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92–445 2016

WHAT WORKERS NEED TO KNOW ABOUT 

SOCIAL SECURITY AS THEY PLAN 

FOR THEIR RETIREMENT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JULY 29, 2014 

Serial 113–SS11 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HUMAN RESOURCES 

SAM JOHNSON, Texas, Chairman 

PATRICK J. TIBERI, Ohio 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

AARON SCHOCK, Illinois 

MIKE KELLY, Pennsylvania 

KEVIN BRADY, Texas 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

ALLYSON SCHWARTZ, Pennsylvania 


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C O N T E N T S 

Page 

Advisory of July 29, 2014 announcing the hearing ............................................... 2 

WITNESSES 

Charles P. Blahous III, Ph.D., Public Trustee, Social Security and Medicare 

Boards of Trustees, Testimony ............................................................................ 14 

Sylvester J. Schieber, Ph.D., Independent Consultant, Testimony ..................... 24 

C. Eugene Steuerle, Ph.D., Institute Fellow and Richard B. Fischer Chair, 

Urban Institute, Testimony ................................................................................. 53 

Joan Entmacher, Vice President for Family Economic Security, National 

Women’s Law Center, Testimony ....................................................................... 65 

Andrew G. Biggs, Ph.D., Resident Scholar, American Enterprise Institute, 

Testimony ............................................................................................................. 76 

Laurence J. Kotlikoff, Ph.D., William Fairfield Warren Professor, Boston University, Boston, Massachusetts, Testimony ....................................................... 89 

QUESTIONS FOR THE RECORD 

Charles P. Blahous III, Ph.D. ................................................................................. 123 

Sylvester J. Schieber, Ph.D. .................................................................................... 129 

C. Eugene Steuerle, Ph.D. ...................................................................................... 132 

Andrew G. Biggs, Ph.D. .......................................................................................... 135 

PUBLIC SUBMISSION FOR THE RECORD 

Financial Planning Association .............................................................................. 138 


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WHAT WORKERS NEED TO KNOW ABOUT 

SOCIAL SECURITY AS THEY PLAN 

FOR THEIR RETIREMENT 

TUESDAY, JULY 29, 2014 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON SOCIAL SECURITY

Washington, DC. 

The Subcommittee met, pursuant to notice, at 11:00 a.m., in 

Room B–318, Rayburn House Office Building, the Honorable Sam 

Johnson [Chairman of the Subcommittee] presiding. 

[The advisory of the hearing follows:] 


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HEARING ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

Chairman Johnson Announces Hearing on 

What Workers Need to Know About 

Social Security as They Plan 

for Their Retirement 

B–318 Rayburn House Office Building at 11:00 AM 

Washington, July 22, 2014 

U.S. Congressman Sam Johnson (R–TX), Chairman of the House Committee on 

Ways and Means Subcommittee on Social Security announced today that the Subcommittee will hold an oversight hearing on what workers need to know about Social Security as they plan for their retirement. The hearing will take place on 

Tuesday, July 29, 2014 in B–318 Rayburn House Office Building, beginning 

at 11:00 a.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. A 

list of invited witnesses will follow. 

BACKGROUND: 

After paying payroll taxes throughout their lifetimes, workers and their families 

count on the essential income replacement Social Security provides should they retire, become disabled, or die. Nine out of ten seniors age 65 and older receive Social 

Security benefits, which are a major source of income for most seniors. 

Future retirees face far more questions than answers, as according to last year’s 

Annual Report of the Social Security Board of Trustees, unless Congress acts, revenues will cover only 77 percent of scheduled benefits beginning in 2033. Worse, revenues will cover only 80 percent of disability benefits beginning in 2016. These findings will soon be updated in the 2014 Annual Report. 

Social Security is central to retirement security, yet Social Security’s complex benefit formula is often confusing to workers and their spouses. Lifetime benefit 

amounts can vary based on income, marital status, and life expectancy, as well as 

when an individual claims benefits, making it difficult for individuals to know when 

they should retire and the benefit amount they will receive. In addition to general 

information on its website, the Social Security Administration makes available online and periodically mails the Social Security Statement with estimated future benefits and also provides a Retirement Estimator on its website to allow users to estimate their benefit amounts. Even with these tools, few workers know the amount 

of benefits they can expect to receive from Social Security. 

Further, as workers plan for their retirement security, they should also consider 

any employer pension they may receive, along with other assets they may accumulate, such as IRAs. Understanding the portion of retirement income Social Security 

represents is also important for policymakers as they weigh options to strengthen 

Social Security. It is an increasing challenge to comprehensively measure retirement 

income, since the amount of monthly income derived from retirement accounts, such 

as 401(k)s and IRAs, can vary widely and is often underreported. 

In announcing the hearing, Social Security Subcommittee Chairman Sam Johnson 

(R–TX) stated,‘‘Hardworking Americans are increasingly facing real challenges in being able to achieve a secure retirement. Not only will Social Security be unable to pay full benefits in 2033 unless Congress acts, but the 


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rules are so complex that workers need help in figuring out their benefits. 

Americans want, need, and deserve a Social Security program they can 

count on and understand.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on the financial status of Social Security programs, the factors influencing the benefits paid, the status of Americans’ retirement readiness and 

how workers can be helped to better plan for their retirement. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov/, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word or WordPerfect document, in compliance with the formatting requirements listed below, by the close 

of business on Tuesday, August 12, 2014. 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 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

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 in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

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 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special 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 availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov

f 

/. 

Chairman JOHNSON. Well, good morning and welcome. Yesterday the Social Security Board of Trustees, folks who provide us 


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with results of Social Security’s annual financial check-up, again 

sounded the alarm over the Social Security financial health. 

Unless Congress does its job, full benefits can’t be paid on time 

beginning in just two years for those receiving disability benefits. 

Further, when today’s 48 year-old workers reach their full retirement age in 2033, they and everyone else receiving retirement and 

survivor benefits will see a 23% cut. Today, 9 out of 10 seniors, age 

65 and older receive Social Security benefits, which is a major 

source of income for most seniors. 

Since I’ve been Chairman, I’ve been committed to making sure 

that Social Security will be there, not just for today’s seniors, but 

for their children and grandchildren. The price of delay gets higher 

every year, so the sooner we act the better. 

As public trustees informed us yesterday, the changes needed 

today are bigger than what Congress passed in 1983. It is no wonder that young people don’t believe they will ever receive benefits. 

A recent survey by Transamerica Center for Retirement Studies 

survey found that 81% of those between the ages of 18 and 34 

today don’t believe Social Security will exist when it comes time for 

them to retire. 

As a result, these young people expect most of their retirement 

to be self-funded, resulting in 70% of them already saving for retirement. With the retirement of the baby boomers, the decline in 

traditional pensions, stagnant wages that make it even harder for 

Americans to save and Social Security impending inability to pay 

full benefits, Americans face a challenging retirement security 

landscape. 

Bottom line, Americans want, need, and deserve a Social Security program they can count on. But just as important, a program 

they can understand. 

For instance, older workers getting ready to retire are trying to 

determine when they should retire, and what benefits they should 

apply for, yet deciding when to take Social Security benefits isn’t 

just a question of how old you are. Workers have to answer questions like ‘‘How long am I going to live? Do I want to keep working? 

How much will my spouse receive from Social Security?’’ 

As we will hear today, taking benefits at the wrong time can cost 

thousands of dollars. While Social Security has some tools to help, 

sometimes these tools aren’t all that helpful. So what happens 

when well-meaning programs become so complex that Americans 

need paid help to figure out what their benefits are? Americans 

pay. 

In the disability program many pay lawyers to help them receive 

disability benefits, while others pay financial planners to help them 

figure out retirement benefits. Worse, those who can’t afford the 

help pay with fewer or lower benefits than they deserve. And that 

is just wrong. There has to be a better way. 

Today’s hearing isn’t just about ensuring that Social Security will 

be there for current and future generations, but starting a much 

needed conversation about what workers need to know about Social 

Security as they plan for their retirement. 

I want to thank all of our witnesses for being here today and I 

look forward to hearing your testimony. And I now recognize ranking member, Mr. Becerra for his opening statement. 


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Mr. BECERRA. Mr. Chairman, before I begin my opening statement, I want to again, register my concern that we will be discussing the Social Security Trustees report which was released yesterday without hearing from the author of and the foremost expert 

on that report. That’s the Social Security Chief Actuary, Stephen 

Goss. I would like to insert into the record the letter that I sent 

to you registering the Democrats’ concern that Chief Actuary Goss 

was not invited to testify at our hearing to provide a neutral, nonpartisan explanation of the facts before we are presented with partisan policy recommendations. I’d like to submit that into the 

record Mr. Chairman. 

Chairman JOHNSON. You could have invited him. You know. 

Mr. BECERRA. Mr. Chairman, we had one witness out of five or 

six—— 

Chairman JOHNSON [continuing]. You could have invited 

him—— 

Mr. BECERRA [continuing]. And we chose to invite someone as 

well an official witness is usually invited. 

Chairman JOHNSON. Does anybody object to having it put in 

the record? Okay. 

[The information follows:] 


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Mr. BECERRA. Thank you, Mr. Chairman. For most Americans 

Mr. Chairman, Social Security is the heart of retirement security. 

Six out of ten seniors rely on Social Security for more than half of 

their income. For almost half of Americans over 80, nearly all of 

their income comes from Social Security. Without Social Security 

nearly half of women over the age of 65 would be poor. Americans 

have earned that vital retirement security. Over 160,000,000 Americans today pay into Social Security with their paycheck tax contributions every week in exchange for economic security for themselves and their families. 

Over its lifetime, Social Security has raised through those tax 

contributions 17.2 trillion dollars and paid out 14.4 trillion dollars; 

thereby, accumulating a surplus of 2.8 trillion dollars for future 

benefit payments. 

Now, only the highest income earners, 25% of retirees, receive 

any significant income from something other than Social Security, 

like an IRA or work-based retirement plan. And that’s even despite 

the substantial subsidies that are provided for retirement savings 

through the Tax Code. 

So, Mr. Chairman, the best way for Congress to improve retirement security for all Americans is by protecting Social Security 

from benefit cuts and making sure it is as strong for future generations as it was for their parents and grandparents. 

I am deeply concerned about the proposal several of our witnesses have put forth to cut Social Security’s annual cost of living 

adjustments for current seniors. The so called chained CPI would 

result in deep benefit cuts for those who need them the most. 

I also disagree with the proposals four of our witnesses have 

made in the past to privatize Social Security, cutting its guaranteed benefits. 

Mr. Chairman, I know I’ve said this before, in fact I said it at 

our hearing on the Social Security Trustees report back on June of 

2011. The biggest challenge facing Social Security right now is Republican budget cuts in the House of Representatives. 


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At our hearing in 2011, I and other Democrats on the subcommittee asked you to hold hearings to find out how Americans 

were affected by a $622,000,000 cut to the Social Security Administration’s budget. 

We never had that hearing, even though prior to 2011, our committee had a bipartisan tradition of holding oversight hearings on 

SSA’s budget and its ability to serve the American public. The cuts 

continued. 

Since the beginning of 2011 the number of Americans receiving 

Social Security has actually grown by almost 4 million people, but 

the Social Security Administration budget is still lower today than 

it was four years ago in 2010. 

We now know some of the ways the cuts are affecting Americans 

who rely on Social Security. Social Security has lost 11,000 employees as a result of these cuts, almost 15% of its workforce. Some 

local Social Security offices are operating with staff shortages of 

more than 25%. 

Budget cuts forced Social Security to reduce the number of hours 

their offices are open to the public by one fifth, including closing 

offices completely on Wednesday afternoons. 

Disabled workers today are waiting longer and longer to receive 

their earned benefits. 14% of Americans who try to call Social Security’s 800 number get a busy signal and those who get through are 

usually put on hold. Seniors who need help are waiting in long 

lines that stretch out the door of the Social Security office sometimes in the heat or icy cold. 

Mr. Chairman, I again urge you to schedule a hearing on the Social Security Administration’s budget so that we can examine these 

budget cuts and make sure Social Security can continue its long 

tradition of providing Americans with the services they paid for. 

Let me enter into the record Mr. Chairman, a letter that the 

Democrats on the subcommittee sent to you today, reiterating our 

concerns, and requesting that we act now before the situation gets 

worse. 

The best thing that we can do if we do really care about Social 

Security and we care about those Americans who have contributed 

every month through their paychecks a tax contribution to the Social Security system, is to make sure we don’t undermine the ability of the Social Security Administration to dispense the services 

these Americans have paid for. 

The money is there. We have challenges policy-wise to Social Security that are long term. Today we face operating budget deficits 

in the billions, but Social Security has a surplus in the trillions. 

And so, we have an opportunity to work together bipartisanly to 

try to resolve these issues. But, Mr. Chairman, I urge you and I 

submit this letter to the record that again urges this subcommittee 

to do its oversight responsibility under the Constitution. To hold 

the hearing on the SSA’s budget so we don’t find ourselves falling 

into situations where Social Security fails to provides the benefits 

that it always has, on time and in full. 

With that Mr. Chairman, I request Mr. Chairman to submit this 

letter into the record. And I yield back the balance of my time. 

Chairman JOHNSON. Are there any objections? There’s none. 

[The information follows:] 


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Chairman JOHNSON. You know on the issue of Social Security 

Administration needing more money, I’d like to make two points. 

One, in the last decade, Social Security received a 34% increase in 

budget since GOP control. And all but one budget has been bipartisan and all were signed by President Obama, your president. Just 

last—— 

Mr. BECERRA. Our President. Our President. 

Chairman JOHNSON [continuing]. Just last week we learned Social Security spent $300,000,000 on failed implementation of a new 

computer system for the State Disability Determination Services. 

That’s $300,000,000 that was wasted. We need to watch out for—— 

Mr. BECERRA. Mr. Chairman—— 

Chairman JOHNSON [continuing]. That, too 

Mr. BECERRA. I’m intrigued, query. I understand the Chairman 

has a prerogative to make additional remarks. We are working outside the regular order. I just want to make sure that if the Chairman is going to make some remarks, we have an opportunity to 

have an opportunity do the same as well. Chairman has always 

been gracious in allowing that, I just want to point that out. 

Chairman JOHNSON. Well, as is customary any member is welcome to submit a statement for the hearing record and as we move 

to testimony today, I want to remind our witnesses to please limit 


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your oral statements to five minutes. However, without objections 

all the written testimony will be made a part of the hearing record. 

We have one witness panel today, and seated at the table are: 

Charles P. Blahous, III, Ph.D., he is a public trustee, Social Security and Medicare Boards of Trustees. Welcome aboard. 

Sylvester Schieber, independent consultant. 

C. Eugene Steuerle, Ph.D., Institute Fellow and Richard B. 

Fischer Chair, Urban Institute. 

Joan Entmacher, is that correct? Vice President, Family Economic Security, National Women’s Law Center. 

Andrew G. Biggs, Ph.D., Resident Scholar, American Enterprise 

Institute. 

And Laurence J. Kotlikoff, is that correct? Ph.D., William Fairfield Warren Professor, Boston University, Boston Massachusetts. 

Welcome and thank you all for being here. 

Dr. Blahous, please go ahead with your testimony. 

Mr. BLAHOUS. Thank you Mr. Chairman, Mr. Ranking Member, and all the Members of the Subcommittee. It’s a great honor 

to appear before you today again to discuss the recently released 

projections of the Trustees and the implications for workers’ retirement planning.—— 

Chairman JOHNSON. Turn on your microphone. 

Mr. BLAHOUS. The light says it’s on, 

*The CLERK. It was on, just bring it closer. 

Mr. BLAHOUS. Okay. 

Chairman JOHNSON. Thank you. 

STATEMENT OF CHARLES P. BLAHOUS, III, Ph.D., PUBLIC 

TRUSTEE, SOCIAL SECURITY AND MEDICARE BOARDS OF 

TRUSTEES 

Mr. BLAHOUS. With your permission, my written testimony has 

a longer analysis, but I’d like to use my oral remarks to simply 

make four quick points. 

The first point is simply that Social Security faces a substantial 

financing shortfall and as of yesterday we reconfirmed that part of 

that shortfall has become an immediate problem. 

In our latest projections released yesterday we projected that the 

Disability Insurance Trust Fund will be depleted in the 4th quarter 

of 2016. What is important to remember about that is that this is 

not an indication that we only have a problem on the Disability 

side. In fact what we found was that the long term shortfall in the 

Old Age and Survivors Insurance Trust Fund is actually larger 

than it is on the Disability side. 

The reason it is showing up first on the Disability side is primarily, not solely, but primarily, because the baby boomers move 

through their ages of peak disability incidence before they hit retirement age. 

So rather than interpreting this as a problem that is solely confined to DI I would urge the interpretation that it is basically the 

first manifestation, the first element of financial crisis associated 

with problems that are afflicting the program as a whole. 

The second point I would make is that uncertainty as to how the 

shortfall is going to be resolved is a threat to workers’ retirement 

security for a number of reasons. One is that as long as workers 


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don’t know how we are going to resolve it, the means of resolution 

is unknown, workers can’t make their plans, they don’t know what 

is going to be required in terms of additional tax contributions, 

they don’t know what their benefits are going to be. And also, the 

longer we delay, the larger the relative sacrifice that we require 

from each birth cohort, because we have fewer birth cohorts that 

can contribute to the solution. 

Another very important factor in my judgment is that the closer 

we come to say, 2033, the greater the uncertainty becomes that we 

are going to be able to repair the shortfall at all within the historical financing structure of Social Security. 

Just for purposes of illustration, consider that if we wanted do 

a solution today, and we wanted to not raise taxes and we wanted 

not to cut benefits for people now in retirement, we’d have to, reduce the benefits of people newly coming onto the rolls by 21%. But 

if we wanted to employ that same strategy in 2033, even cutting 

off the entirety of their benefits would not solve the problem then. 

So clearly, by 2033, our opportunity has long passed. And there’s 

a point between now and then that our opportunity to close the 

shortfall within the historical financing structure disappears. And 

that’s a problem, because if we can’t maintain Social Security finances under the historical financing structure, then we’d have to 

find a different means of doing it and programs financed for example from the General Fund tend to be more changeable than Social 

Security, they tend to be more subject to sudden eligibility changes, 

benefit changes, means tests, that sort of things, things that Social 

Security has generally escaped in the past. 

The third point I’d make is that the costs of Social Security are 

rising faster than our economic output. That wouldn’t be a problem 

if it reflected a greater national capacity to finance these benefits. 

But because Social Security is not a savings program but rather an 

income transfer program, basically, any benefit gains that come to 

one group have to come at the cost of a different group, at least 

from a financial perspective. So what is happening is we’re increasing our commitments to paying higher benefits without increasing 

our national capacity to finance them. And that’s an issue. 

The final point I would make, Mr. Chairman, is that this may 

seem paradoxical, but there certain ways in which we could actually enhance retirement security by slowing the growth of costs. 

You have to remember that retirement security is not only a function of annual income and assets, but is also a function of the number of years over which you have to stretch your retirement resources. 

And there is a lot of evidence that the current design of Social 

Security is causing people to withdraw prematurely from the workforce and run greater risk of outliving their savings. 

If we could possibly repair some of the inducements and incentives in the course of slowing the growth of costs, we could simultaneously put the program on a sounder financial footing and increase retirement security at the same time. 

We also have a problem in the sense that the rising cost of financing the current benefit formula is depressing the relationship 

between workers’ pre-retirement earnings and their post-retirement benefits, and that is an issue as well. 


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That is particularly an issue for low income people because you 

have many people who are in the situation now where they actually expect better standards of living in retirement than they have 

as workers. And this has terrible implications for their ability to 

put aside savings, their labor force attachment and other problems. 

We see the results of that in the paucity of savings that a lot of 

groups have outside of Social Security. 

In conclusion, Mr. Chairman, the financing shortfall facing Social 

Security, creates substantial income risks for Americans who are 

planning for retirement. We can minimize this risk by enacting financing reforms that preserve historical financing structure or reducing cost growth to rates that can be financed within a stable tax 

rate. Retirement income security would also be enhanced by reforms that increase labor force attachment and remove disincentives to saving. 

Thank you. 

[The prepared statement of Mr. Blahous follows:] 


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Chairman JOHNSON. Thank you. 

Dr. Schieber, welcome. Please proceed. 

STATEMENT OF SYLVESTER J. SCHIEBER, INDEPENDENT 

CONSULTANT 

Mr. SCHIEBER. Mr. Chairman. Mr. Becerra. Members of the 

Subcommittee, thank you for inviting me here today. In the opening section of my submitted testimony, I discussed the major apVerDate Sep 11 2014 11:55 Jun 28, 2016 Jkt 092445 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\92445.XXX 92445

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proaches to assessing how workers are doing in the retirement 

preparations. Life cycle and similar models are good tools to facilitate policy makers’ and analysts’ understanding of how the retirement system is working, but beyond the grasp or the interest of 

most workers. 

Plan sponsors and administrators who are at the nexus of workers’ retirement savings will generally depend on earnings replacement rate models for plan design and communications for broad 

participant population, because broad rule of thumb direction is 

often the best that can be offered to the large group of workers participating in these plans. 

Indeed, the Social Security Administration introduces its own retirement planner on its official website, discussing retirement planning in terms of target earning replacement rates. In the early 

20th Century, plan sponsors focused on retirees having income that 

would allow them to maintain their career standard of living. Over 

the last 40 years or so, replacement rates have been used explicitly 

in plan design and communication by plan sponsors. 

Conventional replacement rate targets have been estimated to 

allow workers to have spendable income in retirement that is 

equivalent to that achieved toward the end of the career. For most 

plan designers and retirement counselors, the pre-retirement earnings measure used in defining replacement rate targets is a salarylevel retirement or average earnings over the last five years of the 

career. 

For researchers, price index career average earnings or price 

index earnings a few years prior to retirement are often used because earning patterns toward the end of the career tend to decline. So using the final years gives you a misimpression of what 

is going on. 

Social security earnings replacement rates presented by the 

trustees are not equivalent to the conventional replacement rate 

measures. I understand they have been taken out of this year’s 

prestige report, but they have been in prior reports. And there was 

a doctoral note released yesterday regarding these. 

They are based on career average wage indexed earnings for 

which most workers, especially lower earners, are significantly 

higher than the career average real earnings. The Social Security 

actuaries did publish a note on this yesterday. But let us consider 

the hypothetical median workers retiring at age 65. Using their assumptions from last year’s trustees report, this worker earned 

$22,295 in 1990, the equivalent of $39,811 in today’s dollars, because of CPI indexing. 

But they counted the earnings at $47,740 in calculating this 

worker’s replacement rate. Now, when workers go to the grocery 

store, the auto repair shop, or wherever, they do not spend wage 

index dollars. They spend the real dollars they have in their pocket. And so it is not clear why we want to treat these standards of 

living they never achieved during their working career as the 

standard of living against which we are judging benefits. 

In table one of my submitted remarks, you can see the conventional measures of Social Security replacement earnings result in 

replacement rates that are higher than those presented by the 

trustees for full-career workers retiring at normal retirement age. 


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I understand that benefits are developed using career average 

wage indexed earnings, but have found that even economists that 

have studied Social Security for years often do not understand that 

the trustees’ replacement rates are calculated using a different 

base year than the index used to determine their benefits. 

Some analysts even apply wage indexing to all pre-retirement income and retirement income targets, suggesting that workers 

should be saving beyond what is needed to maintain their pre-retirement standard of living. Our retirement system should not expect workers to become slaves to financing retirement living standards they never achieved while working. My analysis of the 31 and 

38 birth cohorts of Social Security beneficiaries summarized in 

table two suggests this problem may become accentuated over time 

as average age indexed earnings rise more rapidly than real wages 

for workers. Replacement of real earnings is increasing under this 

system. 

One reason for the widely perceived inadequacy of workers’ savings for retirement outside of Social Security today is a series of 

reports published by the Social Security Administration summarizing survey data gathered by the Census Bureau in its current 

population survey. We heard a summary of this in the opening remarks this morning. 

Comparison of the reported income provided by pension annuity 

plans and IRAs to Social Security from IRS tax filings shown in 

table three of my submitted remarks proves that as much of the 

pension and IRA income paid to Social Security beneficiaries is not 

being captured by the current population survey. This is a problem 

the Census Bureau and Social Security has known about for twenty 

years. 

If the full income being paid to Social Security beneficiaries by 

supplemental retirement plans was being reported, it would be 

roughly equivalent to Social Security benefits instead of less than 

half of that amount, and it would be above Social Security benefits 

for the top half of the income distribution of retirees. These benefits distribute much more broadly down the income distribution 

than Social Security reporting indicates. It is impossible to clearly 

understand who is doing well and who is doing poorly under the 

current arrangements if the official government reports on the income status of retirees ignores hundreds of billions of dollars of 

their income. 

I have a formal analysis of this issue that was published in the 

Journal of Retirement earlier this year that I would be happy to 

submit to the committee if you are so interested. 

[The prepared statement of Mr. Schieber follows:] 


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Chairman JOHNSON. Please do. Thank you. 

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f 

Chairman JOHNSON. Dr. Steuerle, please go ahead. 

STATEMENT OF C. EUGENE STEUERLE, INSTITUTE FELLOW 

AND RICHARD B. FISCHER CHAIR, URBAN INSTITUTE 

Mr. STEUERLE. Thank you, Mr. Chairman, Mr. Becerra. It is 

an honor to be here with you again. And also the Members of the 

Subcommittee. Contrary to the popular argument that we live in 

an age of austerity, I would like to suggest that we live in an age 

of extraordinary opportunity. Yet, as I argue in a book, Dead Men 

Ruling, that I sent to each member of this Subcommittee, we block 

Congress by constantly re-fighting yesterday’s battles. 

As only one reflection, in 2009, every dollar of revenue had been 

committed before that new Congress walked through the Capitol 

doors. Looking to Social Security after three quarters of a century 


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of continual growth, it has largely succeeded in providing basic protections to most, though not all, older people. Now, as psychologist 

Laura Carstensen suggests, we should be redesigning our institutions around the new possibilities that improved health care and 

long lives provide. 

But the eternal automatic growth of Social Security is not conditioned on any assessment of society’s opportunities or needs. Not 

making the best use of the talents of people of all ages, not child 

or elderly poverty, not educational failures or the incidence of Alzheimer’s or Autism. Let me focus on three problems caused by this 

past, rather than future focus. 

And I should point out that these are problems that apply regardless of whether one is a progressive or a conservative, because 

neither conservative principles would allow these types of problems 

to persist. The first is the ways that Social Security provides unequal justice to many. The second is the consequence of providing 

ever larger shares of Social Security resources to the middle aged. 

And the last is how each year that reform is delayed adds to the 

burden passed on to younger generations. 

First to unequal justice. Social Security redistributes in many 

ways, both progressive and regressive. And many fail to provide 

equal justice. Among the most outrageous, working single parents, 

often abandoned mothers, are forced to pay for spousal and survivor benefits they cannot receive, often receiving at least $100,000 

fewer lifetime benefits than some who do not work, do not pay Social Security tax, and raise no children. 

Similarly, the system discriminates against younger couples, 

against spouses who divorce before ten years of marriage, against 

long term workers, and those who beget or bear children before age 

40. 

To the second point, middle aged retirement. People today retire 

about a decade longer than they did when Social Security first 

started paying benefits. Let me be clear. The biggest winners of 

this multi-decade policy have been people like the witnesses at this 

table and the members of Congress who, if married, now get about 

$300,000 in additional lifetime benefits. This is not a way to redistribute to people in need or people with shorter life expectancies. 

But there are other consequences. A decline in employment rate, 

as reflected in Congressional Budget Office reports, a decline in the 

rate of growth of GDP and of personal income, as well as lower Social Security benefits for the truly old, when they start receiving 

benefits so much earlier in their lives. Meanwhile, within a couple 

decades, close to one third of the adult population will be on Social 

Security for one third or more of their adult lives. 

There is no financial system, public or private, that can provide 

so many years or retirement for such a large share of the population without severe repercussions, both for the individuals’ wellbeing in retirement and for the workers upon whose backs the system relies. 

Finally, the impact on the young. Today’s lifetime Social Security 

and Medicare benefits approximate about $1 million for a couple 

with average incomes throughout their working lives. That large 

number comes about largely because of the number of years of support. Rising by about $18,000 a year, benefits for a couple in 2030 


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are scheduled to grow to about one and a third million dollars. 

Meanwhile, the rate of return on contributions falls continually for 

each generation. 

Each year of delayed reform shifts more burdens to younger generations from older ones, with the largest impact on groups like 

blacks and Hispanics, in part because they comprise a larger share 

of those future generations who are scheduled to get lower returns 

than current generations retiring. 

In summary, each of year of delay in reforming Social Security 

continues a pattern of unequal justice under the law, threatens the 

well-being of the truly old, increases the share of benefits going to 

the middle aged, leads government to spend ever less on education 

and other investments, contributes to higher non-employment, 

lower personal income and revenues, not just in Social Security but 

throughout the system, and increases the burden that is shifted to 

the young and to people of color. Thank you. 

[The prepared statement of Mr. Steuerle follows:] 


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f 

Chairman JOHNSON. Thank you, sir. 

Ms. Entmacher, welcome. Please proceed. 


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STATEMENT OF JOAN ENTMACHER, VICE PRESIDENT FOR 

FAMILY ECONOMIC SECURITY, NATIONAL WOMEN’S LAW 

CENTER 

Ms. ENTMACHER. Thank you Chairman Johnson, Ranking 

Member Becerra, and Members of the Subcommittee. Thank you 

for giving me this opportunity to testify today on behalf of the National Women’s Law Center. For a large majority of Americans, Social Security is not only their major source of retirement income 

but the most secure and predictable. Benefits are modest but incredibly important. The average Social Security benefit for women 

65 and older is about $13,000 a year. It is about $17,000 for older 

men. As Mr. Becerra said, without Social Security, half of women 

65 and older would be poor. 

And for two thirds of seniors, Social Security provides at least 

half of their retirement income. It is virtually the only source of income for over one third of seniors. These data are from the Current 

Population Survey. While Mr. Schieber has criticized this survey 

for not fully reflecting income distributions from retirement accounts, other surveys confirm that most seniors cannot expect 

much support from their retirement savings. The Federal Reserve 

Board Survey of Consumer Finance shows that half of households 

between ages 65 and 74 had no assets in retirement accounts. 

Two thirds of those over 75 had no retirement assets. Younger 

generations are not doing much better. 45 percent of all working 

age families and 40 percent of families near retirement have nothing in retirement accounts. These data show that today’s workers 

will also be heavily reliant on Social Security. They cannot afford 

benefit cuts, whether it is part of privatization plans that would replace secure benefits with risky private accounts, a lower and less 

accurate cost of living adjustment, or further increases in the retirement age. 

We do need to increase retirement savings for average Americans, and the surest and most effective way to do it is to protect 

and enhance Social Security. Social Security is already virtually 

universal and provides lifelong benefits that are adjusted for inflation. In addition, it provides life and disability insurance for workers and their families, imposes few responsibilities on employers, 

and is highly efficient. 

There are several reforms that would improve the adequacy and 

equity of Social Security, as Mr. Steuerle has testified, and which 

I mentioned in my written testimony. What I want to emphasize 

is that they are affordable. The report of the Social Security trustees shows that there is a long term shortfall. But Social Security 

is fundamentally sound. On a combined basis, it can pay promised 

benefits in full until 2033, and 77 percent of benefits after that. It 

would be irresponsible for Congress to wait until the trust funds 

are within six months of exhaustion, as it did in 1983 before taking 

action to strengthen Social Security. But two decades provides time 

for Congress to enact reforms that raise revenue and improve benefits. 

Polls show that a large majority of Americans favor this approach. However, there are two issues that require immediate attention. Congress should prevent cuts to disability benefits in 2016 

and reassure all workers that if they are seriously injured and can 


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no longer work, that Social Security will be there for them. It can 

do this through the simple and routine step of reallocating payroll 

taxes to rebalance Social Security’s two trust funds. Congress has 

done this 11 times in the past and in both directions. 

Second, Congress needs to restore adequate funding to the Social 

Security Administration. Cuts in services are already jeopardizing 

timely access to the benefits Americans have earned, and fall especially hard on the most vulnerable people. Moreover, at least in 

part for budgetary reasons, Social Security plans to rely even more 

on conducting its work through online interactions. But this strategy has its limits, even for those who are internet savvy. The Social 

Security website touts how quick and easy it is to sign up for benefits online. 

But deciding when to take benefits is a major financial decision 

and applicants should be able to consult with well-trained staff to 

get help understanding their options and their consequences. In addition, access to and ability to use online services is more limited 

among the population of elderly people and people with disabilities 

that Social Security serves. And even people that have no problem 

applying for benefits online at 66 may not be able at age 90 to go 

online to correct an erroneous deduction for Medicare premiums. 

In announcing this hearing, Chairman Johnson, you said Americans want, need, and deserve a Social Security program they can 

count on and understand. I could not agree more and I thank you 

again for inviting me. 

[The prepared statement of Ms. Entmacher follows:] 


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Chairman JOHNSON. Thank you, ma’am. 

Dr. Biggs, welcome. 


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STATEMENT OF ANDREW G. BIGGS, PH.D., RESIDENT 

SCHOLAR, AMERICAN ENTERPRISE INSTITUTE 

Mr. BIGGS. Mr. Chairman, Congressman Becerra, and Members 

of the Subcommittee, thank you very much for inviting me to speak 

to you this morning. Much of what Americans need to know about 

Social Security and retirement is difficult to understand. Worse, 

much of what we think we know turns out not to be true. I would 

start by saying we should not panic and we should not pass farreaching policy changes in haste. For instance, some have proposed 

substantial expansions to the Social Security program, with others 

arguing that these expansions should be financed by reducing tax 

advantages for private retirement savings plans such as IRAs and 

401Ks. 

This would be a mistake. The state of retirement security in the 

U.S. is substantially better than you probably think. While some 

studies claim that Americans face a so-called retirement crisis, 

these articles make a number of methodological choices that, in my 

view, are unsupportable. They overestimate what Americans need 

for retirement, understate what Americans have saved, and misunderstand how family structures and health costs affect the 

amount that one must save for retirement. 

Other high quality research, including projections from the Social 

Security Administration itself, show a much more positive view of 

Americans’ retirement saving. For instance, the Social Security Administration’s office of retirement disability policy maintains what 

is surely the most comprehensive model of retirement income in 

the country. This model simulates on a person by person, year by 

year basis, employment, pension offerings and participation, individual investment decisions, and of course the accrual of Social Security benefits. 

The SSA model estimates that Americans who were born in the 

depression had a total retirement income at age 67 equal to 109 

percent of their career average earnings indexed for inflation. We 

cannot judge for ourselves whether that amount is enough. What 

is significant in this context, though, is SSA does not forecast a 

large decline in retirement going forward. 

For instance, fast forward to the Generation X’ers, who are widely assumed to be dramatically under saving for retirement. The 

SSA model projects that the median Gen X’er will, at age 67, have 

a retirement income equal to 110 percent of his career average 

earnings adjusted for inflation. Retirement income will come from 

different sources, from defined contribution plans rather than defined benefit plans, but the SSA model, which I believe is the best 

in the business, does not produce numbers that scream out, retirement crisis. 

But there is much more than we can do to provide individuals 

with better information about the retirement savings decisions they 

make. As my testimony details, the benefit estimates provided in 

the annual Social Security statement are expressed in a form, so 

called wage index dollars which are essentially meaningless from 

a retirement planning point of view and which almost no users of 

the statement could possibly understand. 

The figures published by the SSA, which include both the benefit 

estimates published in the statement and replacement rate calculaVerDate Sep 11 2014 11:55 Jun 28, 2016 Jkt 092445 PO 00000 Frm 00078 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\92445.XXX 92445

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tions, which Dr. Schieber discussed in his testimony, are potentially very useful in retirement planning, but are current calculated 

in a way that is simply incorrect. For instance, for a 30 year old 

worker today, the benefit estimate he will receive on his Social Security statement understates the true inflation index value of that 

future benefit by around 35 percent. 

The agency needs to get these figures right. But the biggest problem with retirement security today is not America’s savers. It is 

America’s legislators, who literally for decades have ignored the 

need to fix Social Security’s finances. According to Social Security’s 

trustees, the programs 75 year deficit has risen by 66 percent since 

2008. The Congressional Budget Office’s figures are even worse. According to the CBO, Social Security’s long term deficit has nearly 

quadrupled in the past 6 years. While the CBO once projected that 

Social Security would be solvent until mid-century, today both CBO 

and SSA project insolvency in the early 2030’s. 

In other words, the insolvency date for Social Security, according 

to CBO, at least, has moved forward by nearly two decades just in 

the past six years. How much worse does this problem have to get 

before both political parties step up to the plate and fix Social Security? Saving for retirement is our job as individuals. Fixing retirement programs is your job as members of Congress, and I respectfully suggest that we all get down to business. Thank you. 

[The prepared statement of Mr. Biggs follows:] 


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f 

Chairman JOHNSON. Thank you, sir. We appreciate your comments. 

Dr. Kotlikoff, you are now recognized. 


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STATEMENT OF LAURENCE J. KOTLIKOFF, PH.D., WILLIAM 

FAIRFIELD WARREN PROFESSOR, BOSTON UNIVERSITY, 

BOSTON, MASSACHUSETTS 

Mr. KOTLIKOFF. It is a great honor, Chairman Johnson and 

Mr. Becerra, and other distinguished Members of the Committee, 

to be with you. I guess I am on the left side of this table, because 

I am facing a Republican. I might be viewed as a Republican because I was probably invited by the Republican members. 

Chairman JOHNSON. You are on our right. 

Mr. KOTLIKOFF. Okay. Well, let me just tell you, I have been 

voting on the left for my entire adult career. I voted for every 

Democratic president, including our current president. So I just 

want the Democratic members to realize, and also the Republican 

members, that I am speaking here today not as a political person. 

I am an academic. I am an economist and I am here to tell you 

that I am here to tell you things that you have not heard so far 

and you may not hear from anybody else about Social Security solvency and about its complexity and inequities. Although some of 

these I have heard mentioned. 

I think the first thing I want you to realize is that we have 

issues of generational inequity, unfairness, and we also have issues 

of intragenerational inequity and unfairness. And I think these 

things keep getting kind of confused. The Democrats, I sense, are 

very concerned about fairness within a generation, with the rich 

who are the same age being treated unfairly relative to the poor, 

and that is an important issue. 

But I want you to set aside that and assume that everybody 

within a cohort is exactly the same. So Mr. Becerra, suppose everybody your age was exactly the same and looked just like you. And 

everybody who was a year younger was the same and looked just 

like that person. And so we have old people and young people, and 

there are no differences within the cohort. So, would we want to 

leave enormous bills for our children and future generations? 

Wouldn’t we want to engage in social insurance policies, other 

kinds of policies, that may do enormous good and may be very important because insurance markets are not operated very well? 

There are good economic arguments. 

But then the question is, getting the government involved to fix 

some of these problems is one thing. Another thing is leaving future generations to pay for those fixes. To pay the bills for future 

generations. And we have, really, a generational crisis here of enormous proportions. And the way economists look at this is we look 

at the fiscal gap. We look at, over the entire future of the economy, 

how much are the projected expenditures compared to the projected 

taxes measured in present value? What is the gap? What is the fiscal gap? 

This is what economists measure. The fiscal gap in the U.S. is current $210 trillion. That is according to the CBO’s alternative fiscal scenario data released last week. That is 58 percent of the 

present value of revenue. So this country is 58 percent underfinanced. Detroit is about 20 percent underfinanced. Social Security 

by itself is 33 percent underfinanced. If you look at table F61 in 

the trustees’ report released yesterday, you will see that there is 

a $24.9 trillion unfunded liability over the infinite horizon. It is not 


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over 75 years. Nothing in economics tells us to look at 75 years and 

ignore the future. 

I have children. I am sure many of you do as well. I started a 

little bit late, so I have young children who will be alive in 75 

years. We cannot ignore the commitments to them and there is 

nothing in economics that allows us to do that, in economic theory. 

So we have to measure things correctly. And economic theory is 

very clear that we should be measuring infinite horizon fiscal gap. 

The trustees’ report is burying that number. They have been calculating it since 2002. The trustees don’t even mention it in their 

summary statement. 

We just heard a statement that says Social Security is fundamentally sound. A system that is in worse shape than Detroit’s 

pension systems is not fundamentally sound. A system that is 58 

percent underfinanced, according to the trustees’ report, that’s the 

entire country. The Social Security system is 33 percent underfinanced. This stuff is not fundamentally sound. 

We have to start thinking about things from a generational perspective, and that does not mean that you should not also focus on 

intragenerational equity. I am all for that. Okay? I have been a 

lifelong Democrat in terms of voting. I am with you. And we have 

to look at that, too. We have to look at fairness within and across 

generations. But we cannot keep confusing these things. We cannot 

in the name of intragenerational equity ignore what we are doing 

to all the children, poor and rich alike. 

So what I am going to do is show you Social Security’s formula 

for the benefits of a spouse. Ten mathematical functions. This is 

the first time anybody has actually expressed this in math. Ten 

functions. One is in four dimensions. One is a maximum function. 

There is also side conditions that are very complicated. Many, 

many functions to determine the side conditions and the variables 

that go in here. One of those side conditions is a maximum of a 

min function. 

It could not be complex. People are making all kinds of crazy 

mistakes, and Social Security people in the offices are providing all 

kinds of bad advice because the thing is just crazily complex. We 

need a new system that is not going to go broke. 

[The prepared statement of Mr. Kotlikoff follows:] 


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f 

Chairman JOHNSON. Thank you, sir. 

As is customary for each round of questions, I will limit my time 

to five minutes and ask my colleagues to also limit their questioning time to five minutes, as well. Dr. Blahous, according to this 

year’s report, if Congress doesn’t act, come 2033, everybody receiving benefits will face a 23 percent cut. Worse, in just two years, everybody receiving disability insurance will face a 19 percent cut in 

benefits. Some of my friends on the other side like to say that 2033 

is way off in the future, and that Congress has plenty of time. Social Security is well and good right now. 

First, based on the trustees’ report, would it be right to say that 

Social Security is in crisis right now? 

Mr. BLAHOUS. Well, we certain face a crisis on the disability 

side. And I would certainly say that we face a shortfall that is bigger than we have ever successfully corrected before. And so yes, I 

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Chairman JOHNSON. Well, is it fair to say, then, that we are 

already facing the largest shortfall Social Security has ever faced, 

and can you explain that in simple terms? How big is this Social 

Security shortfall right now? 

Mr. BLAHOUS. I have discovered in my public life that I am terrible at this, making complex issues as simple as that. But I would 

say, I think Dr. Kotlikoff did it pretty well. You can think of it in 

terms of the fraction of current benefit obligations that are 

unfinanced. When you go out to 2033, you are talking a quarter of 

the benefits that we are promising are not financed. Or you could 

look at it another way. You could say that people’s tax revenues 

that they are paying are short by a third of what they need to be 

to fund promised benefits. 

So if you look at your tax return, the amount of payroll taxes you 

are paying, and imagine yourself paying an additional third on top 

of that, you get a sense of how big the problem is. 

Chairman JOHNSON. Yeah, I hear you. And something my 

Democrat friends like to say. There is plenty of money in Social Security, so we have nothing to worry about. Do you want to address 

that? 

Mr. BLAHOUS. I would say that the date of trust fund depletion 

and the amount of money in the current trust fund does not provide very useful information about how much time we have. Because if you wait to the point where it is drawn down and run out, 

it is too late to fix it. 

Chairman JOHNSON. Right. 

Mr. BLAHOUS. Because the gap is too big. So I would urge that 

you think in terms of, how much longer is the problem still at a 

soluble level. And when you think about it that way, you realize 

that time is much shorter than the large trust fund balance might 

suggest. 

Chairman JOHNSON. Well, what price will beneficiaries and today’s workers pay if it is not fixed before this president leaves office? 

Mr. BLAHOUS. Well, let me give you a two part answer, if I 

could. There is a part that I think most experts would give and 

then I think there is a part that I would give that most experts 

wouldn’t. But I think most experts would say they are going to pay 

a very high financial price for delay. That young Americans entering the system are going to lose about 4 percent of their lifetime 

wage income through the program as a net income loss, even net 

of all the benefits they got. 

But I would say there is another risk that they face. And I think 

a lot of the policy community has been slow to recognize this. 

Which is that they run the risk of having a Social Security system 

that is not structured the way it has been in the past. Historically, 

for better or for worse, there has been pretty good bipartisan acceptance of the way we finance Social Security. And so benefits 

have been relatively safe from sudden changes because of the way 

we pay for Social Security out of the payroll tax. 

But if we go to a system that we cannot balance that way and 

we have to subsidize it permanently from the general fund, then 

all those bets are off. Then suddenly, people are subject to much 

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nanced from the general fund tend to be much more subject to sudden benefit changes and means tests and things of that nature 

than Social Security has been. 

Chairman JOHNSON. Well, I am not sure we can increase taxes 

enough to cover it. Dr. Schieber and Dr. Biggs, is there anything 

that you want to add to that statement? 

Mr. SCHIEBER. Well, if you think about it, 4 percent of a worker’s earnings is kind of an abstract concept, unless you are a worker facing 4 percent additional taxes on your earned income each 

year. If you think about it, over a 40 or 45 year career, someone 

starts working in their early 20s, they work until 65, 66, 67, 45 

years, we are talking about taking 2 more years of their earnings 

to pay for a benefit that is essentially the equivalent of the benefit 

we are paying to people of my generation right now. 

And that seems to be a very substantial levy against them, 

knowing how hard it is for young people today to get a start in life. 

There is no reason to expect that the kids matriculating through 

high school and even the ones in grade school are necessarily going 

to have that much easier time to start. So there is a limit. I think 

there is an equity issue here that we need to think about if we are 

going to talk about delay. 

Chairman JOHNSON. Thank you. My time has expired. Mr. 

Becerra, you are recognized. 

Mr. BECERRA. Thank you, Mr. Chairman. And thank you all for 

your testimony today. Where should we go? It is interesting. Mr. 

Chairman, let me clarify something for you. Democrats do not 

think that we should be hunky dory, going around town just thinking that we should do nothing on Social Security. I think Democrats have said for a long time, we should keep the most successful 

program that has ever been devised in America to help Americans 

have economic security stay strong moving into the future. 

And so we are prepared to meet the challenge that faces Social 

Security. And there is a challenge. We have heard it discussed 

here. In about 20 years, we are going to be hitting the challenge. 

I would not call it a crisis. I would call it a crisis what happened 

to all of Enron’s employees who put money into their pensions and 

found out when they woke up one day that Enron no longer had 

any of their money that they were counting on for retirement. That 

is a crisis. 

I call it a crisis that we go to war in Iraq, never pay a dime of 

it with real money, using the government credit card. Spend over 

$1 trillion. Still have not paid for it. And if you want to talk about 

infinite horizons, the so called projection into the future of however, I don’t know how you do that. But apparently some folks 

think you can project infinitely into the horizon. What is the cost 

of never having paid for a trillion dollar war and what will that 

cost be in infinity? 

The issue is this. It is, how do you make sure you give Americans 

that security? Ms. Entmacher made a really good point. The average benefit is about $1200 a month under Social Security. No one 

is going to get rich off of that. And I know we use euphemisms. Mr. 

Blahous, you used the euphemism of slowing the growth of cost. 

That is another way of saying cutting benefits. So yeah, you can 

slow the growth of cost in Social Security, which means cutting a 


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Social Security recipient’s $1200 benefit. You want to talk about a 

crisis, talk about someone who depends almost exclusively on Social Security, about cutting their benefits. And that is a crisis. 

Especially for women in America, who as Ms. Entmacher pointed 

out, earn less than men do when they retire. Because they have 

done their business of helping raise the next generation. And they 

get penalized for not being able to stay in the workforce as long as 

men do. Those are the crises that we have to address. But Social 

Security? With $2.8 trillion in reserves? Is that a crisis today? No, 

I would call a federal budget operating deficit in the hundreds of 

billions as something that we have to tackle today. I think we have 

time to deal with Social Security on a bipartisan basis. But we 

should not try to panic Americans, especially young Americans, 

who today do not know where they are going to have their retirement savings. Because now these defined contribution plans could 

be like Enron. Where poof, it is gone if that company does not 

make good investment decisions. 

And so I think we should be careful about how we discuss Social 

Security. Because I do not think anyone can name me a private 

sector program that works as a retirement benefit, disability insurance, and a life insurance policy all at the same time and over 78 

years, never having once failed to pay on time and in full. So I can 

name a lot of Enrons in the private sector. We can talk about the 

crisis in the Veteran’s Administration. Social Security is not one of 

those. But the important thing is, we should not let Social Security 

become one of those failures by underfunding it with its budget. 

It is growing in the number of people that it has to serve. Yet 

its budget is smaller today than it was 4 years ago. And Mr. Chairman, whether our Republican majority in the House of Representatives wishes to hold a hearing, as it should because of our oversight 

responsibilities under the Constitution, to determine how the Social 

Security Administration is doing, this will come back to haunt anyone who wishes to hide under the rocks about this budget for Social 

Security. 

Ms. Entmacher, women have a tougher time in retirement because they live longer than men and they earn less in retirement, 

whether it is through a private pension plan or through Social Security. What would happen to that population of women, who are 

going to continue to outlive men, if we were to cut benefits by, say, 

doing the chained CPI and also continue to see the budget for the 

Social Security Administration be well under what it needs to be 

able to provide sufficient services to those Americans? 

Chairman JOHNSON. The gentleman’s time has expired, so 

please be brief. 

Ms. ENTMACHER. I will. The chained CPI is a way of computing the annual cost of living adjustment that is lower, and I 

would say less accurate, than the current rate is computed. That 

adds up every single year you live. It is kind of like compound interest in reverse. And we calculated that for a single elderly 

woman receiving the median benefit, by age 80, her benefit would 

be cut by $54 a month. Which may not sound like a lot, but it is 

the equivalent of one week’s worth of food every single month that 

she can no longer afford. 


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So that is a severe cut in benefits. Of course, the service cuts 

mean that it may be more difficult to access the Social Security 

benefits that you have earned if there is a problem, that you are 

receiving accurate benefits, if you need to change your bank account, it is just that much harder to get hold of someone to get it 

straightened out and make sure that you continue to get your benefits that you count on on time and in full. 

Chairman JOHNSON. Thank you, ma’am. Mr. Tiberi, you are 

recognized. 

Mr. TIBERI. Thank you, Mr. Chairman. Thank you all for being 

here today. I had a former governor in Ohio, a friend of mine, also 

a U.S. Senator, George Warner, when he became governor, said, 

‘‘We need to do more with less.’’ That does not mean we need to 

do less with less. We need to do more with less. And he succeeded 

in doing that. Let me share with you, because the budget has been 

talked about, these are numbers from the Social Security Administration. This makes a lot of sense. A higher number than ever, customers, Social Security recipients, use the Social Security online 

tools more than ever. 

Which, there is obviously a cost savings. 50.9% in fiscal year 

2013. Another great statistic. This is a survey. This is an annual 

survey, fiscal year 2013, from again, Social Security customers. 

80.2 percent said that the Social Security office that they worked 

with provided services of excellent, very good, or good in 2013. 80.2 

percent. 

And I know that is true in the office near my hometown of Worthington, Ohio, just outside Columbus. So I think those are good 

things to remember as we talk about the Social Security budget. 

Mr. Chairman, I would like to submit for the record, two articles 

from the Columbus Dispatch. The first title, Democrats’ Plan Won’t 

Save Social Security, Congress’s Budgeters Say, written on Thursday, July 17th by Jack Torre. 

In that article, it says that a Senate plan that is designed to both 

preserve Social Security and expand its benefits for some by raising 

payroll taxes on the wealthy. The report by the Congressional 

Budget Office concludes that to make the Social Security solvent 

for the next 75 years, payroll taxes would need to be raised on all 

working Americans who pay Social Security taxes. 

And in response to that, Mr. Chairman, a Tuesday, July 22nd 

editorial in the same newspaper, Stop Ignoring Good Advice: CBO 

Report Renews Calls For Leaders To Fix Financial Fundamentals. 

And in the text of the editorial, it says, ‘‘Promising people more 

benefits at no cost isn’t new, especially in an election year. The 

Democrat-backed plan that purports to expand Social Security payments at no additional cost to most Americans simply isn’t realistic, a fact backed by the Congressional Budget Office report last 

week that also provided a sobering reminder for the need to get serious about entitlement reform overall. 

‘‘Senate Democrats recently backed a plan that they said would 

preserve Social Security and expand benefits for many. They said 

that the increase would be paid for by payroll taxes on those making more than $117,000 per year, the current threshold above that 

Social Security taxes aren’t levied. Unfortunately for the CBO, the 

math doesn’t add up. The non-partisan research arm of Congress 


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said to simply keep Social Security solvent for the next 75 years, 

payroll taxes would need to be raised on all working Americans.’’ 

And it goes on. I’d like to submit both of those for the record, 

without objection. 

[The information follows:] 


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f 

Mr. TIBERI. Which brings me to a point I am going to make, and 

maybe Dr. Biggs, you can help me. Because in your testimony, you 

kind of touched on this. Some say, well, the crisis is not here. I 

have a 47 year old sister. She is a woman. She is my sister. She 

retires, her full retirement is in 20 years. Coincidentally, that is 

the same year that the report that you all provided, the CBO provided, said that the jig is up if we don’t do anything. 


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Now, my sister does not have a whole lot of confidence, my 47 

year old sister, as she is planning for her retirement today with 

two kids, that she is going to be taken care of. My even younger 

sister, who is 40, has less enthusiasm, to your point, about fixing 

the current system for what she is thinking about in terms of retirement. Let alone my four daughters, 5 through 11, in what this 

report means to them. 

And so the Senate Democrat plan, I don’t know if you have seen 

it, which the article and the editorial take issue with. If we are to 

expand benefits, raising payroll taxes on wealthier Americans to do 

it, wouldn’t we be right back where we are today? Kicking the can 

down the road and impacting my four daughters? Since we are concerned about the wages of women? 

Mr. BIGGS. Thank you for your question. In a sense, you 

wouldn’t be right back where you were. You would be worse off. 

And the reason is this. I am not in favor of fixing Social Security 

by raising or eliminating the so called tax max on payroll taxes. I 

think that cap was put in place by Franklin Roosevelt for a reason 

so the system does not look like a welfare plan, so it is something 

that everybody pays and everybody receives out in reasonable 

measure. That it is not just a take from the rich, give to the poor 

kind of thing. And I think Roosevelt said this is for political reasons, to make it supportable. 

On the sort of economics side, I do not think it is a particularly 

good idea, because eliminating the tax max effectively raises the 

top marginal tax rate by 12 percentage point, so you are going 

from, say, 43 percent today to somewhere in the mid 50’s. I just 

think that is too high. But raising the tax max or eliminating the 

payroll tax ceiling in order to increase benefits actually makes 

things worse off. Because you are taking off the table one of the 

options that could have been used to make the system solvent. In 

other words, you cannot raise or eliminate the tax max twice. 

So if you do that in order to raise benefits, then we have to come 

back and address solvency. And one of those options that was on 

the table is no longer on the table. And so then the folks who are 

sponsoring these plans have to say, okay, now that we have taken 

that off the table, what are we going to do to fix the system so that 

your sister or, by the way, me can have that when we retire. So 

I think that you really have to think, first, how do we pay for what 

we have promised? To promise additional benefits before you have 

paid for what you have already promised, it just confirms all the 

stereotypes people have about politicians. No offense. 

Chairman JOHNSON. The time of the gentleman has expired. 

Mr. Doggett, you are recognized. 

Mr. DOGGETT. Thank you very much, Mr. Chairman, and 

thanks to each of our witnesses for your testimony. 

My feeling is that Social Security is one of the most effective programs that we have ever approved in this Congress. I think one 

would be hard-pressed to find a family across America that has not 

had a family member who has obtained dignity in retirement as a 

result of Social Security; and, if they look back in the past, who 

suffered greatly when Social Security was not there. 

Many of these families have a neighbor who is able to survive 

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ability; or, a child who would never have completed high school 

without the survivor benefits of Social Security. 

Vital programs, and yes there are improvements that need to be 

made. I believe you have outlined what some of them may be. I’m 

willing to work as I believe my democratic colleagues, for the most 

part, are willing to work to make constructive changes to improve 

Social Security and be sure that it is there—not just for grandparents, but for our grandchildren. 

There are some obstacles to doing that, and one of those obstacles is the fact that while we are told today that there is a broken 

piggy bank in the trust fund, there are always those who are out 

there who see that trust fund and the assets in it as an incredible 

profit center for privatizing Social Security. And right through the 

last round of elections we’re advocating that the only solution to 

this impending crisis as it has been described is to privatize the Social Security system and break the bond that some were opposing 

in 1935—and have ever since—about an effective social insurance 

program. 

And then there are those who suggest that Social Security has 

an impending crisis; and, therefore, the only solution is to cut everyone’s benefits. If the only issues at stake are how much can we 

cut and how much should we turn these public assets, these benefits paid into the social insurance system to Wall Street, we will 

never get the changes that are necessary. I think some of them are 

modest. Some are more controversial and politically difficult to undertake, but we will never get the changes needed to ensure that 

we have longer term solvency for Social Security. 

The suggestion has been made that the Social Security system is 

just so complex that it can’t be fully understood and utilized. There 

are some changes that are necessary that relate to some of those 

complexities. I think the complexity mainly affects people at the 

other end of the income scale for whom Social Security is probably 

not the principal source of retirement security. 

I think that for most Americans, like the women that Ms. 

Entmacher was talking about earlier, it’s all pretty simple. You 

work hard. You pay in to the Social Security system. When you retire, when you become disabled or you lose a spouse or parent, you 

get Social Security benefits; and, relative to the complexities, we 

have Social Security offices around the country staffed with people—as my Republican colleague was just saying—who seem to be 

doing a pretty good job at 1200 local offices in explaining, based on 

their expertise, how the Social Security system works. And we have 

an 800 number that people can call if they’re close by a Social Security system. 

That means though that over the past four years that cuts have 

occurred in the Social Security budget that we have lost about one 

in 10 of the people who answer the phones or who are available to 

answer the questions. One in 10 of the people who answer the 

phones or who are available to answer the questions, and that’s 

why the request that Mr. Becerra has made about the need for us 

to exercise our oversight responsibilities and look at the budget of 

the Social Security system is so very important. 

As far as the complexities of this, Ms. Entmacher, you are an expert on how our Social Security policy affects older women, nearly 


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half of whom would live in poverty without Social Security. Is the 

main problem that these women are having with Social Security’s 

complexity, is that the real barrier that they face, that it’s just too 

confusing and complex to make the right choices? 

Ms. ENTMACHER. No. It is not. I mean the main problem that 

women have with retirement security is lower wages throughout 

their working life, caregiving responsibilities, the high cost of child 

care which often means that they can’t really afford to work, because the wages that they get barely pays for child care. 

And, yet, that means time out of the work force and less opportunity to build up Social Security benefits or retirement savings. 

It’s just many women struggle to make ends meet throughout the 

working life, and Social Security is what they have to count on. 

And that’s the main problem. And, unfortunately, many women 

work in very demanding jobs. 

You know, people don’t think of retail work as physically tough, 

but people are on their feet for many hours. People who are nurses’ 

aides, that’s an incredibly hard job, and they simply can’t—even if 

they know that they can get more by waiting until their full retirement age to claim benefits, they just can’t make it. And, of course, 

for both older women and men who have lost jobs in the recession, 

it takes much longer to find another job. And so many people, if 

they can’t get reemployed, they have to claim at 62, because they 

have no other income. I think those are the major challenges that 

many people face. 

Chairman JOHNSON. Thank you. Mr. Renacci, you are recognized. 

Mr. RENACCI. First, I want to thank the chairman for holding 

this hearing. I want to thank the witnesses for their testimony. I 

am glad that we are here to discuss the role Social Security plays 

in Americans’ retirement security. I think this is a very important 

topic, considering the solvency of the program and the rate at 

which older workers are retiring. According to the trustees’ report, 

Social Security’s present value of unfunded liabilities over the next 

75 years equals 10.6 trillion, which is one trillion more than last 

year. 

I have to be honest. I am shocked to hear our friends across the 

aisle when they say there is no cause for immediate action. Instead 

of addressing the issue we continue to kick the can down the road 

for future generations. This unfortunate reality is that government 

officials and American people do not have a good grasp of really our 

dire financial situation. Our country is more than 17 trillion in 

debt and digging our way out is not as simple as cashing in on 

Treasury securities. 

If the Social Security obligations were added to our debt, our true 

liabilities could be well over 50 trillion. As a CPA and former businessman, I came to Washington to really bring business perspective to an institution that sorely lacks it. We cannot continue to 

jump from budget crisis to budget crisis, and as many of the witnesses have talked about—Mr. Kotlikoff and Mr. Biggs—we really 

have to start addressing some of these problems. 

To help us really get on the right track, I introduced the Federal 

Financial Statement Transparency Act, which is a bipartisan bill 

that will lead to a more honest depiction of our nation’s finances. 


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The Federal Government—think about this—requires public companies to have an honest depiction of their finances to sell securities, and the Federal Government should be able to meet those 

same standards and really show what our true liabilities are. 

Mr. Blahous, what would the impact be on the Social Security 

trust fund if all unfunded liabilities needed to be paid out; and, is 

there cause for concern? 

Mr. BLAHOUS. Well there absolutely is cause for concern and I 

think a point that was made here earlier today, although we do report the 75-year, what we call, the open group obligation, which is 

the $10.6 trillion obligation, I think the actual amount of unfunded 

obligations within the Social Security system is actually substantially higher than that. 

The reason for that is that the excess or the shortfall is not 

something that actually sort of plays out gradually over time. It is 

actually something that is on the books now. There is an excess of 

benefit obligations over contributions for people who are already in 

the system, and that is actually about $24 trillion, and that is 

about 4.4 percent of future wages going forward. And that is a 

number we report in the Social Security trustees’ report. So if you 

were to take this—what some people call the closed-group obligation and add that to the books now, you would add about $24 trillion to our current liabilities. 

Mr. RENACCI. So will Social Security taxes this year be adequate to fund benefit obligations, current benefit obligations? 

Mr. BLAHOUS. They will not. 

Mr. RENACCI. Okay. How far short will they come this year? 

Mr. BLAHOUS. About $80 billion. 

Mr. RENACCI. Okay. So where will that money come from to 

make up the difference? 

Mr. BLAHOUS. Well when the payroll taxes fall short of benefit 

obligations, the difference has to be made with payments from the 

general fund. Right now, they would be in the form of interest payments from the general fund to the trust fund; and, a large share 

of those interest payments would go out the door immediately to 

pay beneficiaries. 

Mr. RENACCI. So you are saying that the money flows from the 

Government’s general fund to the trust fund? 

Mr. BLAHOUS. Yes. 

Mr. RENACCI. Does that portion of Social Security spending add 

to the federal deficit? 

Mr. BLAHOUS. Yes, it does. 

Mr. RENACCI. So 80 billion is added to the federal deficit this 

year? 

Mr. BLAHOUS. That’s right. 

Mr. RENACCI. Why doesn’t that get highlighted more in the 

trustees’ report? 

Mr. BLAHOUS. Um, well, there are a lot of different perspectives that the trustees’ report takes, and a lot of the trustees’ report is just devoted to diagnosing the actuarial status of the trust 

funds irrespective of the effect on the overall federal budget. Now 

there are certainly those of us who believe that we as trustees have 

a duty to put before lawmakers the implications of honoring Social 

Security obligations for the Government’s general fund; but that is 


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obviously something that if there was a feeling that we need to do 

more of that, that is something I can take back to the other trustees. 

Mr. RENACCI. So we have 17 trillion in debt. We have potentially 10 to 20 trillion in unfunded liabilities. We could have over 

50 trillion total liabilities just in those two areas; and we have 80 

billion each year, at least this year, that is going to exceed what 

comes in. I would somewhat believe we have a current problem 

that we need to fix and it is something we can’t kick down the 

road, as I continue to hear. This is an issue that we need to start 

looking into. And, Mr. Kotlikoff, I know you have mentioned some 

of those issues too. 

Mr. KOTLIKOFF. Yeah. Well you are an accountant, so we have 

a kindred interest here. More than 1,000 economists, including 17 

Nobel Prize winners, have endorsed something called the Inform 

Act. If you go to the InformAct.org, you will see that they have an 

endorsed bill, which is a bipartisan bill called H.R. 2967, and that 

bill requires Infinite Horizon Fiscal GAAP Accounting by the CBO, 

the GAO and the OMB on an ongoing basis. And what we are seeing here is the entire economics profession, with the exception of 

people like Paul Krugman on one extreme and Art Laffer on another extreme. 

If you look at the names of these people, they are on the right 

and the left. You have got people like Glenn Hubbard and Jeff 

Sachs agreeing to do Infinite Horizon Fiscal GAAP. So the economics profession is not confused about how to do the right accounting. 

The trustees of the Social Security Administration are hiding the 

right accounting. 

In their Appendix, they have actually moved it back this year to 

Table F–61 in the Appendix used to be not in the Appendix. Now 

it is buried in the Appendix. And that says what is really going on 

is that the end funded liability of Social Security is actually 60 percent larger than the 75-year number you are focused on. So this 

system is actually in far worse shape, and it is part of the country’s 

fiscal policy that is in far worse shape. 

And, yes, Mr. Becerra, it is absolutely true that when you run 

a trillion-dollar war, okay, over 10 years, and you get nothing out 

of it for real in terms of any real success, that adds a trillion. And 

if you don’t pay for it, that adds a trillion dollars burden to your 

kids and my kids and everybody else’s kids. So we have to understand that we are engaged in take as you go policy. It is not pay 

as you go, but take as you go policies on a wide-scale basis. 

We have been changing the tax structure to lower taxes on asset 

income that shifts, and more on wage income that shifts taxes 

away from older people towards younger people. We are doing a lot 

of things that are burdening everybody’s children. So there is the 

issue of generational equity. There is the issue of intragenerational equity. We have to look at both of these. 

And if you go to the PurplePlans.org, one of the websites they 

send you to, you will see a set of plans that have been endorsed 

by a lot of economists that I developed. Each one is post-card 

length. It does involve the reform for Social Security, for taxes, for 

healthcare, comprehensive for the financial system. This is what 

economists would do to get rid of our overall fiscal gap, and you 


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guys could agree on it, because it is including blue and red considerations here. 

That’s why it is called purple. And many, many economists, including Nobel Prize winners, have endorsed these plans. So I encourage you, A, to vote to pass the Inform Act. So we started doing 

proper fiscal accounting, comprehensive fiscal accounting, Infinite 

Horizon Fiscal Accounting, which is the only proper thing that economic theory says to do, and then also to adopt the Purple Plans, 

which will get rid of the fiscal gap. 

Chairman JOHNSON. Yeah. The gentleman’s time has expired. 

Mr. KOTLIKOFF. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

Ms. Schwartz, you are recognized. 

Ms. SCHWARTZ. Thank you, Mr. Chairman. 

As Mr. Becerra here, like where do you start in the conversation 

we are having. Let me first say that I don’t think this is a surprise 

to anyone. We have this recent report, but we know that Social Security has issues going forward that really is not a divide between 

Republicans and Democrats. It really isn’t. How we solve it is, 

which is why we keep having hearings about what the problem is, 

rather than how we are going to solve it. 

That is really what we are dealing with, yet again today. I can 

tell you the number of hearings I have been to that describe the 

fact that whether it has actually gone with a longer time. We have 

until 2033. That’s a good thing to have time to work it out. But no 

one disagrees that we should tackle this issue. The issue is how do 

we tackle it. And we, as Democrats, believe that Social Security 

has been a strength for this country to be able to say to people as 

they age that you will not die in poverty, and it has worked. 

We start there, and we start with an understanding, particularly 

having just gone through the recent recession, that in fact converting it to a 401–K does not provide that kind of security. And 

that’s been suggested, to privatize it, give people a right to invest 

it any way they might. You go through another 2008, how many 

of you have lost money in your 401-Ks? I assume every one of you 

have one, and you all lost money in it. Now, maybe you are young 

enough to be able to make up for that, but if you were 70, maybe 

not so much. 

So what we need to be focusing on, really, I am interested that 

none of you are also offering solutions. I know you have talked 

about two very important aspects that we have to take into account 

here. One is the demographics of what is happening for seniors. We 

have a lot more of them, 10,000 more a day, 40 million more seniors. You call Social Security, they tell you that. They say there are 

40 million seniors out there who are calling us right now. So you 

might have to wait. And I don’t think they are all calling every 

minute, but sometimes many of them are. And we don’t have 

enough people to answer the lines, but they do get back to you. 

And that is a huge problem for the next 20–25 years, maybe 30 

if medical science is really, really good, and we diet and exercise. 

But we’re not going to live forever. This is not a problem for 75 

years. It’s a really important blip, which is why we have a surplus 

in the Social Security trust fund. We occasionally have to put it 


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back in, because we borrow against it, but the fact is that money 

is there. We raised it in 1983. 

Congress realized that they needed to put some extra money in 

for all those millions of extra seniors. So the fact is we reasonably 

don’t want to talk about the crisis because of what some of you 

have been saying, is that we want young people, and those approaching retirement, to understand that Social Security will be 

there for them, because we are committed to making sure it is. 

Those benefits have been important to America. It keeps seniors 

out of poverty, particularly women who get lower wages and have 

less Social Security benefits. So we have work to do. So one of the 

other things you have not mentioned in addition to the issue about 

the demographics is income inequality and wage inequality in this 

country. So you can talk about four percent. Who said we have to 

add four percent wages? 

The fact is that in the last two, three decades wage disparity 

may be unpredicted by the great economists of this nation, but certainly it was a deliberate result of particularly tax cuts to the very 

wealthy and the way we treat unearned income in this nation. So 

it is we have to understand that there are few people earning 

money; but, we are now taking out of Social Security, my staff tells 

me, 82.5 percent of payroll is what we tax—America taxing a lot 

of payroll. You all nod, say yes. Is that correct? You talked about 

that. 

Ms. ENTMACHER. Yes. 

Ms. SCHWARTZ. We have. That’s right. So one of the ways to 

look at this is are we being fair to the workers you have talked 

about? Not just our children and grandchildren, but right now are 

we being fair to workers if we are actually the cap has not been 

growing as quickly as it might, given the wage disparity and income disparity in this nation. So while you keep talking about cutting benefits and making Social Security a private system and 

other ways to do it, you have really not talked about the fact that 

there is a lot of wealth and a lot of income that we are not touching 

out there that could help solve this problem. 

And I would say to the Chairman I would love to see this committee actually have a hearing about how we would solve this problem. Because what we do by just talking about it as a crisis is to 

scare people, and we scare people, we don’t make very good decisions. So while some of you said let’s not rush into it—I think you 

said that—let’s not do it because you are scaring people that Social 

Security won’t be there for them. It will be there for them if we 

actually make a commitment as a Congress to protect Social Security benefits and the legacy going to the future. 

So it is hard to ask a question, because I am not sure that you 

will answer it the way I wanted to given the balance—— 

Chairman JOHNSON. Well your time is expired. 

Ms. SCHWARTZ [continuing]. but my time is expired. So the 

question to each and every one of you is to really work on solutions 

to this, not just the crisis, and to ask the Chairman to actually 

focus on what will work to protect and secure Social Security into 

the future. That’s what we want to be discussing today. And I yield 

back. 

Chairman JOHNSON. Thank you. 


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Mr. Kelly you are recognized. 

Mr. KELLY. Thank you, Mr. Chairman, and thanks for having 

the hearing. And thanks to all our panel for being there. 

I sometimes get confused. I came out of the private sector. And 

so when you start talking about who provides the revenue for all 

these programs, I think sometimes it is the government. And we 

all know that that is not true. These are based on wage taxes or 

transfer from the general fund, which are based on taxes that are 

levied onto every single hardworking American taxpayer. 

So as we put this back and forth, and while we don’t want to politicize, we absolutely do. Is there anybody that would disagree 

with me that the only way, the only way to get this fixed is to look 

at where the revenue streams come from and understand that that 

flow has been interrupted with an economy that just hasn’t recovered in a nation that has unbelievable assets. So we can go back 

and forth with this about Republican/Democrat problem. This is 

not a Republican and Democrat. This is an American problem. 

Am I mistaken? I have signed pay checks for a long time. 6.2 percent of every person I signed a pay check for, I also matched what 

I paid them. They put 6.2 percent in. The dealership puts 6.2 percent in. It was 12.4 percent. So am I misunderstanding where the 

revenues come from? Mr. Schieber, go ahead. 

Mr. SCHIEBER. Well most of the revenue does come out of payroll taxes. 

Mr. KELLY. Right. 

Mr. SCHIEBER. Now, of course, there is interest being accrued 

on the trust fund balance. Certainly, a portion of the kind of immediate growth in the unfunded liabilities, the immediate—the reduction in the period of benefits that are going to be paid—is related 

to what’s happened to the economy over the last several years. But 

since 1994—we are actually celebrating the 20th anniversary this 

week, I guess, with the release the trustees’ report—the trustees 

have been telling us that there is a big demographic problem, that 

the system has to be rebalanced. There is a demographic problem. 

So a major portion of it is the demographics. 

Mr. KELLY. No. I get it. It’s like the navigator on the Titanic 

saying, listen. There’s an iceberg out there. Maybe you ought to 

change where you are going and actually maybe scale it back a little bit. And the captain saying, oh, the heck with that. You don’t 

understand. Not even God could sink this boat. Now, having said 

that, because I’m worried about this—workforce participation is at 

the lowest rate it has been in 36 years. Now, I’m looking at these 

taxpayers the same way. 

There’s an old adage about don’t worry about the mule, just load 

the wagon. The mule’s about ready to unhitch himself and say I 

can’t pull this load. It’s too heavy. Or that, add another mule to 

help me pull it. When you have that many people, when you have 

almost 92 million Americans opting out of the labor force, do you 

think over the course of time that could have effect on the revenues 

we need to run this country? Is there anybody that disagrees with 

that? Because I am trying to figure out, you know, we have all 

these willing hearts but we have weak wallets. Where does the 

money come from? Is there anybody out there? Forget about the 


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government paying for this stuff. The government doesn’t pay for 

one red cent. American taxpayers do. 

We have gone so far away from what this—how it works. It just 

drives me nuts. We sit around here almost arguing how many angels we can fit into the head of a pin, and the meanwhile we have 

got a program that is a great program, but it is not funded the 

right way. And we also, by the way, not everybody deriving a benefit has put any money in. So let’s not get to out of whack on that. 

Mr. KOTLIKOFF. Yes, sir. 

Mr. KELLY. Yeah, Mr. Kotlikoff? 

Mr. KOTLIKOFF. Well, yeah. I think there is a resource everybody here could use, which is economists. And I know we don’t 

have the greatest reputation in the world, but—— 

[Laughter.] 

Mr. KOTLIKOFF. But, you know, if you do look at the 

PurplePlans.org, you will see a fix for Social Security for the tax 

system. We can do things on the tax system. We can do things on 

the tax system that the Democrats would like, the Republicans 

would like. You know, for example, that would actually, I think, 

improve the progressivity of the system, but in the process shift the 

corporate tax from the corporations onto the households, the shareholders, in a way that would bring more business back into the 

country, keep businesses from leaving, get more jobs here. We have 

a very difficult international competitive situation. We have a very 

difficult problem with smart machines taking people’s jobs. 

But on the Social Security issue, Ms. Schwartz, the solution— 

there is a solution that is different from just maintaining the current system, which, if I actually sat down with you for a day and 

went through the inequities and mistreatment of low income people, high income people, middle income people, this is like a random lottery, what you get out of the system, because it is so complicated. 

If you don’t know—and you can’t call the Social Security system—whether they are well paid or not, whether they have more 

people or not, they are giving the wrong answers routinely. I know 

this because I have a little company that does Social Security software. I also write a column every week for PBS News Hour about 

Social Security. I get people e-mailing me and writing me every day 

about the mistakes Social Security is making. These are the people 

that are getting to the people on the phone. It is too complicated. 

So one idea on the Purple Social Security Plan—and this is not 

privatization as you know it, but it is individualization—but it is 

progressive—think about taking, freezing the old system in place, 

paying off everything that is accrued, and by putting zeroes in the 

earnings record, and then going to a new system for Social Security 

where everybody contributes eight percent of their pay to a single 

account, where they have their own name on each account, but the 

contributions are divided 50–50 between spouses and legal partners. 

The government makes matching contributions on behalf of the 

poor. It is all invested in one way—not by Wall Street, but by a 

computer, a laptop, in a global market weighted index fund with 

a floor. So the government would guarantee a zero rate of return, 

so if we have a crash, but everybody gets the same rate of return. 


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And at the end of the accumulation phase, the government would 

annuitize the account balances on a cohort basis. 

Chairman JOHNSON. The gentleman’s time has expired. 

Mr. KOTLIKOFF. That’s okay. 

Ms. SCHWARTZ. And I do want to apologize. I believe this was 

Mr. Kelly’s time. So you may want to be answering his question. 

I apologize, Mr. Chairman. This was not my intention. 

Mr. KOTLIKOFF. No. I am trying to give you a solution. 

Ms. SCHWARTZ. I am curious to know whether his plan actually 

taxes people above the 170,000 cap that is now in your system. 

Mr. KOTLIKOFF. One of these plans just eliminates the ceiling 

on the payroll tax, if you look at the Purple Tax Plan. So it is a 

set of plans. 

Ms. SCHWARTZ. Well you may want to speak to Mr. Kelly about 

this. He was saying everyone was treated exactly the same, and 

people are not, because there is a cap on the income. 

Mr. KOTLIKOFF. I guess what I am trying to say, really quickly, 

is that we have a lot of—— 

Chairman JOHNSON. Okay. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

Mr. Thompson, you are recognized. 

Mr. THOMPSON. I would hate to deprive you of the opportunity 

to mention the Purple Plan a couple more times. 

[Laughter.] 

Mr. THOMPSON. I want to just comment on a couple of things 

that have been said today. We are at the time of the hearing where 

just about everything has been said. My friend from Pennsylvania, 

I don’t want you to think you are the only person who has come 

out of the private sector. A lot of us have, and some of us are still 

writing checks on our private sector businesses. And we know well 

how things operate. Some things, while the private sector is great, 

I wouldn’t trade my business for anything. 

There are some things that need to be left to the government, 

and I think everybody would agree with that to some degree. And 

I don’t know how far out that iceberg was when whatever exchange 

happened between the captain and the observer. We don’t have 

black boxes back then. So probably we will never know, but I doubt 

strongly if it was 19 years out. And that is a point that I—— 

Mr. KELLY. Well we can get a different rate of speed than the 

Titanic, though. 

Mr. THOMPSON. I think that is a point that has to be reiterated, because any failure to do that does put us in a position where 

a number of people have mentioned it becomes an issue of frightening people. And we should be ashamed of ourselves if we are 

frightening senior citizens. And I don’t think my district is made 

up of people any different than anybody else on this dais, but when 

the rhetoric gets ramped up, I have people come to me all the time 

worried about whether or not Social Security is broken, broke, 

bankrupt. The wheels aren’t falling off of this call for a while. 

Now, granted, we do have problems that need to be worked on 

as Ms. Schwartz said. That’s what we should be doing is trying to 

figure out how to solve these problems, not trying to figure out how 

to whip up everybody into some fear position where it benefits 


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somebody politically. In regard to the Social Security, every one of 

us in this room factors Social Security into our retirement. Every 

constituent we represent factors Social Security into the retirement. This is not something that we only talk about in this hearing 

or in political ads, but I can tell you that my constituents want a 

Social Security office that is open. So if they need something, they 

can go down there. They can sit and talk to the people. 

Ms. Entmacher mentioned the computer stuff. You know. I have 

young Social Security recipients who feel better about going in the 

office and sitting down with a human being rather than trying to 

do a calculation online. And I think we do a terrible disservice 

when we deprive folks of that opportunity. 

I want to ask Mr. Blahous. You are talking about this shortcome. 

Do you factor in the interest on the trust fund in your calculations? 

Because your numbers are a nine-day difference between the numbers that I got from our staff, and we show a $19.3 billion surplus. 

Mr. BLAHOUS. Well it depends on what you are asking. 

Mr. THOMPSON. I know it always depends on how you figure. 

Figures never lie, but—— 

Mr. BLAHOUS. Well I was asked the question as to what was 

the relationship between payroll tax revenue and expenditures. So 

that answer, of course, excluded the interest. 

Mr. THOMPSON. So is it accurate that we have a $19.3 billion 

surplus factoring in the tax revenues of 883.4 billion, interest of 99 

billion, operating expenses of 5.7 billion? 

Mr. BLAHOUS. It is accurate that the trust fund had an increase in its balance. The amount of trust fund assets increased. 

From a trust fund perspective, we had a surplus. If you are asking 

me from an overall budget perspective did we have surplus, the answer is no, because the interest payments are from one government 

account to the other. 

Mr. THOMPSON. Well, Mr. Chairman, I would like unanimous 

consent to put these accurate numbers into the record, because I 

think it was very misleading to go down that road. And I’m assuming staff can put a proper draft together for you, but again it just 

feeds into the idea that we are going to frighten people, and I don’t 

think that is right. I think right would be all of us sitting down 

and figuring out what sort of tweaks we needed to make to make 

the system work. And could you just by a show of hands, how many 

of you on the witness table believe we should privatize Social Security? 

Mr. KOTLIKOFF. You need to define what you mean. 

Mr. THOMPSON. No. No. I didn’t ask for any commentary. So 

nobody thinks we should privatize Social Security? 

Mr. KOTLIKOFF. Well I think we should individualize it. I am 

not sure we should—I wouldn’t privatize it the way President Bush 

proposed. 

Mr. THOMPSON. My time has expired. Thank you. 

Chairman JOHNSON. Yes, it has. Thank you. And we will put 

this in the record. 

[The information follows:] 


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Chairman JOHNSON. How about Mr. Griffin? Are you? 

Mr. GRIFFIN. Thank you, Mr. Chairman. Appreciate it. It was 

great to hear my colleagues say that they would never use Medicare or Social Security to scare people. Make sure your party leadership knows that. That will probably be a news flash. 

Mr. Blahous, I want to ask you from a practical standpoint, let’s 

say we get to the point where the trust fund does not have the 

money to pay out. I think a lot of people, a lot of Americans sort 

of feel like, yeah. Well, on paper that will happen at some point, 

but maybe my benefits will never be affected because we will just 

borrow it. Right? So I want you to walk me through what the practical impact would be in terms of where the money would come 

from if there are benefit cuts. So I assume we would have to find 

in general revenue the money to shore up the fund, the way sort 

of we have done with the Highway Trust Fund. 

That would come out of discretionary fund and we wouldn’t have 

that money, most likely. So that would be borrowed. Could you sort 

of walk through what the practical implications of that would be? 

Could we even borrow that much? How much money are we talking 

about borrowing when we get to the point where we don’t have 

enough money to pay out? And all the bad things that we have 

heard—you know, benefits being cut and all that? What would we 

have to do if reforms do not occur? What would we have to do to 

continue on the path that we are on? 


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Mr. BLAHOUS. Right. At the point where the combined trust 

funds, assuming we reallocate taxes between the trust funds and 

then they are depleted in 2033, one of the common methods that 

the trustees use to describe quantities within the Social Security 

system as a percentage of the program’s tax base. So, for example, 

in 1983 when we had a shortfall to close, the long term shortfall 

was described as 1.8 percent of the program’s tax base. 

In order to fill that, they delayed the COLAs by six months. They 

exposed benefits to taxation for the first time. They brought in 

newly hired federal employees. They raised the eligibility age, et 

cetera. They did all these things, and that added up to about 1.8 

percent of the tax base. And they did about half of it on each side, 

half of it on the revenue side, half of it on the benefit side. 

If we wait until 2033, our shortfall, our annual shortfall will be 

about 4.2 percent of taxable payroll. So we would have to make 

changes. Again, heeding the admonition about not wanting to scare 

people, but you may have to make changes over twice as severe, 

about two and a half times as severe. And the question is would 

our political system, would the people on the right be over twice 

as willing to raise taxes as they have ever been willing to do before. 

Would people on the left be over twice as willing to cut benefits— 

both of them twice as willing? 

Mr. GRIFFIN. What about people who would say—and I am not 

advocating this, but we would just borrow that money. How much 

are we talking about here? 

Mr. BLAHOUS. Right. Well, yeah, exactly. Again, it is in dollar 

figures. It’s going to be much, much bigger, because we are looking 

way into the future. And so that is why we tend to do it as a percentage of GDP or as a percent of taxable payroll. But you would 

have to borrow—if you wanted to do it through borrowing—you 

would have to borrow an amount that equaled over four percent of 

what workers are earning, and that is a tremendous amount of 

money. 

Mr. GRIFFIN. Right. That is not an option is the point. Is that 

what you are saying? In terms of getting that money, borrowing 

that sort of money, adding that to the debt? 

Mr. BLAHOUS. My personal view—and this is not necessarily a 

consensus view among experts, my personal view is that at that 

point it is a bridge too far to balance system finances. And we 

wouldn’t be able, politically—— 

Mr. GRIFFIN. Right. 

Mr. BLAHOUS [continuing]. to sustain the system without turning it into a program that is financed from the general fund. And 

then we would lose a lot of the things that have made Social Security a stable, reliable benefit over the years. 

Mr. GRIFFIN. Well that is scary to me, and I am not a senior 

yet. I hope I make that, but that is scary to me in and of itself. 

Let me ask you real quickly. Could you talk a little bit about our 

culture and the role that Social Security played in the early days 

versus now in terms of whether people had in the early days other 

sources of income for retirement versus today? Has there been a 

movement? And I think I know the answer to this. Has there been 

a movement over the years to rely solely on Social Security for a 


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bigger percentage of the population, or is it the same, general—I’d 

like to know that. I see you shaking your head. 

Mr. BLAHOUS. I think the first point I would make is that if 

we still had the system that was left to us by FDR we wouldn’t 

have a financial shortfall right now. It is the subsequent expansions that have put us in financial trouble. You know. We added 

the disability component, later on. Perhaps it was an appropriate 

thing to do. Then we added early eligibility. People are now collecting at 62 more often than any other age. 

Originally, they could only collect at 65. So we are collecting 

three years earlier and we are living a lot longer. And then in the 

1970s we expanded. We added a 20 percent benefit increase and we 

started wage-indexing the benefits. And so now we have cost issues 

that we didn’t have under the original design of Social Security. So 

when people talk about sort of the historic legacy, I guess, of Social 

Security, it is not the FDR legacy that is really in jeopardy. The 

program he left to us is stable. It is the subsequent expansions that 

are causing us the trouble. 

Mr. GRIFFIN. I am out of time, Mr. Schieber, but the Chairman 

in his mercy might allow you to respond. 

Mr. SCHIEBER. In 2008 there were $532.87 billion paid in Social Security benefits, that combined, IRA and pension annuity 

benefits paid to Social Security beneficiaries was $568 billion. So 

the benefits paid out of pensions and IRAs was actually larger than 

Social Security benefits. Last year we got tax data on both of them, 

and none of these tax qualified benefits existed or very minuscule 

amounts of them existed in the 1930s. 

So there is a much greater dependence, now, on these tax qualified benefits, people’s personal savings or personal pensions than 

we have had in the past. Of course, we haven’t been reporting it. 

We have only been reporting 40 percent of it. So in terms of what 

you are generally being told, you have no idea what this other part 

of the retirement system is really about. It would seem to me that 

might be important when you think about retirement income security. 

Chairman JOHNSON. Thank you. Ms. Entmacher, you look fidgety. Did you want to say something? 

Ms. ENTMACHER. I would. Thank you very much. 

First of all, yes. It is not Franklin Roosevelt’s retirement program and that is a very good thing. I know that many people have 

pointed to what a great job Social Security has done in reducing 

elderly poverty since Franklin Roosevelt’s days. And what may be 

less understood is that most of that decrease has come through the 

improvements that were made to Social Security that were just discussed, particularly for women, the automatic COLA, increased 

benefits for widows, those have been incredibly important and valuable. 

Second, what is causing the shortfall in Social Security is not rising benefits. As has been indicated, benefits are actually going 

down from what they would have been because of the 1983 cuts. 

And in 1983 people tried to, and did for a couple of years, establish 

solvency for 75 years. What has created much of the shortfall is the 

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cans and the growth and wages at the top, which was not foreseen 

by people in 1983. 

And, lastly, because trillions of dollars are really frightening, I 

would like to point out that the growth in Social Security’s cost is 

about 1.2 percent of GDP over the next several decades and then 

levels off. 1.2 percent of GDP is less than what we had to come up 

with when the baby boomers were kids and public education was 

more expensive. 

We spend about—I have the CBO estimates of tax expenditures, 

the tax expenditure for giving preferential rates on capital gains is 

one percent of GDP per year. We can afford to cover the shortfall 

and make improvements in Social Security. We shouldn’t wait to 

do it, and we don’t have to do it all at one blow, but we can reassure people that Social Security will be there. 

Chairman JOHNSON. Thank you for your comments, ma’am. 

And without objection I will insert into the record my response 

to Mr. Becerra’s letter which was inserted into the record earlier. 

[The information follows:] 


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Chairman JOHNSON. In closing, I want to thank all of you for 

your testimony and thank our members who are still here for being 

here. 

Social Security is facing the biggest challenge since 1983, and the 

longer we wait the harder it is going to be to fix. In the meantime, 

workers can’t be sure how to plan for their retirement, because 

they don’t know what to expect from Social Security. We have got 

real work to do. Americans deserve a Social Security program they 

can count on with benefit amounts they can understand. 

With that, the Committee stands adjourned. 

Mr. KELLY. Mr. Chairman, I know we have just adjourned. I 

would like to hear you. 

I know somebody who still wanted to respond I would like to stay 

and hear. I heard what you said, ma’am. I do not agree with you. 

And I think there are a number that would not. So I will stay and 

listen. I want to hear what you have to say. If this isn’t a crisis, 

we had better look up in the dictionary what a crisis is. 

Mr. KOTLIKOFF. This is a huge crisis. The country is broke and 

Social Security is broke too. It is not broke in 30 years. 

Mr. BECERRA. Mr. Chairman, are we still in hearing? 

Chairman JOHNSON. I will withdraw my adjournment. Go 

ahead. 

Mr. KOTLIKOFF. Social Security is not broke in 30 years or in 

20 years or in 10 years. It’s broke today. We need according to the 

trustees’ report Table F61, just go look at it. It’s buried, but you 

can find it. We need a 4.1 percent hike in the payroll tax rate. That 

is a 33 percent hike in the payroll tax rate for Social Security, 

starting today, immediately and permanently, 33 percent tax hike. 

That is in the trustees’ report. This is what a thousand economists at every top school—Stanford, Harvard, MIT, Chicago, you 

name it, Princeton—17 Nobel Prize winners, and they are not Republicans. They are not Democrats. They are both. Okay? That is 

what they are saying to look at, guys. You guys keep talking about 

the 75-year numbers. Economics doesn’t support that. It says you 

have to look at the Infinite Horizon. Now, this does not mean the 

system is broke. 


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Mr. BECERRA. Mr. Chairman, if we want to have more discussion, I think that is fine. I think it is always important as I think 

members have pointed out we want to get to the solutions rather 

than just talking about the issues. And so I think we can do that, 

but I think we have to do it in a way that is organized and constructive. 

If we are going to have every witness comment, we can do that, 

but that is going to take more time. Mr. Chairman, so long as we 

can just establish how you want to do this, do you want to give 

them a chance? 

Chairman JOHNSON. Well, what I would prefer to do is let you 

all submit something for the record. If you would care to, we will 

put it in. 

And with that the Committee stands adjourned. 

[Whereupon, at 12:50 p.m., the Subcommittee was adjourned.] 

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Questions For The Record 

Charles P. Blahous III, Ph.D. 


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Sylvester J. Schieber, Ph.D. 


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C. Eugene Steuerle, Ph.D. 


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Andrew G. Biggs, Ph.D. 


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Public Submission For The Record 

Financial Planning Association 


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joloto on DSKB35BYQ1 with HEARING92445.100.eps
140 

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joloto on DSKB35BYQ1 with HEARING92445.101.eps