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THE FUTURE OF SOCIAL SECURITY HEARING BEFORE THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES U.S. ONE HUNDRED NINTH CONGRESS FIRST SESSION MARCH 9, 2005 Serial No. 109-12 Printed for the use of the Committee on Ways and Means U.S. GOVERNMENT PRINTING OFFICE 23-920 WASHINGTON 2005 : ForsalebytheSuperintendentofDocuments,U.S.GovernmentPrintingOffice Internet:bookstore.gpo.gov Phone:tollfree(866)512-1800;DCarea(202)512-1800 Fax:(202)512-2250 Mail:StopSSOP,Washington,DC20402-0001 COMMITTEE ON WAYS AND MEANS BILL THOMAS, California, Chairman E. CLAY SHAW, JR., Florida CHARLES B. RANGEL, New York NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California WALLY HERGER, California SANDER M. LEVIN, Michigan JIM MCCRERY, Louisiana BENJAMIN L. CARDIN, Maryland DAVE CAMP, Michigan JTM MCDERMOTT, Washington JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York ROB PORTMAN, Ohio WILLIAM J. JEFFERSON, Louisiana PHIL ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee J.D. HAYWORTH, Arizona XAVIER BECERRA, California JERRY WELLER, Illinois LLOYD DOGGETT, Texas KENNY C. HULSHOF, Missouri EARL POMEROY, North Dakota SCOTT MCINNIS, Colorado STEPHANIE TUBBS JONES, Ohio RON LEWIS, Kentucky MIKE THOMPSON, California MARKFOLEY, Florida JOHN B. LARSON, Connecticut KEVIN BRADY, Texas RAHM EMANUEL, Illinois THOMAS M. REYNOLDS, New York PAUL RYAN, Wisconsin ERIC CANTOR, Virginia JOHN LINDER, Georgia BOB BEAUPREZ, Colorado MELISSAA. HART, Pennsylvania CHRIS CHOCOLA, Indiana Allison H. Giles, ChiefofStaff Janice Mays, Minority ChiefCounsel Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions ofthe hearing record, the process of converting betweenvariouselectronicformatsmayintroduceunintentionalerrorsoromissions. Suchoccur- rences are inherent in the current publication process and should diminish as the process isfurtherrefined. ii CONTENTS Page AdvisoryofMarch 9, 2005 announcingthehearing 2 WITNESS U.S. government Accountability Office, Hon. David Walker, Comptroller Gen- eral 7 Social Security and Medicare Trust Funds, John L. Palmer, Ph.D., Public Trustee 76 Social Security and Medicare Trust Funds, Thomas R. Saving, Ph.D., Public Trustee 80 SUBMISSIONS FOR THE RECORD American Federation of Labor-Congress of Industrial Organizations, Gerald M. Shea, statement 91 Bratman, Stephen, San Diego, CA, letterand attachment 94 Everett, Judy andBobby Lee, Selma, TX,joint statement 95 Executive Intelligence Review, Leesburg, VA, Paul B. Gallagher, statement and attachment 95 Freeding, Joellen, Algonquin, IL, letter 103 Fronek, Don Karel, Toney,AL, statement 103 HumanRights Campaign, Lara Schwartz, statement 104 John Wood Community College Annuitant Association, Quincy, IL, John Gebhardt, statement 105 National Committee to Preserve Social Security and Medicare, Barbara B. Kennelly, statement 105 Plett, Monica, and BarryWauligman, Cincinnati, OH, statement 106 Social SecurityAdvisoryBoard, Hal Daub, statement 108 ~~~ CMS Library C2-07-13 7500 Security S!v>d. Eattimor©, mtjmmjio^ iii THE FUTURE OF SOCIAL SECURITY WEDNESDAY, MARCH 9, 2005 U.S. House of Representatives, Committee on Ways and Means, Washington, DC. The Committee met, pursuant to notice, at 10:45 a.m., in room 1100 Longworth House Office Building, Hon. Bill Thomas (Chair- man ofthe Committee) presiding. [The advisory announcing the hearing follows:] (l) 2 ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS FORIMMEDIATE RELEASE CONTACT: (202) 225-1721 March 09, 2005 FC-4 Thomas Announces Hearing on the Future of Social Security Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways and Means, today announced that the Committee will hold a hearing on the future of Social Security. The hearingwill take place onWednesday, March 9, 2005, in the main Committee hearing room, 1100 Longworth House Office Building, beginningat 10:30 a.m. In view of the limited time available to hear witnesses, oral testimony at this hearingwill be frominvitedwitnesses only. Witnesses will include U.S. Comptroller General DavidM. Walker, and Social SecurityTrustees Thomas R. Saving andJohn L. Palmer. However, any individual or organization not scheduled for an oral ap- pearance may submit a written statement for consideration by the Committee and forinclusioninthe printedrecordofthehearing. BACKGROUND : The Social Security Trustees reported in their 2004 report that while Social Secu- rity is currently running an annual surplus, Social Security's annual costs are projected to exceed its tax income starting in 2018, and the program is expected to be- come "insolvent (i.e., unable to pay scheduled benefits in full on a timely basis)" when the trust funds' balances are exhausted in 2042. According to the Trustees, Social Security's cash flow deficits and the subsequent depletion ofthe trust funds are expected to have important economic and public policy implications, as within a little more than a decade, the government must increase taxes, reduce other spending, or borrow to raise cash to honor obligations to the trust funds and pay promisedbenefits. In announcing the hearing, Chairman Thomas said, "We stand at a critical cross- roads in shaping the retirement security ofall Americans, especially since the Baby Boomers begin retiringjust three short years from now. To ensure Social Security meets its promise to all, President Bush has challenged Congress to update the program to offer greater prosperity to future generations. As we discuss how to meet the needs ofan aging society, we will examine Social Security's financial challenges and also consider ways to protect pensions, enhance personal savings and improve longterm care options." FOCUS OFTHE HEARING : The hearing will focus on Social Security's financial outlook, why Social Security faces problems, and the importance ofacting soon to restore the program's solvency in the context ofthe Federal budget, the economy, and the impact on today's workers and future beneficiaries. DETAILS FOR SUBMISSIONOFWRITTEN COMMENTS : Please Note: Any person(s) and/or organization(s) wishingto submit forthe hearing record must follow the appropriate link on the hearing page ofthe Committee website and complete the informational forms. From the Committee homepage, http:llwaysandmeans.house.gov, select "109th Congress" from the menu entitled, "Hearing Archives" (http://waysandmeans.house.gov/Hearings.asp?congress=17). Se- 3 lect the hearing for which you would like to submit, and click on the link entitled, "Click here toprovide a submission for the record." Once you have followed the on- line instructions, completing all informational forms and clicking "submit" on the final page, an email will be sent to the address which you supply confirming your interest in providing a submission for the record. You MUST REPLY to the email and ATTACH your submission as a Word or WordPerfect document, in compliance with the formatting requirements listed below, by close of business Wednesday, March 23, 2005. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225-1721. FORMATTINGREQUIREMENTS ; The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record accordingto the discre- tion ofthe Committee. The Committee will not alter the content ofyour submission, but we reserve the right to format it according to our guidelines. Any submission provided tothe Committee by awitness, any supplementary materials submittedfor the printed record, and any written comments in response to a request for written comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will be maintained inthe Committee files forreview anduse bythe Committee. for1.maAtllansdubMmiUsSsiTonNsOaTndexscuepepdleametonttaalroyfm1a0tepraigaelss, minucsltudbiengpartotvaicdhemdenitns.WoWridtnoerssWeosrdaPnedrfseucbt- mitters are advised thatthe Committee relies on electronic submissions forprintingthe official hearingrecord. 2. Copies ofwhole documents submitted as exhibit material will notbe acceptedforprinting. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use bythe Committee. 3. All submissions must include a list ofall clients, persons, and/or organizations on whose behalfthe witness appears. A supplemental sheet must accompany each submission listingthe name,company,address,telephoneandfaxnumbersofeachwitness. Note: All Committee advisories and news releases are available on the World WideWeb athttp:llwaysandmeans.house.gov. The Committee seeks to make its facilities accessible to persons with disabilities. Ifyou are in need ofspecial accommodations, please call 202-225-1721 or 202-226- 3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including avail- ability ofCommittee materials in alternative formats) may be directed to the Com- mittee as noted above. Chairman THOMAS. I want to welcome you all. I am pleased today's panelists, the U.S. government Accountability Office Comp- troller General David Walker and two Public Trustees ofthe Social Security and Medicare Trust Fund, Mr. John Palmer and Thomas Saving, will be at this first hearing on the future ofSocial Security. This is the Committee that is responsible for dealing with a trust fund, normally referred to as Social Security, and in reviewing the history, I realized that the last time that the Committee handled this with any degree of specificity was 1983. On the Committee on Ways and Means panel in the 98th Congress were three Members who are still on the Committee today, to my left, the gentleman from New York, Mr. Rangel, and to his left, the gentleman from California, Mr. Stark, and the Chairman. Of the three, one of us were on the Subcommittee on Social Security, which in great detail examined options. That Subcommittee on Social Security was 4 chaired by J.J. "Jake" Pickle ofTexas. Jake Pickle had been a driv- er for Lyndon Baines Johnson and eventually succeeded Lyndon Baines Johnson in the House of Representatives in Lyndon Baines Johnson's old district. The other primary Democrat who had been involved in structuring the debate on the floor of the House was Senator Claude Pepper, who was a Member of the House of Rep- resentatives but had served in a long and distinguished career in the U.S. Senate and was a U.S. Senator in 1936. The point I am clearly making is that this very important funda- mental safety net program, not having been reviewed for more than 20 years, is being looked at by a Committee that has not had significant experience in legislating in the area. It seems to me that when you have that kind of a time gap, what you ought to do is to pretty much begin at the beginning, as they say, and talk about what the program is, what the program looked like, what the program looks like, and what the program will look like. Clearly, the current program, because the American population has changed, is not sustainable based upon the old method offinancing. President Bush is clearly committed to strengthening Social Secu- rity and has agreed to expend significant time and energy with the American people so that there will be a receptive audience when this Committee examines options to change the system. I do want to remind Members as we move forward that retirement security in an aging society does not depend on Social Security alone. Per- sonal savings, pensions, health care, especially long-term and chronic care, each play an essential role in helping seniors meet their needs. The President's leadership, however, has given us a unique opportunity to assess government institutions that worked and will not work in the near future, and it has given this Committee an opportunity to examine a number of other issues that probably would not be able to be examined in the manner the Chair hopes that we examine them ifthe President hadn't gone out front on So- cial Security issues. The Nation's population or the demographic patterns have changed. Labor force, economy, length of employ- ment at particular locations, family structures have all changed over the last five decades and have continued to change over the last two. This reexamination ofthe government's commitment to an aging society and seniors is essential and the government faces un- precedented challenges in meeting the needs of this new and different society. The Chair looks forward to working with all Mem- bers as they present ideas to help us with this daunting task, and the Chair recognizes the gentleman from New York, Mr. Rangel, for any opening statement he may wish to make. Mr. RANGEL. Thank you, Mr. Chairman. I know the Chairman will agree with me that tackling this very complex legislative and social problem demands and screams out for bipartisanship. It doesn't really make any difference about the sincerity of each side when you are about to pay out more than you are taking in. In order to resolve this problem, you are going to have to cause some political pain. The only way you can ease that pain and accomplish your goal is to get people that worked together in the past working together so the American people will know that it may have been 5 a difficult political task, but together, in a bipartisan way, we can resolve it. If, Mr. Walker, you are able to testify in a way that you have done your job in an objective and partisan way, then we will then ask you the question as to why is privatization and the private accounts placed on the table if, in fact, it has little or no relationship to deal with the real problem that we face, and that is solvency. We cannot use these words about crises and bankruptcies and po- larizing the young against the old and saying the system will not be there when you know if we do nothing, the system would be there, but it would be the fiscal irresponsible thing to do nothing. There are two ways to handle this, to come to the table, take off the one thing that doesn't deal with solvency, take it off the table so we can work, or to go around the country to political groups, 60 cities in 60 days, tightening up and separating our ability to work together. I know you don't deal with the politics ofit, but I do hope that you can help us to overcome this hurdle we are having since private accounts will not be on the table if you are looking for bipartisanship. I would like, Mr. Chairman, to yield to Mr. Levin, who is the Ranking Member ofthe Social Security Committee. Mr. LEVIN. Thank you, Mr. Rangel. The topic, as we know, for today's hearing is "The Future of Social Security." Recently, I had the opportunity to talk with hundreds ofmy constituents who came to townhall meetings because they felt so strongly about what So- cial Security has meant to them and their families. For seniors especially, but also disabled workers, widows, and children, Social Se- curity has meant independence to live their own lives. The more they learned about President Bush's Social Security privatization proposals, the more worried they became about the future of Social Security. Private accounts do not address Social Security shortfall. In fact, they would actually make it significantly worse by divert- ing nearly $5 trillion from the trust fund over the first 20 years of private accounts. If President's private accounts proposal were en- acted, Social Security would experience a shortfall 11 years sooner, in 2031. Social Security's challenges are made more difficult by the fis- cally irresponsible policies of the past 4 years, which have turned a $5.6 trillion projected surplus into a nearly $3 trillion projected deficit. This year, the President's budget, like previous ones, pro- poses to borrow every penny of Social Security's surplus, $169 bil- lion, to pay for other proposals in the budget. Democrats stand ready to address Social Security's long-term challenges and safeguard it for future generations, just as we have in the past. We cannot accept the notion that you safeguard Social Security by un- dermining it. In recent days, the President has taken to trying to describe his proposal as adding on to Social Security. Addition is the opposite of subtraction. We have before us today three witnesses that have a duty to provide factual, unbiased information about the solvency of Social Security. I hope and trust that all three of them will take that responsibility seriously and will par- ticularly focus on answering two major questions. One, do private accounts that divert money from Social Security address the solvency issue? Two, how do the overall fiscal policies of this govern- 6 ment affect our ability to meet our obligations to Social Security? Thank you. Chairman THOMAS. I thank the gentleman. It has been a pleas- ure Mr. MCDERMOTT. Mr. Chairman? Point ofinformation. Chairman THOMAS. Any additional Members who have written statements can be made a part ofthe record. Mr. MCDERMOTT. I just want to ask a question about the new equipment I see here. Where is it run from, who runs it, and what do we expect to see on it, and how is it going to be used so we un- derstand what is going out on the television? Chairman THOMAS. The Chair's assumption is that any of the witnesses who wish to augment their written testimony, which will be made a part of the record, with visual charts or other information generated either by the General Accounting Office or the So- cial Security Actuaries will, in fact, do that Mr. MCDERMOTT. Wi—U it be shown Chairman THOMAS. in the enhancement oftheir presentation. Is the Chair's assumption correct? Mr. WALKER. It is, Mr. Chairman. Mr. MCDERMOTT. Will the same thing be shown on that screen at the far that is sort of at a tough angle for us as the one that is here? Are those two going to show the same thing? Chairman THOMAS. When I was growing up, they used to have drive-ins in which they had a different theater at each end, and de- pending on the way you parked, you could watch each particular movie. [Laughter.] My assumption here is that it will be the same show on each screen, and although that is a bigger one down there, the Chair be- lieves this is a higher-resolution quality one for the Members. Mr. MCDERMOTT. That is the one for television and this is the one for us? Chairman THOMAS. These are actually both, but it is an assist- ance to the audience since we got some comments the last time that the angle of this particular screen did not allow the audience full participation in the hearing. We are trying to accommodate that. The Chair is resisting, as you have seen in some other Com- mittee rooms, hanging televisions from various portions of the room. Mr. MCDERMOTT. Is the system Chairman THOMAS. The colonial revival architecture does not lend itselfwell to plasma TV screens. [Laughter.] Mr. MCDERMOTT. May I ask one further question? You said last time that perhaps some day soon the minority might be able to use the PowerPoint operation and slip a disk in and show some things ifwe wish? Chairman THOMAS. The Chair is more than willing to allow ev- eryone who wants to make a visual point to make a visual point. This is the second time the gentleman has brought it up in a full Committee hearing meeting. If he really wants to talk about it, he ought to engage the Chair when we can come in and talk about how the machinery works so that he can actually have an oppor-