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S. HRG. 111–188 

SOCIAL SECURITY: KEEPING THE PROMISE IN 

THE 21ST CENTURY 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

WASHINGTON, DC 

JUNE 17, 2009 

Serial No. 111–8 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

BILL NELSON, Florida 

ROBERT P. CASEY, Jr., Pennsylvania 

CLAIRE McCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

MARK UDALL, Colorado 

KIRSTEN GILLIBRAND, New York 

MICHAEL BENNET, Colorado 

ARLEN SPECTER, Pennsylvania 

MEL MARTINEZ, Florida 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

BOB CORKER, Tennessee 

ORRIN HATCH, Utah 

SAM BROWNBACK, Kansas 

LINDSEY GRAHAM, South Carolina 

DEBRA WHITMAN, Majority Staff Director 

MICHAEL BASSETT, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1 

Statement of Senator Mel Martinez ....................................................................... 3 

PANEL OF WITNESSES

Statement of Leon Burzynski, President, Wisconsin Alliance for Retired 

Americans, Pewaukee, WI ................................................................................... 4 

Statement of Kenneth Apfel, Professor of the Practice, School of Public Policy, 

University of Maryland, College Park, MD ....................................................... 9 

Statement of Joan Entmacher, Vice President for Family Economic Security, 

National Women’s Law Center, Washington, DC ............................................. 18 

Statement of Melissa Favreault, Senior Research Associate, Income and Benefits Policy Center, Urban Institute, Washington, DC ....................................... 30 

Statement of John Irons, Research and Policy Director, Economic Policy Institute, Washington, DC .......................................................................................... 51 

Statement of Andrew Biggs, Resident Scholar, American Enterprise Institute, 

Washington, DC ................................................................................................... 61 

(III) 

(1) 

SOCIAL SECURITY: KEEPING THE PROMISE 

IN THE 21ST CENTURY 

WEDNESDAY, JUNE 17, 2009 

U.S. SENATE, SPECIAL COMMITTEE ON AGING, Washington, DC. 

The Committee met, pursuant to notice, at 2:04 p.m. in room 

SH–216, Hart Senate Office Building, Hon. Herb Kohl (chairman 

of the committee) presiding. 

Present. Senators Kohl [presiding] and Martinez. 

OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN 

The CHAIRMAN. Good afternoon to everybody, and at this time 

we’d like to commence our hearing. 

We all appreciate your attending this hearing on Social Security. 

The last time the Senate took a close look at the program, we were 

responding to the former administration’s plan to privatize the program, as you remember, with investment accounts. 

Four years later, I think we’re all thankful that effort was not 

successful and Social Security was not exposed to a stock market 

that has devastated the retirement savings of so many people over 

the past year. The impact of the financial downturn provides a 

stark contrast to the dependability of Social Security, and it’s also 

a reason that the program’s guaranteed inflation-protected benefits 

are more vital to Americans, now more than ever. 

More than just a retirement program, Social Security is a collective insurance policy, protecting us all from the possibility that we 

die young and leave a family behind, become disabled and not able 

to work, or even live into a ripe old age and beyond our savings. 

Because we all pay into the program, the cost of this insurance is 

relatively low, given the significant monetary benefits individuals 

receive in exchange. For example, the survivor benefit is equivalent 

to a 433,000 life-insurance policy, and disability benefit is equivalent to a $413,000 disability insurance policy for a young family. 

Consider this as if a couple wanted to buy the same income protection they would receive from Social Security retirement benefits, 

they would have to pay over a half a million dollars to buy an inflation-indexed annuity in the private market. 

However, as crucial as the program is today, the fact that it was 

designed in another era—the fact is that it was designed in another 

era. In 1935, when Franklin Roosevelt signed the Social Security 

Act into law, women mostly worked in the home and did not generate their own earnings, and so the program was designed to proVerDate Nov 24 2008 14:57 Dec 14, 2009 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 H:\DOCS\53718.TXT SAG PsN: JOYCE
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vide benefits for spouses and widows. Today, women make up nearly half the work force, earning their own benefits and contributing 

to the strength of our economy. Also, people did not live as long 

back then, the life expectancy back then was 62. Today, someone 

who retires at age 65 can expect to live to the age of 83. As Social 

Security nears its 75th anniversary, it’s time to take a fresh look 

at the retirement program to ensure that it will be just as strong 

in another 75 years. 

The changes in benefits that have taken place in our society 

should be mirrored in the types of benefits Social Security provides 

and in the way we raise revenues. Today, we’ll place a particular 

focus on making sure that the most vulnerable in our society are 

not left behind as we examine ways to strengthen benefits. 

When Social Security began in 1935, 50 percent of seniors lived 

in poverty. Today that number is below 10 percent. While the program has been incredibly successful at reducing poverty among the 

elderly as a whole, poverty still remains high for some groups, including those aged 85 and over, older single and widowed women, 

as well as minorities. Nearly one-quarter of elderly African Americans and more than one-sixth of elderly Hispanics today live in 

poverty. 

As we begin the discussion about making changes to the program, we need to keep in mind that Social Security benefits are not 

overly generous. While Social Security makes a critical difference 

in the lives of tens of millions of the American elderly, disabled, 

and survivors, the average retirement benefit is only $1153 a 

month. Yet, despite these modest payments, Social Security is still 

a vital lifetime, because, over 40 percent of all older Americans, Social Security is what provides nearly all of their income. 

We all know that healthcare reform is the No. 1 priority of the 

administration and of my colleagues here in the Senate and across 

the Capitol. But with an urgent need to contain the Federal deficit, 

there’s no doubt that, sometime soon, all eyes will turn to Social 

Security. When that time comes, this committee wants to be prepared to act as a repository of ideas for reform proposals. As our 

witnesses will confirm today, Social Security can be strengthened, 

benefits for those who need them most can be increased, and longterm solvency can be ensured, with just a few relatively small, relatively commonsense changes. 

So, we’d like to thank our witnesses today for their willingness 

to participate. We look forward to their testimony. Before we get 

to them, we turn to the ranking member on this committee, Senator Mel Martinez. 

3 

OPENING STATEMENT OF SENATOR MEL MARTINEZ, RANKING 

MEMBER 

Senator MARTINEZ. Thank you very much, Chairman Kohl. 

I appreciate you calling this hearing today on this very important 

issue to so many Americans, those who are, today, receiving their 

Social Security benefit, and those of us who anticipate that in the 

future. Preparing to live on a fixed income can often be worrisome, 

which is why Americans deserve to know that they will receive 

their fair share of Social Security upon their retirement. Social 

Security has been a primary source of income for retirees and disabled Americans for many decades. 

For one-third of Americans 65 years and older, Social Security 

benefits constitute 90 percent of their total income. Social Security 

is safe today for seniors, but unfortunately it’s in serious danger for 

our children and grandchildren. That’s why Social Security reform 

remains a top priority for our nation. 

For states like Florida, the home to 3.4 million beneficiaries, it 

is essential. At risk is the Social Security trust fund, which has 

helped to ensure generations of Americans receive what they have 

been promised. 

As the number of baby boomers retiring increases, and more 

Americans begin to receive their share, it’s clear the financial foundation of Social Security is weak. There won’t be enough money to 

meet its future obligations, and fixing the system is long overdue. 

In 1950, there were about 16 workers to pay every beneficiary, but 

today there are about 3 workers to support each person collecting 

Social Security. Without some sort of change, by 2016, the government will begin to pay out more in Social Security benefits than 

it collects in payroll taxes. By 2034, the Social Security Administration expects we’ll have almost twice as many people 65 and over 

than there are today, and that will be 74 million seniors. If we 

don’t act now, by 2037, when today’s workers who are in their 

mid-20’s begin to retire, the program will only have enough revenues to pay about 75 percent of benefits. 

Under current law, Social Security has a total unfunded obligation of more than $10 trillion. A 2001 White House report on Social 

Security stated, and I quote, ‘‘As time goes by, the size of the Social 

Security problem grows, and the choices available to fix it become 

more limited.’’ 

Eight years later, the problem remains unsolved. There are a variety of plans and ideas that have been proposed to fix Social Security, but unfortunately we’ve not reached a consensus on how best 

to do this. 

We need to work together, here in Congress and with the President, to determine the best elements of the proposals that have 

been put forward. I look forward to hearing from our witnesses 

today, and I’m certain they will underscore what we already know, 

that the longer we wait to take action, the more difficult and expensive the changes will be. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thanks very much, Senator Martinez. 

Our first witness today will be Leon Burzynski, the President of 

the Wisconsin Alliance for Retired Americans. 

4 

Mr. Burzynski is also a member of the IBEW and Executive 

Board Member of the Wisconsin AFL–CIO. 

Our next witness will be Kenneth Apfel, Professor at the University of Maryland School of Public Policy. Mr. Apfel served as commissioner of the Social Security Administration under the Clinton 

administration from 1997 until 2001. He also served at the Office 

of Management and Budget at the U.S. Department of Health and 

Human Services, and also as the Legislative Director for Senator 

Bill Bradley. Today, he’s known for his research in public management and leadership, with a particular focus on aging, healthcare, 

and retirement issues. 

Next, we’ll be hearing from Joan Entmacher. She’s the Vice 

President for family economic security at the National Women’s 

Law Center. Prior to this time, Ms. Entmacher worked for the National Partnership for Women and Families, the Massachusetts Attorney General’s office, and also the U.S. Department of Labor. 

She’s also taught political science at Wellesley College. 

Next, we’ll be hearing from Dr. Melissa Favreault. Dr. Favreault 

is a Senior Research Associate at the Urban Institute’s Income and 

Benefits Policy Center. Her primary research interests include 

aging, social policy, and the life course, and is one of the most— 

one of the foremost experts at modeling how Social Security reform 

will affect different populations. 

Next, we’ll be hearing from Dr. John Irons, from the Economic 

Policy Institute. He’s previously served as the Director of tax and 

budget policy at the Center for American Progress, and also as an 

Assistant Professor of economics at Amherst College. Additionally, 

Dr. Irons has worked for the Brookings Institution, as well as the 

Federal Reserve Board of Governors. 

Senator Martinez, would you like to introduce the final witness? 

Senator MARTINEZ. Thank you, Mr. Chairman. 

I would like to introduce Mr. Andrew Biggs. Mr. Biggs is currently a Resident Scholar at the American Enterprise Institute. 

Previously, he was the Principal Deputy Commissioner of the Social Security Administration, where he oversaw SSA’s policy research efforts, and led the agency’s participation in the Social Security Trustees Working Group. 

Thank you. 

The CHAIRMAN. Thank you so much. 

As you can see, we have a very distinguished group of panelists, 

and we’re looking forward to hearing your 5-minute comments before we engage in conversation. 

We’ll start with you, Leon. 

STATEMENT OF LEON BURZYNSKI, PRESIDENT, WISCONSIN 

ALLIANCE FOR RETIRED AMERICANS, PEWAUKEE, WI 

Mr. BURZYNSKI. Thank you, Chairman Kohl. 

Mr. Chairman and members of the Special Committee on Aging, 

my name is Leon Burzynski. I’m the president of the Wisconsin Alliance for Retired Americans, representing more than 89,000 Wisconsin retirees, and part of the National Alliance for Retired Americans, representing more than 4 million retirees across the nation. 

We are dedicated to the economic and health security for current 

5 

and future retirees. I greatly appreciate this opportunity to testify 

on the importance of strengthening Social Security. 

Senator Kohl, I especially want to thank you for all your efforts 

on behalf of Wisconsin retirees and seniors. 

The theme today, ‘‘Social Security: Keeping the Promise in the 

21st Century,’’ is as relevant now as any time in the history of the 

program. The recent economic downturn clearly demonstrates that 

the guaranteed benefits of Social Security are the foundation of retirement security. We in the Alliance for Retired Americans believe 

Social Security is vitally important for current retirees, our children, and our grandchildren. 

Please consider. Social Security is America’s family insurance 

policy. Retirees, workers, surviving spouses, and children all benefit from the program. Two, two-thirds of retirees receive more 

than one-half of their income from Social Security. If Social Security did not exist today, about 40 percent of retirees over 65 would 

have incomes below the poverty level. Finally, it provides a steady 

stream of income, with built-in protections against excessive inflation, that you cannot outlive. 

I’d like to share four personal stories from members of the Alliance for Retired Americans of how Social Security has helped them 

and their families. 

Let’s start with Michael Ott, from Hilbert, WI, who ran the family farm until it became impossible to compete with large corporate 

farms. Michael ended up with a part-time job, at just over the minimum wage. At age 62, he began collecting Social Security, and was 

getting by. Michael had been sick, but was hoping to make it to 65 

and have Medicare. Unfortunately, he ended up in the emergency 

room, where he was diagnosed with congestive heart failure. As a 

result, he had to stop working. I ask you, what would Michael have 

done without the guaranteed $600 a month he received from Social 

Security? 

Without Social Security, Jed Jennings, a cancer patient from 

Bow, NH, would be unable to pay for her chemotherapy and medications. The Social Security she receives also helps pay for her food 

and regular household expenses. These benefits play an important 

role in her life, and she can state confidently that if Social Security 

did not exist, her income would be inadequate to cover her expenses. 

Finally, Art Palian, from Cedarburg, WI, is a retired teacher. 

When he was 17 years old, his father died, and during this difficult 

and challenging time, Art’s mom received survivor benefits that 

helped in raising her six children. Art has stated, on a number of 

occasions, that Social Security benefits kept his family intact after 

the passing of his dad. 

Bob Kirkner of King, NC, is 70 years old, a proud father and 

grandfather. He retired with a good pension after 34 years as a mechanic for U.S. Airways. When U.S. Air first declared bankruptcy, 

Bob’s health insurance payment went from $40 to $600 a month, 

until he received his Medicare and VA benefits. After the second 

bankruptcy filing, Bob’s pension was cut drastically, and his Social 

Security check, that was a supplement, is now half his income. 

Even with Medicare and VA benefits, his healthcare costs are almost $400 a month. 

6 

With all due respect to those claiming the program’s in financial 

crisis, we strongly disagree. According to Social Security trustees, 

the program will have enough funds to pay full benefits through 

2037, and about 78 percent thereafter. In consideration of our children and our grandchildren, we’re not suggesting Congress do 

nothing. However, the time is approaching when Congress will 

need to take action to extend the solvency of Social Security. One 

simple solution is to restore the earning caps to the historical level 

of 90 percent of all wages earned. The erosion to the current level 

of 82 percent has derived the Social Security Trust Fund of income 

to insure payments for future beneficiaries. 

In conclusion, Mr. Chairman, Social Security has been the underpinning of our country’s safety net. We believe President Obama 

and Congress should be able to restore its solvency without making 

radical changes to this fiscally responsible Federal program that’s 

essential for our security. 

Thank you for listening to me and giving me this opportunity to 

speak. 

[The prepared statement of Mr. Burzynski follows:] 

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The CHAIRMAN. Well, that’s a remarkable statement, for many 

reasons, one of which is it’s exactly 5 minutes. [Laughter.] 

Exactly. Thank you, Leon. 

Mr. Apfel. 

STATEMENT OF KENNETH APFEL, PROFESSOR OF THE PRACTICE, SCHOOL OF PUBLIC POLICY, UNIVERSITY OF MARYLAND, COLLEGE PARK, MD 

Mr. APFEL. You established quite a standard that I’ll try to live 

by. 

Senators, it’s an honor to be back in the Hart Senate Office 

Building to testify on Social Security in the 21st century. 

Our Social Security system has been the bedrock of support for 

millions of Americans for 75 years now. Social Security’s core 

framework has essentially remained the same as instituted in the 

1930’s. The program, however, has evolved considerably over the 

years to meet changing demographic, human, and economic needs. 

Social Security provides a foundation of support for about one in 

six Americans. While benefits are modest, for most Americans the 

value of Social Security is the biggest accumulation of dollars they 

will take into retirement. According to a recent National Academy 

of Social Insurance study—NASI study—a 65-year-old with average 

benefits would need to pay an insurance company almost a quarter-million dollars for that level of protection. 

Social Security is without a doubt the crown jewel of American 

antipoverty policy. Social Security lifts 13 million elders out of poverty. Without those monthly benefit payments, about half of all 

seniors would be living in poverty. 

Social Security is also America’s family protection plan. About 

one-third of beneficiaries are severely disabled workers, their 

spouses and children, or they’re surviving family members of workers who have died. Social Security is the equivalent of about a 

$400,000 disability insurance policy, and the Social Security survivor benefit is the equivalent of almost a $450,000 life-insurance 

policy for a young family. About 6 and a half million children under 

18, nearly 9 percent of all U.S. children, received part of their family income from Social Security in 2005. About 1.3 million of these 

children were lifted out of poverty by Social Security benefits. 

Social Security is particularly important to retirees in communities of color. According to the NASI study, among all beneficiaries 

65 and older, 42 percent of singles and 22 percent of married couples rely on Social Security for almost all of their income. Among 

African Americans, the figures were 54 percent for single persons, 

33 percent for married couples. Among Latinos, the figures were 62 

percent for singles, 37 percent for married couples. 

Social Security is the majority source of income for more than 

three-quarters of nonmarried aged-women beneficiaries, and almost 

all income for more than two out of every five nonmarried aged 

women. 

The chart in my testimony that’s before the committee here 

today, highlights the importance of Social Security as a source of 

income for older Americans. I don’t need to go through all these 

numbers. But, we’re all painfully aware of the strains that we’re 

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tirement savings accounts have shrunk by 40 percent over the past 

year. Private defined benefits are shrinking and are under 

unremitting stress. The unemployment rate for older Americans is 

increasing significantly. These changes, coupled with the erosion of 

employer-provided retiree health plans, the increases in Medicare 

premiums, and the cost of healthcare, all place growing importance 

on Social Security as a source of income that can be counted on. 

Now, while it’s true that Social Security provides essential protections for Americans, it’s also true that millions of beneficiaries 

still live on the edge. According to NASI studies, those 65 and older 

who are poor or near poor—family incomes below 125 percent of 

the poverty level—25 percent of unmarried women, 26 percent of 

black men, 36 percent of black women, 27 percent of Hispanic 

women, 31 percent—of Hispanic men—31 percent of Hispanic 

women, 18 percent of Asian men and women. Among persons age 

80 and older, those with income below 125 percent of the poverty 

line include 28 percent of unmarried women, 46 percent of black 

women, 37 percent of Hispanic women. 

Our Social Security system needs to continue to evolve, as it has 

for the past 75 years, to meet the nation’s needs. We need to be 

clear that we face two challenges, twin challenges, and that both 

need to be addressed: the solvency challenge and the benefit-adequacy challenge. 

The National Academy of Social Insurance has been examining 

in depth these benefit-adequacy issues. Indeed, three of the panel 

members appearing before this committee today have been researching these activities for the National Academy of Social Insurance. Today, as chairman of the board of the National Academy of 

Social Insurance, I’m providing to the committee the first of several 

NASI reports to be published in the months ahead on the topic of 

benefit adequacy for vulnerable populations. This report focuses on 

the benefits of targeted groups, such as widowed spouses, low-paid 

workers, people who have spent part of their time out of the workforce because of childcare or eldercare responsibilities, beneficiaries 

who have lived to advanced ages, older workers with occupational 

disabilities. Any discussion on modifying Social Security should 

consider, not just solvency, but benefit adequacy, particularly for 

vulnerable groups. 

Thank you, Mr. Chairman. I completed my testimony. 

[The prepared statement of Mr. Apfel follows:] 

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The CHAIRMAN. I owe ya. Great statement, thank you so much. 

Now we hear from Joan Entmacher from the National Women’s 

Law Center. 

Thank you for being here. 

STATEMENT OF JOAN ENTMACHER, VICE PRESIDENT FOR 

FAMILY ECONOMIC SECURITY, NATIONAL WOMEN’S LAW 

CENTER, WASHINGTON, DC 

Ms. ENTMACHER. Chairman Kohl, Senator Martinez, thank you 

for holding this hearing and for giving me the opportunity to testify 

on behalf of the National Women’s Law Center. 

Too often, discussions of Social Security portray it as a problem 

that needs to be brought under control. But, as you both and other 

witnesses on this panel have emphasized, it’s the largest and most 

secure piece of Americans’ retirement income, and strengthening 

and improving it has never been a more important topic. 

My written testimony explains the challenges that women, in 

particular, face in achieving a secure retirement, and why those 

challenges persist despite the growth in women’s work and earnings in recent decades. So, with my limited time, I’ll discuss reforms, focusing on a proposal to improve the benefit for surviving 

spouses. 

That’s one important element of a reform package, because over 

half of all poor, elderly women, 55 percent, are widows. Even with 

the changes in marriage and divorce patterns in recent decades, 

widows will remain the largest group of poor, elderly women for 

decades to come. However, I emphasize, along with Ken and Melissa, that reforms need to be developed as a package, including 

consideration of the important nonretirement benefits that are also 

part of Social Security. 

Additional reforms beyond the widows’ benefit are needed, because more women, especially black women, will enter retirement 

never having been married, or having been married for less than 

10 years in a—in one marriage, and not qualify for benefits as a 

divorced spouse. They would not be helped by improvements in the 

widows’ benefits. So, the proposals that Melissa will talk about, to 

improve benefits for lifetime low earners and caregivers, are also 

essential. But, a change in benefits for surviving spouses could improve both the adequacy of benefits for poor widows and the equity 

of benefits for surviving spouses in low-earner, dual-earner couples. 

Before I describe the reform proposal, I’ll give a brief explanation 

of how current benefits for surviving spouses work. 

A surviving spouse is entitled to receive up to 100 percent of the 

deceased spouse’s benefit, to the extent it exceeds his or her own 

worker benefit, assuming no reductions for early retirement. This 

helps provide basic income security for a surviving spouse, but 

there are some issues with the current benefit structure. 

It means that household Social Security benefits drop at widowhood by 33 to 50 percent. The cost of maintaining a household for 

one person is less than for two, but it doesn’t drop that much. 

Second, households in which spouses’ earnings were more equal 

experience a greater decline at widowhood; and with more women 

contributing more to household income, the number of households 

in this situation is increasing. 

19 

Third, the survivor of a dual-earner couple can end up with a 

lower benefit than the survivor of a single-earner couple that contributed less over their working lives to Social Security. 

So, as Ken has said, as part of a project by NASI that was funded by the Rockefeller Foundation, several of us analyzed options for 

improving benefits, including one that I looked at for reforming the 

widow(er)’s benefit. Under this proposal, which is a variant on earlier reform ideas, a surviving spouse would receive the higher of his 

or her current benefit or an alternative benefit, which would be 

equal to 75 percent of the couple’s combined benefits that they had 

earned as retired workers. This feature would help reduce the disparity in benefits that currently exists between single- and dualearner couples. 

Second, the value of the deceased spouse’s benefit used in the 

calculation would not be reduced because the deceased spouse had 

claimed benefits before full retirement age. This would increase the 

adequacy of benefits for lower-income survivors. 

Finally, the size of the increase would be capped to target the improvement to those most in need and to control the cost. 

The Social Security actuaries recently provided a rough estimate 

of the cost of this proposal, using two different caps. With a cap 

based on the average benefit for all retired workers, the cost would 

increase the long-term deficit by just 4 percent. Setting the cap at 

a higher rate, the benefit of a maximum earner, would add 20 percent to the current deficit. Of course, there are possibilities in between. 

My written testimony, and that of Melissa and Ken, describe 

other possible reforms. 

So, in my remaining seconds—— 

The CHAIRMAN. Go ahead. 

Ms. ENTMACHER [continuing]. I will simply remind the committee 

that it’s important to look not only at Social Security but also at 

Supplemental Security Income, which provides a means-tested support for the lowest-income beneficiaries. 

There are ways to modernize that program to ensure that all 

beneficiaries can truly benefit from the improvements in Social Security that we’re talking about. 

Thank you. 

[The prepared statement of Ms. Entmacher follows:] 

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The CHAIRMAN. Thank you very much, very fine statement. 

Dr. Melissa Favreault. 

STATEMENT OF MELISSA FAVREAULT, SENIOR RESEARCH ASSOCIATE, INCOME AND BENEFITS POLICY CENTER, URBAN 

INSTITUTE, WASHINGTON, DC 

Dr. FAVREAULT. Thank you, Senators, for this opportunity to testify. I’m going to focus on four key points. 

First, Social Security benefits for long-term, low-wage workers 

are modest, and need to be increased. Second, there are many ways 

to bolster benefits for low-income retirees. The technical details of 

each proposal will determine its effectiveness. Third, any Social Security reform package will include multiple provisions that interact 

with each other. So, certain provisions to help low earners may be 

more or less desirable, depending on other components of the package. Finally, some low-income older and disabled Americans are beyond the reach of Social Security. To help them, Congress should 

consider expanding SSI, the Supplemental Security Income program, as Joan Entmacher just described. 

On to my first point, about the need to reduce poverty risk by 

shoring up Social Security for long-term low-wage workers. About 

10 percent of Americans age 65 and older live in poverty, and many 

have incomes that leave them just barely above the poverty line. 

Low-wage workers’ Social Security benefits are modest, both compared to benefits in other developed countries and compared to 

basic needs. For example, someone who spent 35 years working full 

time at the minimum wage, who retired at age 62, would receive 

a Social Security benefit equal to only about 83 percent of the poverty level. Many low-lifetime earners don’t even get that much; 

many drop out of the labor force for a time or only work part time, 

often to care for children, disabled family members, and frail parents. Also, recessions hit them especially hard, and they are more 

likely than others to become disabled. 

This leads to my second point. We can bolster benefits for these 

vulnerable earners in different ways, with various strengths and 

weaknesses. Let me start with minimum benefits, because of their 

prominence in reform packages. They are highly cost effective, and 

directly address the problem of wage stagnation that has hurt lesseducated workers in recent decades. Our models show that within 

5 to 10 years of enactment certain minimums could lift tens of 

thousands of Social Security beneficiaries out of poverty. By midcentury, they could help almost a million people every year. 

Minimum benefits with stricter work-years definitions would 

have smaller effects, but would cost less and maintain Social Security benefits’ strong ties to time in the labor force. 

That is the challenge in designing a minimum benefit. The better 

it is at alleviating poverty, the worse it sometimes is at rewarding 

work. Really large minimum benefits could weaken the relationship 

between taxes paid and benefits received. Given the fiscal challenges ahead, Social Security must continue to reward long-term 

workers. 

Another interesting Social Security adequacy proposal would increase benefits at older ages, say when folks are in their 80’s and 

older, through a longevity insurance bonus or index. This addresses 

31 

the risk that people might outlive their assets. Such benefits would 

be targeted toward a time of life when work ability is most limited, 

and would ensure that older seniors’ incomes kept up with standards of living for workers in the economy. But some of these benefits may go to well-off seniors who don’t need extra help. Without 

caps, then, longevity benefits may be less effective at reducing poverty than other equally costly approaches. 

Proposed spouse and survivor benefits, as Joan Entmacher has 

described, often try to increase a program’s fairness, for example, 

making benefits more equal for single- and dual-earner married 

couples. A challenge for these proposals is that trying to make benefits fair for some couples often makes benefits less fair for unmarried workers who paid the same payroll tax. Some of these 

proposals are also fairly costly, and caps can help, as Joan pointed 

out already. 

Caregiver credit options try to deal with most of the limitations 

of spouse and survivor benefits. They could effectively serve many 

single parents, who now often fall through the cracks. Like minimum benefits, they also tend to be quite cost effective, and very 

progressive. But they’re not always fair for caregivers who earn 

more than the credit level, and they’re hard to administer. 

So, details matter. Without careful design, large vulnerable 

groups could be left out, diversity within groups may be overlooked, 

and benefit improvements could become less effective over time. 

My third point is that, in any Social Security reform package, 

provisions are going to interact. Sometimes people say that solving 

Social Security’s financing needs is just an arithmetic problem. We 

just need to raise some taxes and cut some benefits. 

But, different tax increases and benefit cuts affect workers and 

beneficiaries very differently. For example, reductions to cost-of-living adjustments would affect the oldest old more than other beneficiaries. I’ve simulated many Social Security packages in which 

the impact of an adequacy adjustment that appeared to be highly 

effective in isolation has been largely wiped out by other elements 

in the package. That’s why it’s critical to look at packages in totality, as—again, as Joan pointed out, the whole is often quite different from the sum of its parts. 

My final point, echoing Joan again, is that Social Security can’t 

do it all. SSI was designed to aid those with limited work histories. 

It has languished over the last 35 years, and needs to be updated 

if it’s to play more of a role in reducing need among rapidly aging 

baby boomers. For example, increasing SSI’s asset test would be an 

especially cost effective way to alleviate poverty among older 

women. Given the increasing share of defined contribution employer-provided pensions, Congress could reconsider the way SSI 

treats these types of pensions. 

So, that’s the end of my statement. Thank you, and welcome the 

opportunity to have a discussion of these issues and to answer any 

questions you may have for me. 

[The prepared statement of Dr. Favreault follows:] 

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The CHAIRMAN. Thank you very much, Dr. Favreault. 

Dr. Irons. 

STATEMENT OF JOHN IRONS, RESEARCH AND POLICY 

DIRECTOR, ECONOMIC POLICY INSTITUTE, WASHINGTON, DC 

Dr. IRONS. Well, thank you, Chairman Kohl and Ranking Member Martinez, for inviting me here today. 

As has been already said, the Social Security system has been 

the bedrock of retirement security. 

Sorry, I hope you can hear me better now. 

The Social Security system has been the bedrock, as was mentioned earlier, of retirement security for over half a century. Over 

the years, the system has evolved in response to changing conditions, and, as is well known, program outlays are expected to exceed revenue. So, the system faces a shortfall over the next 75 

years. 

Responsible stewardship of the program would again necessitate 

making feasible adjustments to move us toward sustainability. 

Long-run balance within the system can be achieved in one or a 

combination of three ways: by reducing total benefits, by increasing 

payroll tax revenue, or by transferring general revenues to Social 

Security. My testimony today will focus on the second of these options, that is increasing the payroll tax revenue. 

Specifically I want to suggest that any policy to increase overall 

revenue through the payroll tax should include an increase in the 

cap on earnings subject to the tax. As you know, Social Security 

taxes are levied on earnings up to a maximum level that is adjusted each year to keep pace with average wages. In 2009, the 

payroll tax cap is set at $106,800, and roughly 6 percent of the population has earnings above that cap. 

Due to growing income inequality, the share of earnings above 

that cap has risen from 10 percent in 1982, when the system was 

last in balance, to over 16 percent in 2006. This is because incomes 

have grown strongly at the top, while incomes in the middle have 

stagnated. This trend is expected to continue, meaning that the 

growing share of earnings remain outside of the payroll tax base. 

The cap also means that higher-income individuals pay a smaller 

share of their income in Social Security taxes than middle-class 

employees. Including the employee and employer share of Social 

Security, together with the Medicare tax, earners in the middle 

fifth of the income distribution pay an average effective payroll tax 

of about 11 percent. In contrast, the top 1 percent of earners pay 

just 1.5 percent of their earnings, on average. 

Let me turn now to two different options for making adjustments 

to that cap. According to the Social Security Administration, fully 

eliminating the cap on taxable earnings would be sufficient to fully 

close the projected shortfall in Social Security. If newly taxed earnings above the taxable maximum were credited toward the benefits, 

eliminating the cap would close most, but not all, of the gap. Short 

of that, raising and indexing the cap to capture 90 percent of earnings, as it did when the system was last in balance, would reduce 

the shortfall by slightly less than half, assuming benefit adjustments as well. 

52 

A third option, which I want to focus on a little bit more today, 

would be to split the difference, to eliminate the cap on earnings 

for employer contributions, and raise the cap to cover 90 percent 

of earnings on the employee side. With earnings up to the employee 

cap credited for benefit purposes, this change would reduce the 

long-term shortfall by about three-fourths. 

There are several advantages to this last approach. It would 

eliminate most of the long-term shortfall while maintaining a link 

between contributions and benefits, which I think is very important. It would not lead to extremely large benefits for millionaires, 

which could be a concern if all earnings were credited for benefit 

purposes. Finally, self-employment—self-employed taxpayers, who 

are responsible for both the employee and the employer share, 

would not face as large an increase in payroll taxes as if you had 

a full elimination of the gap. 

Further, this option would have, at most, a modest impact on the 

standard of living of upper-income taxpayers. On the employee side 

this would mean an increase in tax payments of, at most, 2.6 percent of income. If income growth for the top 5 percent of the households continues as it has for the past 20 years, and assuming that 

the full 6.2 percent of the employer tax were passed on to their employees in the form of lower wages, the additional tax obligation 

would be recouped by these individuals in less than 4 years. Affected taxpayers would also recoup some of the higher taxes in the 

form of higher benefits. 

Some would argue that an increase in the cap would create inefficiencies and cost jobs. Indeed, all else equal, I too would prefer 

to live in a world without taxes. But, all else is not equal. If revenue is not generated by lifting the cap, it must be raised from 

other sources or benefits must be cut. Those choices have costs, as 

well. 

While no one likes to raise taxes, raising the cap on taxable earnings would, in my opinion, be a better option than raising tax rates 

across the board. Thus, any policy to increase overall revenue 

through the payroll tax should have a higher cap as part of the 

equation. In particular, raising the cap to cover the 90 percent of 

all earnings, and eliminating the cap on employer side, would close 

about three-fourths of the projected 75-year shortfall, and the higher cap would affect just 6 percent of employees. By contrast, an 

across-the-board rate hike would affect everyone, with a disproportional impact on low- and moderate-income workers. 

For most of those who would face a higher tax obligation, the impact would be minimal relative to their incomes, and would likely 

be more than offset by wage growth in just a few years. 

So, thank you for the opportunity to speak with you today, and 

I look forward to answering questions. 

[The prepared statement of Dr. Irons follows:] 

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The CHAIRMAN. Thank you very much Dr. Irons. 

Dr. Biggs. 

STATEMENT OF ANDREW BIGGS, RESIDENT SCHOLAR, 

AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC 

Dr. BIGGS. Chairman Kohl, Ranking Member Martinez. 

Social Security is the largest Federal spending program, the largest tax paid by most workers, and the largest source of income for 

most retirees. It also faces a significant long-term funding challenge. For these reasons, I am glad you chose to hold this hearing 

today, and I’m thankful for the opportunity to testify. 

In my testimony, I wish to highlight three main points. First, Social Security’s long-term shortfalls increased significantly in the 

latest trustees report, and will worsen further if reform is delayed. 

Second, population aging, not rising per-capita healthcare costs, is 

the principal driver of rising entitlement spending. Even if current 

health reforms are successful, we may still face a budget crisis if 

aging-associated costs are ignored. Third, Social Security reform 

should encourage longer work lives and simplify the benefit formula. 

The 2009 Social Security Trustees Report showed worsening program finances due to lower payroll tax revenues, increased lifeexpectancies, and the simple passage of time. While many people 

focus on the date of trust-fund exhaustion, which moved from 2041 

to 2037, the more important finding is that the projected long-term 

deficit rose by almost one-fifth. Moreover, each year we delay reform, this deficit increases around 5 percent. Time is money, as 

they say. 

More broadly, I wish to place Social Security in a context of overall increases in entitlement spending. Rising entitlement costs 

spring from population aging, which increases the number of beneficiaries, and per-capita healthcare price increases, which raise 

costs even if the beneficiary population does not change. The administration has argued that per-capita healthcare inflation is, in 

OMB Director Peter Orszag’s terms, the real deficit threat, and 

that Social Security and population aging in general are small 

issues. Yet, both CBO and OMB projections clearly show that population aging, not rising per-capita health costs, will be the largest 

entitlement-cost driver through around 2050. A chart in my testimony illustrates these trends. 

Policies to address aging include specific Social Security reforms, 

such as those we’ll talk about here today, plus macrolevel policies 

such as increasing labor- force participation, boosting saving rates, 

and raising skilled immigration levels. 

My final comments propose two improvements to Social Security’s benefit structure aimed, in particular, at low earners. First, 

we need to improve Social Security’s incentives to delay retirement. 

Second, we must simplify the benefit formula to better target benefits, and to make benefits more understandable. While longer work 

lives enhance retirement security, due to quirks in the Social Security benefit formula, a person who delays retirement and continues 

to pay into Social Security typically receives almost no benefits in 

return. On average, a person who works an additional year receives 

only around 9 cents in extra retirement benefits for each extra dolVerDate Nov 24 2008 14:57 Dec 14, 2009 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 H:\DOCS\53718.TXT SAG PsN: JOYCE
62 

lar of taxes they pay. Policymakers should consider lowering the 

Social Security payroll tax for older workers, which would encourage delayed retirement. 

Second, the Social Security benefit formula is remarkably complex—basing benefits on average wages, the number of years 

worked, length of marriage, relative earnings between husbands 

and wives, and other factors. As a result, many workers have no 

idea what their Social Security benefit will be until the first check 

arrives. By this time, of course, it is too late to plan their other savings or to consider working longer. Almost one in four individuals 

near retirement cannot even guess what their future Social Security benefit will be. Of those making predictions, one-quarter of 

near-retirees over estimated their benefits by more than 28 percent. This predictability risk is every bit as damaging as having 

your 401(k) account decline on the verge of retirement. 

Moreover, the benefit formula’s complexity means that retirees 

with the same lifetime earnings often end up with very different 

benefits. Figure 3 in my testimony illustrates how large these disparities can be. The poor targeting of Social Security’s progressivity 

means that for many low earners Social Security is a social insurance policy that fails to pay off when they need it the most. 

Fixing this problem, though, does not require higher average 

benefits or greater progressivity. Instead, benefits must merely be 

targeted more effectively. One solution, which resembles the pension program in New Zealand, combines a flat dollar benefit paid 

to each retiree, with automatic enrollment in individual retirement 

accounts. As a chart in my testimony shows, this alternative, while 

much simpler than current-law Social Security, actually targets low 

earners much more effectively. 

To conclude, rising entitlement costs, especially those caused by 

population aging, pose significant challenges. Reforming Social Security in the near future can reduce the long-term fiscal gap while 

enhancing the welfare of retirees. 

Thank you again for your consideration. I’d be happy to take any 

questions. 

[The prepared statement of Dr. Biggs follows:] 

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The CHAIRMAN. Thank you very much, Dr. Biggs. 

Senator Martinez. 

Senator MARTINEZ. Well, thank you Mr. Chairman. 

It is apparent that we all acknowledge there’s a problem, and 

that there are no easy, simple, or painless solutions to the problem. 

I guess the beginning question I would have for Mr. Irons is—you 

indicated and some would say that your proposal would cost jobs 

if you increase the payroll taxes of employers, and you answer that 

by saying that the world would be a nicer place if none of us paid 

taxes, or something like that. I realize that that’s not an option. 

The question really is, Would it, in fact—at a time when we have 

unemployment reaching double digits, would it in fact be something that would threaten job loss? 

Dr. IRONS. I think if you were to do it all today, then that would 

probably not have a good impact on the broader macroeconomy, or 

it very well might cost jobs. I think the magnitude of the job loss 

would be relatively minor, for various reasons, but I think if you 

were to actually try to implement this, I would suggest phasing it 

over time to allow people in businesses to plan for it, to push off 

some of the tax increases until, hopefully, after we’ve recovered. So, 

it’d be a phase-in over time, it’d be more predictable, it would happen after we’ve, largely, recovered. 

But, having said that, I think even with—if this were in place, 

you’d have a relatively mild job loss, if any. Because I think—— 

Senator MARTINEZ. Why would that be, can you kind of—— 

Dr. IRONS. I can’t necessarily quantify it, it’s a—I’m an economist, so it’s an on-the-one-hand/on-the-other-hand kind of thing, 

here, so I can’t give you an exact number. 

Senator MARTINEZ. No, I realize that, but—— 

Dr. IRONS. Yeah, but I think the right comparison here, again, 

is not to compare this with doing nothing, it’s to compare this with 

the alternatives. So, I think this would have a smaller impact on 

the broader macroeconomy, and on jobs, than if you raised rates 

across the board, or if you made some other changes by impacting 

benefits. I think a benefit cut would have a larger impact on jobs. 

I think cutting benefits would have a larger impact on individuals, 

especially in a recession. So, again, when you look at all these options, in order to bring the system into balance, I don’t want to say 

there’s no cost, but I say this is probably the least cost of the 

options that are before you. 

Senator MARTINEZ. Now, I think there’s a pretty good consensus 

that impacting benefits is not a desirable option. But, I wonder if 

means-testing of benefits is something that has any merit or should 

be considered? 

I’d throw that open to anyone who might—— 

Ms. ENTMACHER. I think the concern is that—as several witnesses, and as the chart indicates—benefits are so important for 

people, really quite high up the income scale, that means-testing 

would mean, potentially, cutbacks for average Americans who rely 

on Social Security for the majority of their income. It also would 

undercut a lot of the strength and support for the program, which 

is precisely that this is something that everyone contributes to, and 

it’s there when they need it, and benefits are related to the contributions that people make during their working lives, even 

73 

though Social Security also has progressive features that help those 

in need. So, I think it would fundamentally change the character 

of the program if we were to go to something like means-testing 

benefits. 

That’s not to say—and several of us had suggested—have suggested—that if you’re going to make improvements, you want to 

target those improvements to those most in need. I think that’s, 

you know, a different way of thinking about the problem, that if 

we’re going to make it better, if we’re going to put additional improvements and benefits, make sure they go to people who need 

them most. 

Senator MARTINEZ. Well, shouldn’t we first right—get ourselves 

somewhere out of the hole before we talk about improving benefits? 

I mean I—— 

Go ahead, Mr. Apfel. 

Mr. APFEL. I believe—— 

The CHAIRMAN. Microphone. 

Mr. APFEL. I believe these two issues must be enjoined. The last 

time we really dealt with Social Security in a major way was 1983. 

Since that time we did make changes to the retirements earnings 

test, which I thought was a very important change. But, we don’t 

deal with these issues very frequently. 

It’s an excellent—most of the—— 

Senator MARTINEZ. Know why? 

Mr. APFEL. Well, for all the different political reasons, it’s 

very—— 

Senator MARTINEZ. Right. 

Mr. APFEL [continuing]. Very hard—it seems to me that 

marrying together the issue of long-term solvency of the system, 

which will take changes, and it will—— 

Senator MARTINEZ. Not without pain, probably, in some direction 

or another. 

Mr. APFEL. It’s—there’s going to be pain involved in that package. But, coupling that with a hard look at so many of the people 

on that chart, particularly in that bottom half—it’s critically important that we think about marrying the issue of adequacy of benefits 

for our vulnerable populations, for low- and moderate-income people, with any efforts at restoring solvency. 

Now, I have been one who’s argued, for years, that there will 

have to be some benefit restraints, and I would think that some of 

those benefit restraints slow the growth rate of benefits for future 

generations will primarily have to be near the higher end of the income scale. We’re going to clearly need tax increases for the system, but we also then have to take a look at what we’ve done to 

the system and how the changes that are being talked about today, 

the adequacy piece, fits into that overall package. 

If we do the former, the solvency piece, without the latter, the 

adequacy piece, we’re digging a deeper hole for many of the lower 

income people on that chart. 

If we do the latter, the benefit adequacy changes, without the 

former, we are digging a deeper hole in terms of solvency. So, I 

think it’s a good chance to build the two together—— 

Senator MARTINEZ. Improve benefits while at the same time fixing solvency, all in the same package—— 

74 

Mr. APFEL. I think it’s critically—— 

Senator MARTINEZ [continuing]. Something that we don’t do that 

frequently. 

Mr. APFEL [continuing]. Critically important. 

Senator MARTINEZ. What about the—and again I’ll throw this 

open to the whole panel. I mean, all of you are so knowledgeable 

on this, and I would appreciate hearing from any of you on this— 

the idea of deferring or delaying retirement, given the fact that we 

live longer, given the fact that we’re healthier, given the fact that 

many of us, particularly after the recent debacle of the market, 

probably want to work a little longer, things of that nature—how 

does that—— 

Go ahead, Mr. Burzynski. 

Mr. BURZYNSKI. If I could address that. I think that there are 

some occupations and careers where that would not be necessarily 

a problem. Personally, I come out of construction, and construction 

workers, by the time they’re 60, 65, have pretty much beat themselves to death. People that have worked in a factory their whole 

life, stood on concrete, people that work in stores, clerks, those 

sorts of jobs, again, by the time they reach what we now consider 

the retirement age, the idea of working longer years is not necessarily something they’re looking forward to. 

Senator MARTINEZ. Not really an option, physically speaking, 

for—— 

Mr. BURZYNSKI. It’s not, physically. In my own case, I begin 

to—it would take me 5 minutes to tell you all the physical things 

that I have worked through in the 40-some years I was an electrician in construction, so—— 

Senator MARTINEZ. The Senate can be a tough place, too, I 

can—— 

Mr. BURZYNSKI. Right. [Laughter.] 

Senator MARTINEZ. No, I hear you. Any other thoughts on this? 

Dr. IRONS. I would just—— 

Senator MARTINEZ. OK. 

Dr. IRONS [continuing]. Concur with that notion, that it is a—Social Security gives people the option. You know, I think preserving 

that option by maintaining, you know, the current retirement age, 

I think is critically important. The other piece of this is, because 

you have the option of early retirement, and your benefits adjust, 

delaying the normal retirement age is equivalent to just a raw benefit cut. 

So, and I think, you know, the way I kind of think about this is 

twofold. One, you have to maintain the option, and two, if you want 

to cut benefits, cut benefits; don’t do it through changing the retirement age. 

Dr. BIGGS. If I might just briefly touch on this, Senator. 

Senator MARTINEZ. OK. 

Dr. BIGGS. Without minimizing the problems faced by people who 

work in physically demanding jobs, if we go back to the 1950’s, the 

typical person first claimed Social Security benefits at age 68. 

Today, life expectancies are longer, work is much less demanding 

than it was back in the 1950’s, when people would work in mines 

and steel mills and the like; yet people tend to claim benefits at 

75 

62 or 63. So we have better work conditions, probably an extra 5 

years of longevity, but we’re claiming benefits 5 years earlier. 

That’s great if you can afford to do it, if you have the savings 

set aside to do it. I don’t know if we want to be heavy handed 

about this, but of the points I made in my testimony is, we want 

to give people the incentives to work longer. So, I think something 

like lowering the payroll tax, or doing various other things could 

that tell people, ‘‘We want you to work longer. It’s to your benefit, 

we’re going to try to make it a little bit easier for you.’’ 

Senator MARTINEZ. I think, too, it may allow for those who really 

are unable to continue to work, for whatever physical conditions 

not to, while maybe the others, who could, have an incentive to remain longer in the workforce—— 

Mr. Biggs. Exactly. 

Senator MARTINEZ [continuing]. Might be a good thing. 

Mr. Apfel? The demographics are not working in our favor when 

we look at the numbers, in terms of what they look like in the future. So, maybe allowing people to work longer, and giving them 

a bit of an incentive to do it, might be a good thing for the whole 

system. 

Yes, sir? 

Mr. APFEL. I, for one, have not ruled out supporting any of the 

things that are being talked about here. Again, it’s an issue of 

marrying together the need for long-term solvency and benefit adequacy. 

In this case, if there were efforts made to create encouragements 

to keep people in the workforce longer, or to change the retirement 

age, and a whole package of things that have been talked about, 

if those are coupled with looking at how to provide a stronger set 

of benefits for low- and moderate-income workers, for blue-collar 

workers, a way to liberalize the disability program, so that people 

who are beat up by the time they’re 60, who are clearly not going 

to be eligible for Social Security disability today—these are the 

kind of issues, again, whether we could couple together a package 

of changes for solvency, that would have some things that none of 

us would particularly like, with the notion that we are providing 

more assurances on adequacy. So, again, this is another example 

where marrying the two issues of solvency and adequacy could lead 

to good steps for the future. 

Senator MARTINEZ. Well, I guess what you’re saying is, that we 

put everything on the table, and then work at it and come up with 

something that seems fair and adequate for the future, and for the 

long term, of the system. 

Yes, ma’am? 

Ms. ENTMACHER. Senator, if I might, the other piece of encouraging people to work longer is making sure that jobs are available, 

that employers want to hire them. That, of course, is a problem 

that many people, particularly lower-skilled workers, but, actually 

older workers at all education levels are encountering in this current recession. The jobs are not there, and older workers who lose 

jobs are having an even harder time getting back to work when 

they’re trying to do it. 

Discrimination persists, particularly against older women, so 

staying in the workforce is not always an option, even if you—— 

76 

Senator MARTINEZ. Sure. 

Ms. ENTMACHER [continuing]. Want to do it. A proposal, that actually would not increase costs at all, and might encourage people 

to work longer, is something that Virginia Reno, at NASI, has suggested, which is, let’s rename—re-label Social Security benefits and 

encourage people to retire at the ‘‘best benefit age,’’ and describe 

that as age 70. It’s with maximum delayed retirement credits. Keep 

the benefit structure below that as it is, but maybe let people know 

that if they can stay into the workforce, they’ll get an even better 

benefit. Instead of focusing on the ‘‘full retirement age,’’ think 

about the possibilities of increased benefits if they work longer— 

which our current system does provide—without penalizing people. 

Senator MARTINEZ. Thank you, Mr. Chairman. 

The CHAIRMAN. Thanks, Senator Martinez. 

Dr. Irons, your thought that we might raise the cap—however we 

do that, at whatever level, and whatever assessment we make—in 

a sense, that is means-testing, isn’t it? Because you’re trying to 

raise money to balance the deficit in Social Security by asking the 

more affluent to pay in more. So, it is—and I’m not criticizing 

it—but, it is really a means test in a different kind of a cloak, isn’t 

it? 

Dr. IRONS. You can call it whatever you want. It’s asking, you’re 

right, the people at the top end of the income distribution to pay 

more. That’s the bottom line of it. I mean, I think the means 

test—often times talked about in terms of the benefit structure, not 

so much on the revenue. I concur with the other panelists, to think 

about this as a package, probably makes sense. 

But, it does ask more of upper-income individuals to pay more 

their tax obligation than the current system currently does. But, it 

would also change the benefit structure, as well, to allow them to 

recoup some of that in terms of higher benefits. 

The CHAIRMAN. Yes, you could work it into—— 

Dr. IRONS. But the overall system, as you know, is progressive. 

People at the low end tend to get a greater share of their tax payments back, at the end of the day. So, this would make the system 

you know more of what it was designed to do. I think it would return us back to having 90 percent of all earnings covered, and 

that’s—you’re right, it’s going to impact people with higher incomes 

more. 

The CHAIRMAN. Yes. Although we’re not feeling it acutely now, 

because of the downturn in the economy, all the demographics indicate that in the future we are going to need those people who are 

aging and healthy to stay in the workforce. There will be a shortage of skilled workers in the decades to come, so that it does behoove us, not only to improve Social Security in terms of its financial structure, but also for our economy. It behooves us to do everything we can to encourage people to stay in the workforce. 

I have a bill that would provide benefits to companies who are 

wanting to keep their people in the workforce, but looking for some 

benefit. But, in every way, I think we all agree that keeping people 

in the workforce is a very, very good thing to do, not least of which 

is that they also stay alive and healthy and active and challenging 

themselves just as long as they can, you know, be productive in our 

77 

society. That’s a good thing for everybody, and it also helps Social 

Security, isn’t that true? I think we all agree with that. 

Now, Mr. Apfel, you were working in the Senate, weren’t you, 

back in the 1983 period, when we reformed Social Security? You 

probably have some recollection as to how we were able to get it 

done, even under political duress. Could you give us some recollections of what it was back then? 

Mr. APFEL. Well, I do have recollections, Senator. I worked them 

for Senator Bill Bradley, who was a member of the Senate Finance 

Committee. A commission was established during that time—with 

President Reagan and administration officials, senior Democratic 

leadership, senior Republican leadership, to try to come up with a 

package that would move the system forward for the long term. 

What’s interesting about that 1983 package is that, 2 and 3 years 

before that, some of the things that ended up in that package were 

considered to be impossible, unacceptable. Still, people came 

together for what I believe was the greater good. The greater good 

is the long-term economic security of future generations. A number 

of things were done that no one thought were possible before that, 

and everyone came together to support those efforts. That—some of 

the things that I, personally, would have liked to have seen 

included didn’t get included in that package. Indeed, the increase 

in the retirement age didn’t include liberalizations to the disability 

program to help people who had trouble working. So even to this 

moment today, I’m still testifying on behalf of taking another look 

at that, because I think it’s important to do so. 

No one supported everything that was in that package; but, for 

the greater good, and for the greater sense of economic security for 

future generations, it was a critically important step that everybody came together and supported. 

It is one of the—one of my favorite moments of working in the 

U.S. Senate, seeing people come together for the greater good. I 

think that is very possible. I would hope that, next year, that this 

body, working with President Obama, would be in the position to 

do that again, to—and again, not just make changes for solvency, 

but for adequacy, as well. To come together, marrying these two 

issues, and moving the system forward for the greater good. 

Because this is the program that is the most important Senator 

Bill Bradley, at the time, said that it was the best expression of 

community that he knew, the Social Security system; that was 

back in 1983. I believe that is true today. It’s going to take working 

together to make that happen. Not just about solvency, but about 

assuring that the people particularly in the bottom half of those 

charts, have some assurances that they have an adequate system 

for retirement. 

The CHAIRMAN. So, you are very supportive of the idea of resurrecting that sort of a group and seeing what we can come up with 

to move forward on Social Security for the next 75 years. You think 

it would work. 

Mr. APFEL. I think it would work. Whether that is a commission, 

whether that is the leadership from the respective committees, I 

don’t know what the right model would be. Right now, Congress is 

very heavily involved with healthcare, so trying to deal with the 

Social Security issue for the next 75 years in—— 

78 

The CHAIRMAN. It’s not going to happen this month or next 

month—— 

Mr. APFEL. No, no. 

The CHAIRMAN. Next year, I think—— 

Mr. APFEL. But, I would love to see there be an effort next year 

to come together for the sake of the American people and for the 

sake of future generations. 

The CHAIRMAN. Have you talked to Senator Bradley recently? 

Mr. APFEL. I did recently, within about the last couple of weeks. 

The CHAIRMAN. Did you? 

Mr. APFEL. Yes, I did. 

The CHAIRMAN. How’s he doing? 

Mr. APFEL. He’s doing just fine, and—well, I’ll share a couple of 

private stories with you after the hearing, if you’d like, but I won’t 

for the record. 

The CHAIRMAN. Just by coincidence, I’m going to be talking to 

him next week, but I’ll remind him about you. 

Mr. APFEL. Ask how Betty Sue is. 

The CHAIRMAN. OK. Betty Sue. OK. 

Who else wants to make comment? I think this is really a good 

panel. 

Yes, sir, Leon, go—say what’s on your—— 

Mr. BURZYNSKI. If I could add one more concern, and that’s a 

rather recent phenomenon about the garnish from bank accounts. 

What we’re hearing is that—normally, under the Federal law, Social Security and veteran benefits and some other sorts of military 

disability benefits, are not allowed to be garnisheed or put a hold 

on or taken from beneficiaries. But, what’s happened recently is, 

because, under the new programs, all of our benefits go into a bank 

account electronically, and then the creditor will put a hold on the 

bank account, and the bank freezes it. So, now all the money that 

the person has for the month—and in many cases that’s their Social Security benefits, and maybe a few bucks—gets frozen. On top 

of it, the banks add fees and—late fees and overdraft fees and all 

sorts of things, and, in some cases, the fees amount to more than 

the amount that’s in the account. 

I think that’s drastically wrong that that can happen, and I 

would hope that there’s—that’s something that needs to be 

addressed right away, and especially—you know, one of the big 

banks—we just gave Bank of America a ton of bailout money—us 

taxpayers—and Bank of America is one of the banks that’s freezing 

accounts and freezing Social Security funds for beneficiaries. 

So, I would hope that that—that’s not necessarily going to fix Social Security, but it certainly would fix the income for some of the 

folks that are dealing with that today. 

The CHAIRMAN. That’s a very good comment, very appropriate, 

and we will look into that very carefully. 

Yes, sir, Kenneth? 

Mr. APFEL. The report that we provided to you today, one of the 

proposals that’s in there is to examine whether specific changes 

could be made in this area. The Social Security Act does protect 

benefits from garnishment or attachment by creditors, but this is 

a real problem. So, we have—this report does include some suggestions to look at for fixing this problem. 

79 

The CHAIRMAN. Very good. 

Who else would like to make comment? 

Mr. Biggs. If I might—— 

The CHAIRMAN. Yes Dr. Biggs. 

Mr. Biggs [continuing]. Touch briefly on the tax issue. I think, 

as the representative on my end of the spectrum, I would feel remiss if I didn’t talk a little bit about taxes. 

Understanding that Social Security reform will necessarily be a 

compromise between the different positions, different parties, certainly I wouldn’t say that people on my end of things should simply 

oppose any plan that includes a tax increase. We need to come to 

fix this program, and, at the end of the day, compromises are going 

to have to be made. 

At the same time, I think—when we think about raising the wage cap, the $107,000 that we currently levy taxes on, I think we 

want to be a little bit wary of what’s going to happen with that. 

If we—I guess, to touch, first, there’s the argument that the payroll 

tax currently covers 85 percent of total wages, which is a decline 

from 90 percent in the early 80’s. If you look throughout Social Security’s history, the average coverage has been right around 84 percent. So, the current level is not out of line with where Social Security has been, historically. 

If we raise it back up to 90 percent, that raises the tax max from $107,000 to around $180,000. A person making $180,000 is in the 

28-percent income tax bracket. They probably pay 6 or 7 percent 

for State income taxes. If they are going to pay the Social Security 

tax of 12.4 percent on top of that they’re looking at a 47-percent 

marginal tax rate. If they’re married it could be higher than that. I am wary of—$180,000 is good money, no doubt. If you’re living 

in a place like New York City, it’s—you know, you’re—not private 

jets, or even private schools, with that kind of salary—I’m wary of 

having a nearly 50-percent tax rate on somebody at that income 

level, given that we haven’t even started to address Medicare or 

Medicaid, both issues which also might require tax increases. 

So, I think we want to be careful. Social Security is one area 

where personal savings can fairly easily substitute for Social Security benefits. If I save more in my IRA or 401(k), that can reduce 

the burden on Social Security. With something like Medicare or 

health insurance, it’s harder to do that through personal substitution. So, I just think it’s something we should be wary of. 

The CHAIRMAN. I think it’s a good point, and, you know, one 

thought on that is that we could have a moratorium on any increase beyond its current level, until a person’s income stretches to 

$200,000 or $250,000 and then come back and take a look at assessing some kind of a—of a fee, beyond that. 

Mr. Biggs. I think, in terms of when we want to say, why has 

this coverage fallen from 90 percent to 85 percent, the solution is 

to levy a higher tax on people making $180,000. The real cause of 

the decline in the coverage has been people at the very, very top 

end of the earning spectrum making $1 million, $5 million, a year. 

So, raising taxes on the person making $180,000, I don’t—there’s 

a fairness issue there, as well. He didn’t cause the problem, so I’m 

not sure whether he should have to pay for it. 

So, I think a wide range of solutions should be looked—— 

80 

The CHAIRMAN. Sure. 

Dr. BIGGS [continuing]. In this regard. 

Ms. ENTMACHER. Senator? 

The CHAIRMAN. Who also wants to make comment? 

Ms. ENTMACHER. I’d actually like to follow up on the point that 

Andrew made, which I think is a very good one, because I was 

going to suggest that, in addition to looking at ways of increasing 

the base of payroll taxes for Social Security, we should be looking 

at taxes on those very high-income people. I don’t think that’s, 

maybe, entirely where Andrew was going to take his argument. 

But, I don’t think it’s necessary that financing for Social Security 

come entirely from the payroll tax. That was the focus of Mr. Irons’ 

testimony. But, I think there are other options and reasons to look 

at them. 

Part of the reason there is a long-term shortfall in Social Security is that, soon after the program was created, we allowed people 

to claim benefits so that they could get out of poverty, so that those 

people in—you know, coming out of the Depression, could benefit 

from Social Security even though they hadn’t paid into it long, and 

we could quickly start addressing the problem of elderly poverty. 

That’s known as the legacy problem that—Social Security inherited this long-term debt. Recognizing that, I think it would be appropriate to look at some highly progressive taxes, some other 

forms of revenues that might help shore up Social Security. 

The CHAIRMAN. I agree. 

Dr. IRONS. If I could just piggyback on— 

The CHAIRMAN. Dr. Irons. 

Dr. IRONS [continuing]. The prior two comments. I do think—I 

agree, to some extent, with both comments. I do think that looking 

at other taxes is very much merited. I didn’t focus on that in my 

testimony, but it’s worth exploring, certainly. 

With regard to the cap, I think I come down as an economist, 

thinking about the design of the tax code. Right now, as I said in 

my testimony, if you are in the middle of the income distribution, 

you pay around 11 percent of your income, in terms of the payroll 

tax. If you’re in the top 5 percent, you pay one and a half percent. 

So, from—on a basis of fairness and just basic economics, there’s 

an imbalance there that needs to be rectified. Whether you do it 

in the way you suggest, about raising taxes on people above 

250,000 or something, that’s certainly one way to go. Raising the 

cap, or some combination of the two, might be warranted. 

But, I think there is something, which is a focus on making the 

overall payroll tax more fair, and to do so in a way that raises revenue, in a way that does not allow people at the very top end to 

avoid their obligation, which is largely the way the system is now. 

The CHAIRMAN. Very good. 

Mr. Apfel. 

Mr. APFEL. I don’t know whether we’re almost done, Mr. Chairman, but I wanted to thank you, personally, for a focus of a hearing on benefit adequacy. We’ve spent hearing after hearing after 

hearing looking at the issue of solvency. What you have asked us 

to look at is critically important, which is, ‘‘How adequate is that 

benefit structure, particularly for vulnerable populations?’’ This is 

a big contribution, and I would hope that your committee will conVerDate Nov 24 2008 14:57 Dec 14, 2009 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 H:\DOCS\53718.TXT SAG PsN: JOYCE
81 

tinue to look at these issues and dig in, in depth, so that, whenever 

we do resolve this issue for the long term, that the issues that 

you’ve asked us to address on adequacy become part of that package. So I want to thank you—— 

The CHAIRMAN. Thank you. 

Mr. APFEL [continuing]. Personally for what you’ve done. 

The CHAIRMAN. Thank you so much. 

Who else? [No response.] 

The CHAIRMAN. Well I have just one request. If we put together 

a commission, are you all willing to work on it? I think you’d be 

great. [Laughter.] 

You do a wonderful job, and you did a great job here today. We 

thank you all for coming, and we’ll see you soon. 

[Whereupon, at 3:14 p.m., the hearing was adjourned.] 

Æ