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House Ways and Means Committee Holds First Hearing on Social Security

On May 12, the House Ways and Means Committee heard testimony from numerous experts on Social Security and retirement planning.

Explaining that the committee first began to examine the future of Social Security in 1983, Chair Bill Thomas (R-CA) stated, “What probably disappointed me the most was that…we never did what I thought we should have done at that time examine some of the, I think you could use the term, inequities that occurred over time as society aged and the way in which people work, especially women in terms of the home and outside the home, the age difference in terms of longevity of our seniors, and a number of other aspects that were internal to Social Security that probably needed adjustment at that time and that now as the Chair of the Ways and Means [Committee], I feel very strongly we need to address.”

Rep. Sander Levin (D-MI), ranking member of the Social Security Subcommittee, expressed the Democrats’ opposition to any proposal that would divert money from Social Security to individual accounts: “It is our hope that during this hearing, we can have a real discussion of privatization, and that in doing so, our colleagues will come to the conclusion most Americans have already reached the President should drop his demand for private accounts so that we can work in a bipartisan way to strengthen Social Security and ensure that it continues providing guaranteed benefits in the future.”

Eugene Steuerle, a senior fellow at the Urban Institute, said that since Social Security was first created, “Vast changes have occurred in the economy: life expectancy, health care, the physical demands of jobs, the labor force participation of women, the percentage of women who are left on their own to both raise children and work, the age at which one can be considered old, the consumption levels of the elderly relative to the non-elderly, and poverty levels of children relative to the old to mention only some factors. Yet we often debate Social Security as if the type of system we want in 2080 should be determined by perceptions and measures of needs of a society in 1930, or 150 years earlier.” Addressing “inequities” in the current system, Mr. Steuerle demonstrated how Social Security discriminates against women:

  • If a woman chooses to divorce after less than 10 years of marriage, Social Security reduces her expected Social Security benefit without any change to the benefit owed to her husband or the spousal benefit of his second wife;
  • In some circumstances, fewer benefits are paid to single women who are heads of household than to nonworking women. “For instance, a single head of household who works for $20,000 a year for 40 years and raises her children will get lifetime benefits of about $95,000 while paying [payroll] taxes of $50,000, whereas a nonworking spouse who doesn’t raise children but happens to marry someone making $100,000 a year will get about $250,000 in lifetime payments and pay $0 in [payroll] taxes,” he stated;
  • Low-income minority and less-educated women are among the groups most likely to need additional assistance in retirement the original purpose of the spousal and survivor benefits and the least likely to receive it;
  • If a single earner in a family increases his average earnings subject to tax, higher benefits are provided to the household. But, if his spouse also works, the additional taxes she pays often do not increase the household’s benefits. “Many of these penalties tend to hit female labor force participants more than males, and couples who share child-rearing responsibilities more than those where one spouse takes on most of this effort,” he added.

 

In examining reform proposals, Mr. Steuerle stated, “I prefer increasing the retirement age, since that allows more revenues for the system and, consequently, for the same tax rate, a greater level of lifetime benefit to be generated. Other benefit reductions…hit the oldest beneficiaries with the greatest needs as well as everyone else. For similar reasons, among the ‘progressive price indexing’ options, I prefer creating a wage-indexed minimum benefit, since that is more likely to protect the more vulnerable, including survivors, than is a form of progressive price indexing that continues to spend larger shares of revenue on increasing benefits for those with well-above-median-incomes. But, regardless, the system must be redesigned so that, when on automatic pilot, the default option is one that leads to a responsible and sustainable budget.” In addition to raising the age of retirement, he urged Congress to implement a minimum benefit “to help low-income households and groups with less education and lower life expectancies,” ensure that benefits are shared equitably, provide a minimum benefit to spouses and divorced persons, count all years of work history in determining an individual’s benefit, and provide better incentives for low-wage workers to save for their retirement.

Vice President and Chief Economist of the Free Enterprise Fund Lawrence Hunter stated his support for a bill (H.R. 1776/S. 857) introduced by Rep. Paul Ryan (R-WI) and Sen. John Sununu (R-NH) that would establish a Personal Social Security Savings Program. Under the bill, workers under the age of 55 could choose whether they wish to continue with traditional Social Security or invest a part of their payroll taxes in a tax-free personal account with continued oversight by the Social Security Administration. Bill supporters contend that the personal account option would resemble the federal Thrift Savings Plan that Members of Congress and federal employees currently use to save for their retirement. “By allowing workers to invest between five and ten percent of their wages through personal retirement accounts lower-wage workers would be able to save a larger share of their income it is possible to generate sufficient investment income from the accounts to raise retirement benefits substantially above what Social Security promises but cannot pay,” he stated, adding, “The large personal accounts created under the Ryan/Sununu plan would be so powerful they would eliminate Social Security’s long-term financial crisis and eliminate Social Security deficits completely over time without the benefit cuts or tax increases or hikes in the retirement age.”

Testifying on behalf of the Center on Budget and Policy Priorities, Jason Furman expressed his opposition to the administration’s proposal for individual accounts, stating that they would “reduce the revenue available to pay Social Security benefits and thereby advance the date when the program’s benefit costs exceed its non-interest income.” In addition, he noted that the accounts “would also worsen projected solvency over the infinite horizon,” adding, “This is because in a significant percentage of cases the benefit offset required to make the accounts actuarially neutral will not be collected. For example, if an unmarried worker dies prior to retirement his or her entire account goes to his or her estate and the benefit offset is not collected.” Mr. Furman also argued that under the administration’s proposal, 20 percent of the population earning less than $20,000 would lose benefits: “This happens because although the President’s plan protects retirees who earn benefits based on their own earnings histories, it does not protect people who earn benefits based on someone else’s earnings history. A substantial number of low-income beneficiaries, such as widows, surviving children and ex-spouses, would thus be subject to benefit reductions.”

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