal intent on the part of the architects of Social Security
as we know it today. As such, we think the safest type of reform will allow
women to earn their own cash nest egg assuming there are safety net provisions
that protect them. However, we think there is a way to help women now and we
applaud the committee for taking such steps.
Thank
you.
REP. HAYWORTH: Thank you for testimony.
Ms. Entmacher.
MS. JOAN
ENTMACHER: Thank you.
I appreciate the opportunity to
testify before you today on behalf of the National Women's Law Center. There are
three issues that were on the agenda for today's hearing. First, the proposals
by some in Congress, to issue certificates to retirees assuring them that their
benefits would be paid. Second, proposals by some other members to send workers
a very different message about what they will get from Social Security. Third,
ways to increase Social Security benefits for women. All of these issues are
intertwined with proposals to privatize Social Security, so my testimony will
discuss that as well.
One of the announced goals for
this hearing is to consider ways of "assuring seniors that promised benefits
will be paid." Unfortunately, instead of considering steps that really would
strengthen Social Security, some members of Congress would focus on proposals to
have the secretary of the treasury issue guarantee certificates to retirees.
Americans, especially women who rely more than men, on Social Security and its
unique protections, are increasingly and justifiably concerned about what the
administration, and some members of Congress, have in mind for Social
Security.
Primarily because of the tax cuts passed last
year, the promise that this House made, right about this time last year, of
saving Social Security reserves to strengthen Social Security, has been broken,
and will be broken. Not just this year, nor next year, but for all the 10 years
in the administration's forecast. Yet the administration, and some members of
this House, not only refuse to consider delaying the parts of last year's tax
cuts that have yet to take effect and benefit only the wealthiest taxpayers, but
are proposing to accelerate those tax cuts, make them permanent and add some new
ones.
The proposals to privatize Social Security, on
top of the tax cuts that have taken up so much of the surplus, poses a double
threat. Privatization doesn't strengthen Social Security, it weakens it by
diverting money needed to pay promised benefits into private accounts. The plans
proposed by the commission appointed by President Bush, to develop a plan to
privatize Social Security, illustrate the risks that privatization poses for
women. If you look at the two plans that at least report to move toward long
term solvency, you see that even if you assume that the large revenue transfers
that are needed are made in those plans, there are very deep cuts in core Social
Security benefits.
Now that we have the actuary's
analysis of those plans we can see in more detail. Under plan two, for those who
retire in 2075, core Social Security benefits for low earners would be cut 34.5
percent.
For medium, high and maximum earners, core
Social Security benefits would be cut 45.9 percent. A few things to note about
those cuts. First, they apply to everyone. Participation in accounts may be
voluntary. Participation in the cuts is mandatory. Point two, everybody means
everybody. The commission said that it would protect the benefits of disabled
workers however the commission acknowledged that these reductions in the benefit
formula would apply to disabled workers as well. If those workers were protected
the cuts for retirees would be deeper.
Three, the
commission talked about an improved minimum benefit but that improvement doesn't
mean they get more than they would get under current law, it means that their
benefits are cut a little less, only by 34.5 percent instead of by 45.9 percent.
But to be fair, we have to add back to those reduced secure Social Security
benefits the annuitized value of the private account that workers would get if
they invested in a 50 percent equity account and achieved the average return
that that actuaries use to project return.
Low earners
would get a combined benefit 10 percent lower than current law with their
private account. Medium earners would get a combined benefit 20 percent lower
than current law. And high earners would get a benefit 25 percent lower than
current law. Overall reductions in retirement income would be deeper for couples
where the lower earner earns substantially less.
Retirees and their children and grandchildren have reason to be
concerned about what privatization would mean for them and a guarantee
certificate that can be changed by a future Congress is not going to reassure
them of anything. Such certificates, according to the Congressional research,
service would be worthless except as something to hang on the wall next to the
Enron stock certificate.
The irony is that at the same
time as some in Congress are considering mailing these certificates to retirees,
there are also proposals that would change the information that is provided to
current workers and send a very different message than the certificates send to
retirees. Some bills would require that the statements say that trust fund
balances do not consist of real economic assets and contain highly misleading
information about rate of return.
I want to have --
just to say just a couple of words about improvements in benefits for women.
There have been a number of improvements discussed that would carry relatively
low cost. In addition, an improvement could be made to improve the Social
Security benefits of the very poorest elders most of whom are women without any
cost to the Social Security Trust Fund by increasing the disregard in the
Supplemental Security Income Program under the jurisdiction of the Human
Resources Subcommittee. If those subcommittees can work together we can achieve
a way to immediately get some real relief to beneficiaries by allowing them to
keep more than a pitiful $20 a month of their Social Security benefits.
Thank you.
REP. HAYWORTH: Thank
you.
Mr. John.
MR. DAVID C.
JOHN: Thank you, and thank you to both the subcommittee and to their staff for
putting this hearing together. This is a very valuable information gathering
segment. I have mentioned various of the other issues in my written testimony.
On my spoken testimony, I'm going to comment on the guarantee certificates which
I strongly support.
Seniors deserve retirement security
and the simple fact is that seniors today have got it. The youngest person who
could get a certificate such as those proposed under various pieces of
legislation is 62 today. Well, they'll be 78 at the time that Social Security
starts to run cash flow benefits and they'll be 98 before the last of the bonds
run out in the Social Security Trust Fund.
Essentially
the money is there to pay them their benefits. However, as any of us who have
done events in places outside the beltway will find that you will see that
primarily the senior citizens who are there and the first thing they want to
know is what is all of this going to do to my benefits? And the certificates
would give them a set of some ease here. There is no need to scare this -- these
people. There is no reason to allow political campaigns to raise unnecessary and
nasty points. They work very simply. Anyone who is already retired would receive
a certificate that among other things listed what their monthly benefit was and
listed that they would receive an accurate cost of living allowance as
determined by the Bureau of Labor Statistics or the Social Security
Administration.
As other people retired, they would
receive those certificates also. The cost, according to CBO, is about $10
million in the first year and $1 million from that point after that. Let me
address a couple of the points here. There is no change with the trust fund by
these certificates. Essentially that when the trust fund starts to run out of
government bonds, Congress would have to make some decisions about what it's
going to do to keep the promises in those certificates.
Second, is it a legal document? Well, under current law you have a
legal right to your Social Security benefits and that is what this states. You
have a legal right to a specific amount of Social Security benefits based on
your earnings record which would also be stated on these. Now it is very true
constitutionally that if future Congress could change those benefits, however it
is one thing for future Congress to make a change in benefits and allow people
to assume, well no, you're not really getting a change in benefits because we've
worded this in a particular way so it doesn't seem like one. It's something else
when you've made an explicit promise on paper with a dollar amount of benefits
out there. If Congress does that sort of thing, any law that changes retirees'
benefits should be sub-titled "The Politicians for Unemployment Act" because
that's what's going to happen. So in a sense there is a moral right that seniors
have right now to their benefits and that moral right having paid all of those
taxes over all of those years is what is asserted in their certificate.
Now it's been suggested why don't we give these to
everyone? Well, the simple fact is that until someone has actually applied for
retirement benefits, we don't know what their earnings record is. You have to
have a complete earnings record before you have a set dollar amount for your
Social Security benefits.
Secondary, you cannot issue
these for other programs like Medicare because Medicare does not guarantee you a
certain dollar amount for your taxes. Medicare payments come out on an episodic
basis and the fact is that my 81 year old father was kept alive last year when
he had some heart problems by technology that didn't exist when he retired in
1986.
Now let me just address one other point here. Is
this some sort of a meaningless guarantee? No. It has a legal force, it has a
moral force. But if there are irresponsible attacks such as the idea that the
lock-box was raided last year, I mean the simple fact is that Social Security
was supposed to receive a certain level of trust fund bonds and it did. The fact
that the money after the trust fund bonds was spent on the war on terrorism has
absolutely nothing to do with the future payment of Social Security benefits. As
a matter of fact this is American history. For a few years it was used to reduce
the debt on government bonds but otherwise it's paid for the war in Vietnam,
it's paid for the war on poverty and now it's paying for the war on
terrorism.
As I try to instruct my daughter when she's
learning how to budget and things like that, the fact that you pay down your
visa bill has absolutely nothing to do about your car payment. The fact that you
paid down some of the interest payments on the federal debt has absolutely
nothing to do with what we're going to be facing starting when Social Security
starts to run cash flow benefits.
These would be much
more valuable -- and as I come to an end, to combine these with changes in your
Social Security statements so we send a dual message. To senior citizens, you're
safe, we're not going to touch your benefits. To younger workers, according to
the Social Security actuaries you face some problems. We need to talk.
Thank you.
REP. HAYWORTH: And Mr.
John, we thank you for your testimony as well. Indeed to all our witnesses
again, let me reiterate our thanks for your presence here today and for your
testimony.
Mr. Atwater, thank you, sir, I can assure
you that members of NARFE and the sixth Congressional district of Arizona are a
lot -- who are not shy in the least of communicating and to let you know the
grass roots works quite well. So be assured that the input is there I think for
almost every member of Congress.
MR. ATWATER: Thank
you, very much.
REP. HAYWORTH: Just one question, you
mentioned Chairman Shaw's plan and again, just amplify what that would do. That
would take the current two-thirds reduction down to --
MR. ATWATER: One-third, that's correct.
REP.
HAYWORTH: As is often the case in government, once we get away from the roar of
the greased pig and the smell of the crowd and the kind of debating society that
we run from time to time, we have to make some hard decisions. And not to
describe this as a sliding scale but is that the position that you have
immutable or could that be subject to revision if we have to hammer something
out?
MR. ATWATER: Well, you know, there are numerous
bills on the subject right now that are pending and none of them have come to
the floor but we're encouraged by the chairman's bill because he did put
something in his omnibus bill -- excuse me, thank you very much -- that included
the GPO provision and that's of course one of the things that we've been very
interested in for a number of years and we were hoping that we could get that
maybe pushed along to get something done in this 107th Congress. No, it's not
the final thing but we certainly would welcome that.
REP. HAYWORTH: So that's really a goal that you see immediately based
on what Chairman Shaw has offered?
MR. ATWATER: Yes.
REP. HAYWORTH: It is Omnibus.
MR.
ATWATER: Yes, thank you very much. We think that, you know that that is a goal
and we've been pushing GPO for a number of years and hopefully that GPO would be
passed maybe separate from everything to benefit these widows and women that are
just getting by on three or $400 a month, correct?
REP.
HAYWORTH: It's a very real problem and I thought my colleague from Texas, Mr.
Johnson made the point very well with the commissioner as you have and we
appreciate the ongoing dialogue that we were able to have with members of your
organization.
Ms. Pfotenhauer, you also offered a
thought about how to handle benefits and I'd like you to amplify that and
restate that and take a look at that 75 percent of the couple's benefit and how
would that inure if there's an average or some information there, how would that
inure to the benefit of the widow.
MS. PFOTENHAUER:
Well as I think many of us know since we've mentioned frequently today that
women tend to outlive men so the wives are outliving their husbands and once
their spouse dies, the couples -- the remaining survivor goes down to an
individual benefit and her -- and what she gets then is reduced substantially.
And of course her fixed costs have not been commensurately reduced. So we
believe that we need to increase the widows benefits from 100 percent of the
deceased worker's benefit to 75 percent of the couple's benefit and we think
that will have a dramatic and real impact even if it's not on hundreds of
thousands of lives. And I know that in Congress we are frequently asked to make
a decision that's going to effect the most people.
Here, I think we should make a decision about a matter that can be done
relatively quickly, relatively cheaply and effect those who need it the most.
REP. HAYWORTH: Thank you for that. It was interesting, Ms.
Wolfe, to hear your reminder to us about the whole notion of payroll taxes and
the challenges that businesses face and despite some of the other testimony and
the convenient Enronizing of political rhetoric, I think it's worth noting that
most jobs in our society in the private sector come from -- it's almost a
disservice to call it small business, it's essential business and the challenges
that are put there for entrepreneurs and payroll taxes.
You might be interested in the midst of my memory and I'm sure staff
will hasten to correct me -- when I first arrived here a previous administration
offered a budget plan and it was candid from the office of management and budget
looking into the future, dealing with the question of Social Security and what
has been left unsaid is your very cautionary note on payroll taxes. And by the
estimates of the previous administration's own budgeteers, the children and
grandchildren we've talked about, if nothing is done to save this system would
face if memory serves, I think an 80 percent increase in payroll taxes. And
clearly, no matter how impassioned the advocates of the radical redistribution
of funds in our society may offer that type of advocacy. I don't think that
could hold up, really, for anybody, so your admonishment is one that I think we
can all remember and sets the stage for us to work on a bipartisan basis. And
sure enough, Ms. Hildred (ph), great with the calculator, tells me I was a
little bit wrong.
(Laughter.)
But, in the ball park, when it talks about an extreme increase, 50
percent. I don't think that's much more palatable for anybody to face a 50
percent payroll tax increase, thanks to the staff who are helping to find those
figures and thank you again for your testimony and now we turn to my friend, the
ranking member from California.
REP. MATSUI: Thank you,
Mr. Chairman. Mr. Chairman, I -- just for the record, I wanted to make
clarification, because, as I understood it, you were saying at the time of the
War, obviously, we moved into surplus, and these are CBO numbers that we put
them in percentages -- re-evaluation of the economic projections that occurred
in January of this year from January 2000 was 42 percent in the reduction of the
surplus. The tax cut of May or June of last year was 41 percent of the surplus.
Additional government spending approved by both houses, the House and the
Senate, and also the president was eight percent and the war effort was only
nine percent of the total surplus. So the war really had nothing to do with the
loss of the surplus over the 10 year period of $5.6 trillion to a projected
surplus now of a little over $1 trillion and we haven't even got through this
year yet.
So I just call your attention to that. I
might also want --
MR. JOHN: It also didn't change
Social Security at all.
REP. MATSUI: I understand that.
I also want to ask you -- you're acknowledging the fact that the 'certificates
of guarantee' that you referred to, and I think Mr. DeMint and Mr. Armey
introduced legislation to that affect. You acknowledge the fact that it has no,
confers no additional legal or property, legal or contractual right on the
recipient -- is that, you're talking about a moral right?
MR. JOHN: It's -- what it does is to emphasize the existing legal right
that an individual has to their benefits, and it also makes it exceedingly hard
for a future Congress to change that without certain types of fall out.
REP. MATSUI: And you are acknowledging the fact that,
after we send those certificates out, a Congress, with the president's consent
obviously, can make a change -- weeks later, days later, or whenever we have the
time to do so. Is that right?
MR. JOHN: A Congress
could make the change as long as they're willing to face the consequences.
REP. MATSUI: I understand that, but I'm talking about -- I
mean, I think we'd like to do things that, you know, have legal ramifications
and I just want to make sure I understand. I understand what you're saying, but
what I'm trying to understand you -- to acknowledge the fact that this confers
no additional legal right. That's what our CRS report said, and that's what
almost everyone who has looked at this has acknowledged. I just to want to make
sure I understand your testimony.
MR. JOHN: The CRS
report also said that it conferred a substantial guarantee, or a substantial
addition -- I'll have to give you the exact wording. But the -- the simple fact
of the matter is that what happens here is that very few Americans have law
books in their own homes.
On the other hand, if they
receive a certificate with the -- what the current law is, they're being much
more directly informed than anything there now.
REP.
MATSUI: Let me just ask you -- have you had a chance -- the Heritage Foundation,
with your involvement, obviously you're involved with Social Security -- have
you had a chance to review Mr. Armey's recent legislation that he introduced
last month.
MR. JOHN: I have, yes.
REP. MATSUI: And have you -- have you costed it out?
MR. JOHN: The costing, according to SSA is approximately $6.8 trillion,
and those are real dollars, 2002 dollars.
REP. MATSUI:
I don't think that's right. I think it's about $21.3 trillion over.
MR. JOHN: Is that in 2002 dollars?
REP. MATSUI: Oh, well I'm talking about in current dollars, right?
MR. JOHN: All right. In 2002 dollars, according to Steve
Goss' (ph) memo, it comes to approximately $6.8 trillion in additional general
revenue transfer.
REP. MATSUI: Maybe I'll ask Mr.
Riemer to comment. You've had a chance to review Mr. Armey's --
MR. RIEMER: Yes, I have.
REP. MATSUI: Could
you give us a breakdown on the funding here.
MR.
RIEMER: My understanding is that the bill borrows $21.3 trillion from the
individual accounts that it sets up, and on top of this it has to actually have
a subsidy of about $20.4 trillion from the general budget, and in spite of all
that, it actually fails to restore solvency to the program.
REP. MATSUI: Right. It does not create solvency. And may I ask -- Mr.
Shaw isn't here so I am just going to ask you briefly -- what is the cost in Mr.
Shaw's plan in terms of general fund borrowing over, let's say, 50 years.
MR. RIEMER: I'm actually not familiar with that number --
it's quite large, I am sure.
REP. MATSUI: Ms.
Entmacher, I think you know.
MS. ENTMACHER: I think the
cost of the plan, if it's all borrowed, is an additional $8 trillion to the
national debt. If we did it by raising revenue or cutting other programs, the
cost goes down to 4.3 (trillion dollars), the difference being the interest
costs.
REP. MATSUI: These are trillion dollars?
MS. ENTMACHER: Trillion dollars.
REP. MATSUI: Right. Trillion dollars.
MS.
ENTMACHER: Yes.
REP. MATSUI: And I don't -- I mean, I
don't think any of you could answer it -- but I don't think we have that money
available at this time and we're not projecting that money to be available any
time soon.
Mr. John, maybe you can use your
organization to try to find out where that money could come from, because
obviously we need to solve this problem, and if Heritage -- you could really do
us a big service if you could come up with some way we can fund either Mr.
Armey's proposal, or Mr. Shaw's, or even one of the three proposals in the
present commission, because I think that would really do us a wonderful
favor.
MR. JOHN: Mr. Chairman, we have a budget model
and we also have a Social Security model -- pretty much the only Social Security
trust fund model out of SSA, and we'd be delighted to sit down with you and your
staff. We'd also like to work out where the $22.2 trillion that Social Security
has as an unfunded liability according to Steve Goss' memo.
REP. MATSUI: The unfunded liability is about $10 trillion.
MR. JOHN: Well, we're going to disagree on numbers, I
think.
REP. MATSUI: Well, I know these are pretty
accurate -- they come from the Actuary, but, you know.
MR. JOHN: So do mine, actually.
REP. MATSUI:
Everybody, everybody can look at things differently. But thanks --
MS. ENTMACHER (?): Actually there were a few suggestions
that we make in our testimony. The first point to emphasize is that long term
costs of the tax cut is actually twice as big as the long term 75 year shortfall
in Social Security. And we actually, because they both involve older people,
focused on just the estate tax and if instead of repealing the estate tax, as
some in Congress have proposed doing, we would have .88 of taxable payroll
available for the next 75 years. That would eliminate nearly half of the long
term shortfall in Social Security and would fund all of the improvements in
women's benefits that have been talked about, many times over. So the matter is
one of choices and priorities.
REP. MATSUI: That's what
it is. Thank you.
REP. HAYWORTH: Thank you very much.
To echo priorities, again with all the talk of plans, the chair would again
humbly request, the minority to put forward a plan where we can work together to
solve the problem, because right now, no plan means benefit cuts of at least 33
percent, and as I mentioned, earlier a tax increase of 50 percent. That is
untenable, no matter the attraction some in this room may have for tax
increases.
The gentleman from Kentucky.
REP. MATSUI: If the gentleman would just yield for a minute.
REP. HAYWORTH: The gentleman from Kentucky. I was very
generous with time -- I was very generous with time --
(Cross talk.)
REP. MATSUI: Let me just respond
to you, because --
REP. HAYWORTH: I'm sorry, I have the
gavel, we're going to observe the edicts and the time --
REP. MATSUI: I understand that, but --
REP.
HAYWORTH: The gentleman from Kentucky.
REP. MATSUI: --
will the gentleman please put his bill to the floor so we can vote on it?
REP. HAYWORTH: When the gentleman --
(Cross talk.)
REP. MATSUI: -- vote on it.
REP. HAYWORTH: When the gentleman comes forward with a
plan, we can all move together. The first respect is definition of terms and
having been generous with the time, again, we will not take time away from the
gentleman from Kentucky. You have your five minutes, sir.
REP. LEWIS: Thank you, Mr. Chairman.
I find
myself in a bind. My parents are 85 years old, they depend on Social Security. I
have a son that's 30 years old, he's employed in a manufacturing company, he and
his wife both, they make between them about $60,000 a year. And then all those
other relatives that are in the baby boom generation that are going to be facing
retirement before long, and for some reason because I have an "R" in front of my
name, I'm a Republican, then I'm out and Republicans are out to destroy the
Social Security system.
I remember a few Christmas'
ago, my, as I was leaving my mother's home after Christmas, she stood on the
front porch and she said, "watch out after my Social Security." So there is a
concern out there with senior citizens, because the rhetoric here puts fear in
their hearts that their Social Security may not be valid and solid, because
politicians here want to use it as a political football. I think that is a
shame, it's a disgrace.
Democrats do not have the
monopoly on compassion in this country. I am compassionate about my mother and
my father. I'm compassionate about my son. I'm compassionate about the fact that
some day they may have to pay 50 percent more in payroll taxes. And my
grandkids. I think it's time we stopped the foolishness here and we worked
together to solve the problem.
My question to Mr.
Riemer and Ms. Entmacher, what is your solution? We know there's a problem. You
know, I'm certainly willing to listen but not to political rhetoric that you
have no answers, this criticism. Do we want to go down the road and wait until
the last minute and as the chairman just mentioned, put our kids in that
position. I am compassionate about this. I want to save Social Security. It's a
good program. It has worked very well for my grandparents and now for my mum and
dad. I hope it will work well for me and my generation and I hope it will work
well for my kids and grandkids. But I just get sick of this.
Every time we have a hearing, every time we try to do anything it's
bickering back and forth about you know, a political agenda, charts and all this
stuff that mean absolutely nothing to those people out there that when they hear
this political debate, they're afraid about losing their Social Security. My
mother and father are two that are concerned about that and we know that it's
going to be solid for them. We don't know how solid it's going to be for the
baby boom generation. And we certainly know that there's going to be real
problems for our kids and grandkids. So let's try to get some answers, not
politics as usual. What's your proposal?
MS. ENTMACHER:
If you'd like an answer I thought I'd try to provide one in response to Mr.
Matsui's question.
REP. LEWIS: What is it?
First, if you take a look at the tax cut that was passed
last year.
REP. LEWIS: That tax cut has absolutely
nothing to do with Social Security.
MS. ENTMACHER: It
has --
REP. LEWIS: Did we cut payroll taxes?
MS. ENTMACHER: If you'll let me finish I'll try to answer
the follow-up questions.
REP. LEWIS: It had nothing to
do with Social Security.
MS. ENTMACHER: It does because
the plans that are being proposed, the commission's plan, Mr. Shaw's plan to an
even larger extent and Mr. Armey's plan to an even greater extent than that, all
use general revenues to move to private accounts. Everyone who is debating the
future of Social Security is talking about using general revenues to fund
private accounts or fund Social Security. Somewhere they are taking money from
the general revenue part of the budget in to the Social Security system to deal
with the financing gap. Now there's a disagreement about whether that extra
money should go into private accounts or if it should go into Social Security
but everyone's talking about taking money from the general revenue side of the
budget and using it in some way and the ways are different --
REP. LEWIS: And that's true but what is your answer?
MS. ENTMACHER: I would say take a look at the tax cut. When the tax cut
was passed last year, assurances were made that we could save every dollar in
the trust fund for strengthening Social Security.
REP.
LEWIS: Look, the Social Security trust fund, not the surplus, but the Social
Security trust fund is still in the same shape today as it was before the tax
cut.
MS. ENTMACHER: But the only -- right. The issue is
you then have money and then we get into a discussion about should that extra
money that we're willing to invest in Social Security go into individual private
accounts where individuals bear the risk of how their investment performs or
should it be given to Social Security, let's say for diversified investment by a
board that could invest part of that money into the same kinds of securities
that people are saying individuals can put their dollar in at lower individual
risk. That's the nature of debate. That's why the general revenue side and the
tax cut is so relevant.
And let me go further. Let me
suggest that one of the things that has been happening in the last 20 years is
that the tax structure within Social Security has become more regressive and I'm
not looking to increase the payroll tax rate on any one but more and more of the
earnings of the highest earners in America are not taxed. If you make more than
$85,000 a year in this country, you pay --
REP. LEWIS:
Wait a minute. Those individuals are paying the huge majority of the taxes in
this country today. I mean they're the --
MS.
ENTMACHER: Not if the tax cuts continue to go through, but historically the tax
-- the amount of payroll that has been taxed has been much higher. It's been up
at about 90 percent historically because the earnings growth in this society has
been so much higher for people at the top than people at the bottom who have
actually lost wages in real terms. More and more of the high earners' earnings
are escaping Social Security taxation. If you restore that level of taxation to
the 90th percentile, you could close a significant portion of the solvency.
REP. LEWIS: You see, here's another dilemma. I don't think
my kids want to give up their tax cut on their $60,000 a year.
MS. ENTMACHER: Well --
REP. HAYWORTH: That's
very interesting. I would intervene here in the chair and I thank you for the
vigorous discussion and I appreciate, Ms. Entmacher, laying out a plan that in
terms of philosophical moorings talks about the government taking over
investment in private business. So you have rather than global crossing, United
States crossing and the radical change where the government takes winners and
losers and also a radical increase in payroll taxes for people who commit the
crime of succeeding in society through their hard work and ingenuity.
The gentleman from California, Mr. Becerra.
REP. BECERRA: I thank the chairman for yielding the
time.
Let me begin by thanking all of you for your
testimony and your patience in being here. To Mr. Atwater, continue to have your
troops go out there and talk to each and every one of us. I hope you succeed in
your efforts. I believe at the end Congress will reform the way we treat those
pensioners who have received money through Social Security or should receive
money from Social Security and through a separate pension. So I congratulate you
on those efforts and continue with them.
MR. ATWATER:
Thank you, very much. You can be sure we will.
REP.
BECERRA: I know you will. And I'm encouraging you to do more.
MR. ATWATER: Thank you.
REP. BECERRA: Rather
than get into a whole lot of things because I think we all have a lot to do,
including catch some flights, let me just mention a couple of things.
I want to congratulate Ms. Entmacher for her efforts to
try to give an answer because quite honestly, I think you hit right on the money
on what our biggest problem is. We know we're going to have a difficulty in
about 30 years for Social Security yet what we're doing now is not making it
easier to deal with that problem in 30 years. We're making it more difficult by
diverting monies now to tax cuts as the chart showed that go to major
corporations like Enron to the tune of over $300 million at the expense of many
women who are working right now contributing money who would love to have those
guarantee certificates but it's no different than the piece of paper that the
legislation about a lock-box was written on. It's just a piece of paper.
Ultimately, it's what each member of Congress and the
president does -- we all do to guarantee that in 30 years the monies will be
made available and certainly, Mr. John, I would disagree with something that you
said, that when you talk to your daughter paying down a visa it has nothing to
do with a car payment. Absolutely it does. Maybe not directly but if she
continues to rack up money on that -- charges on that visa account, she's going
to have a lot more time finding the money to pay her car payments on time.
And the more we do as a government to act like any
rational family to pay down our car payment or our visa payment so we can take
care of our other debts, the better off we'll be. We could have used a tone of
the money that went out in tax cuts and used it to pay down the national debt.
The more we pay down in the national debt, and more in 30 years we'll have
monies to do things in our general fund that will let us go ahead and address
the needs not just of our Social Security recipients but our kids who have to go
to school, our seniors who have to seek out medical care, to increase our
transportation infrastructure and it just seems that if we want to be wise,
while we may not believe we've got the silver bullet yet or have the final
solution on what we need to do for the Social Security. In the meantime let's
not make it worse and divest ourselves of whatever money we had.
When Chairman Shaw introduced his plan last session of Congress, we
were talking about tremendous surpluses and it was clear that the Shaw plan
would have to use those surpluses and the trillions of dollars to pay for that
transitional cost of going towards privatized Social Security. We don't have
that surplus the way we thought we did and not only that but we have a lost less
of it because of these tax cuts that have passed and some of these tax cut
proposals that are pending. So quite honestly, this debate doesn't get any
easier.
The more we start diverting monies towards some
tax cuts for the most part don't help the kids of the members of this body. Most
of those tax cuts will go to others. Certainly, those kids -- I know my kids are
not looking at seeing my estate taxes cut because I won't pay any estate taxes.
I don't make enough money to be among the two percent wealthiest Americans to
ever be able to benefit from an estate tax repeal because only two percent of
every American who passes on will ever pay any of these taxes but yet the $50
billion we use on an annual basis by having eliminated a repeal to the state tax
will be gone forever, not available in the future for Social Security or
anything else.
So -- interesting discussion,
appreciated your time and your comments and I hope that we will continue to hear
from you because whether it's trying to make sure the people who paid into a
Social Security trust fund -- a trust account and are also paying into another
pension fund should be entitled to receive what they paid for or whether trying
to make sure that women ultimately are treated better by our system even though
it tries to treat people who are low income well, it doesn't do enough for
women.
Ultimately we have to do it by being frugal and
sensible now so we resolve it in the future. So I will yield back my time Mr.
Chairman, and again, thank the panel for being here.
REP. HAYWORTH: And we thank the gentleman from California as again we
reiterate our thanks to all the witnesses. One thing is certain, there are major
differences of opinion and the date on the calendar draws nigh to November 5 so
I guess the rhetoric will sharpen rather than lessen. Nevertheless, the
committee will work together hopefully in a non-partisan fashion to act on many
of the recommendations you offer and as Chairman Shaw promised before he had to
leave, I guess we get together again on Wednesday.
Again, thanks to the witnesses and those who joined us. And this
hearing is adjourned.