The average annual deficit over the second 25-year period (2000– 2024) is estimated by the Trustees to be 4.10 percent of taxable payroll. If this percentage were applied to the present payroll the annual deficit would be $28.7 billion. Over the third 25-year period (2025– 2049) the average deficit estimated by the Trustees is 10.19 percent. Again applying this to the present payroll, the annual deficit would be $71.3 billion. Payrolls in both the second and third 25-year periods will obviously be vastly increased and therefore the deficits will be proportionately greater. HOW DID OASDI'S PROBLEMS COME ABOUT? The truth of the matter is that we in Congress have acted on social security proposals in many cases without full understanding or concern for their potential future implications. In its eagerness to make OASDI more helpful to individual beneficiaries, Congress too often has been willing to accept the most optimistic predictions about income and outgo of the system. We have failed to apply the conservative principles of sound business judgment which should be our first thought for so important a program as the social security system. The Congress has failed to vote taxes commensurate with increases Congress voted in benefits. With the 8 percent cost of living increase scheduled to take effect with the July 1 payments, there will have been an increase in OASDI benefits from 1970 through 1975 of 82 percent. During the same period, the cost of living rose approximately 35 percent. In our actions on a program aimed at helping meet the contingencies of life faced by individuals, we have ignored contingencies, such as sharp inflation and recession, which have had serious repercussions for the program itself. The failure of social security tax income to equal outgo for OASDI and medicare this year and during the years immediately ahead is in part a direct result of the continuing inflationary spiral. The deficits have been exacerbated by the recession which has caused revenues to the social security system to fall below previous expectations. The even more sizable deficits predicted by experts for OASDI during the next 50 to 75 years and beyond, unless changes are made, are primarily due to new predictions regarding three major factors: 1. Inflation and wage level expectations; 2. Anticipated continued early retirement trends; and 3. Predictions that there will be little or no growth in the total population because of low birth rates and that the percentage of the elderly in the population will rise substantially. A part of the predicted near-term and long-term deficits is attributable to a flaw in provisions for automatic cost of living increases for OASDI beneficiaries which has the effect of giving what might be described as a double increase in prospective benefits to those who have not yet retired. At present, the benefit formula for those who have not yet retired is increased on the basis of the cost-of-living increases. It also goes up because of wage increases. The 1974-1975 Advisory Council on Social Security has recommended retention of the automatic living cost increases in OASDI for retirees, present and future. We agree. The Council has recommended that this procedure as applied to the benefit formula used for those still in the work force be eliminated, by limiting changes in the formula for those currently working to changes based on average increases in wages. This approach deserves careful consideration. Even with correction of inequity in the cost-of-living adjustments, there will still remain serious financial difficulties. Basic to the long-range financial problems of OASDI, as distinguished from the serious and growing deficits in the immediate 5 years ahead, are the probabilities that, within 40 years, current retirement trends and low birth-rates will combine to reduce the ratio of workers paying social security taxes from three for each beneficiary to two. The average beneficiary today receives about $1,945 per year. This means that the combined tax deducted from the two average employee's paychecks each year, and paid for them by their employers would have to equal $972.50 to pay for this one beneficiary. The 1974 average combined employee-employer tax was $583 for each taxpayer. Thus for two average workers the combined taxes equaled $1,166, producing a deficit of $779 per year. The birth-rate factor for several years has been at a level which could result in little growth in the national population and is expected to continue at such levels for at least several years. The certainty that there will be far fewer persons below the age of 65 in proportion to those above 65 cannot be ignored. It raises serious questions as to whether or not current retirement patterns-which have shown a trend toward earlier and earlier retirement ages can be continued. Note was taken of this question by the 1974-75 Advisory Council on Social Security, in its recent report, when it suggested that at some time in the distant future the Congress should consider the possibility of raising the age for full retirement benefits under OASDI from 65 to 68. How CAN OASDI'S FINANCIAL PROBLEMS BE MET? Current large deficits in OASDI demand that Congress act without delay to bring the program's income into balance with its outgo. Simultaneously we should begin now a review of steps necessary to prevent the even larger deficits predicted for the next 50 to 75 years. While final determinations in these matters is not the responsibility of the Special Committee on Aging, it is appropriate here to look at some of the alternatives which have been proposed. As they are considered in the weeks ahead by Congressional committees with legislative responsibility for social security, we urge that their impact on the lives of all American citizens and the Nation's whole economy be given most careful consideration. As discussed earlier in this statement, one action is to correct the flaw in current provisions for automatic cost-of-living adjustments in payments to OASDI beneficiaries. While providing that the benefit formula for those who are now working shall reflect both rising average wage levels and increases in individual earnings, it appears fiscally necessary that adjustments in pavments based on cost-of-living increases be limited to retirees and others actually drawing OASDI benefits. This elimination of "doubled" increases for those still in the work force would be fair to all participants in the system. It was never intended that cost-of-living adjustments should be applied independently to the benefit schedule for those who are still working. Their increases should be taken care of solely on the basis of rising wages. Such action along the lines proposed by the 1974-75 Advisory Council on Social Security and endorsed in principle by the OASDI Trustees, could offer a response to criticism of the rationality of the law's present language on automatic adjustments voiced earlier in the year by the Finance Committee's special Panel on Social Security Financing. After indicating that failure to correct the double-impact effect of the present provision can produce patterns of replacement ratios inconsistent with the generally understood purpose of the social security system, the panel said: "Unless material changes are made in the benefit formula, Congress will not have the appropriate control over the reasonableness and consistency of benefits and it will be difficult, if not impossible, to finance the system on a satisfactory actuarial basis." Depending on the precise way the inequity is corrected in the benefit formula as it relates to cost-of-living increases and on actual future experience in wage levels and inflation, such action could cut longrange OASDI deficits by from 20 to 50 percent. Even so, the remaining prospective OASDI deficits will be huge. They also require prompt steps for provision of more OASDI revenue within the next year or two at the latest. If such revenue comes solely from increases in social security tax rates, it has been indicated that an increase of one-half of one percent of payroll in both the tax on employer and the tax on employee would be needed in 1976 or, at the latest, 1977. A second tax increase of onehalf of one percent on employer and employee will also be required within the next five years. With these two increases, the combined social security taxes on employer and employee for OASDI and the Hospital Insurance portion of medicare would reach 14.6 percent of wages subject to social security taxes in the early 1980's. Numerous alternatives to straight increases in tax rates have been suggested. They include raising the maximum wage on which social security taxes are levied, use of general revenues, and combination of such steps with tax rate increases. However the funds are raised, the fact remains that the money must be raised somehow. The Nation must also give serious and immediate thought to a review of current retirement patterns. This should relate to effects of continued trends on both OASDI's ability to continue as a program acceptable to the workers who pay the taxes on which it depends as well as to how current practices affect the lives of individual older Americans. This becomes critically important with the prospect that, unless new approaches are developed, within 40 years the number of workers supporting each OASDI beneficiary will fall from more than three workers for one beneficiary to less than two for one. This we see as an impossible burden for those who are working. Whatever is done to meet the problems, both immediate and longterm, it is essential that Congress act now. CONTINUOUS SOCIAL SECURITY OVERVIEW NEEDED Trustees for the Social Security Trust Funds, the 1974-75 Advisory Council on Social Security and the Senate Committee on Finance Panel on Social Security Financing have indicated that more study of social security and its problems is needed. The logical conclusion to be drawn from any of the three reports is that there should be a continuous overview of social security by a permanent, continuing council or commission with no other responsibilities. The 1974-75 Advisory Council said, in part : Major aspects of social security that deserve attention, but that the Council did not have time to analyze thoroughly, included: full reserve funding vs. current cost financing; the effects of social security on productivity, capital formation, and private savings; the relationship between private pensions and social security; and the appropriate size of the trust funds. . . . Comprehensive study of these and related issues should be conducted by a full-time nongovernment body. The Committee on Finance Panel on Social Security Financing said: In view of limitation of time, the Panel concentrated its study on the structure of the retirement benefits and its impact on the financing of the program. Other benefit formulas such as survivor benefits may deserve an equally thorough study. These observations reinforce the validity of the Minority recommendation in the Special Committee on Aging Report filed May 5, 1972, and reaffirmed in Minority views during the 93rd Congress, that there should be a review agency for social security capable of serving a continuing ombudsman role for the people. Specifically, the recommendation was that the Congress enact legislation to create a permanent, independent, bi-partisan commission to maintain constant surveillance of Social Security, to provide the President, the Congress and the people with sufficient information to give maximum assurance that all decisions related to Social Security are well taken. Such a commission should have responsibility also for constant overview as to the Social Security system's adequacy and per formance in meeting needs of the country and might well include a mechanism for adjustment of grievances against the system. One way of implementing this would be through enactment of S. J. Res. 5, a Joint Resolution to establish a National Social Security Commission, introduced early in the current session of Congress by Senators Fong, Fannin, Tower, Thurmond, Brock, Domenici, and Hansen. Responsibilities of the National Social Security Commission would be the same as those now assigned by law to the Advisory Council on Social Security. Operational and structural changes to be made would be as follows: 1. Members of the Commission, instead of being named by the Secretary of Health, Education, and Welfare, would be named on a bi partisan basis, with appointment power divided between the President, the President pro tem of the Senate and the Speaker of the House of Representatives. 2. The Commission would be permanent, functioning on a continuing basis with regular reports to Congress and the people, in contrast to current provisions for appointment of a new Advisory Council every 4 years with a tenure of approximately 111⁄2 years. 3. The Commission would have its own professional staff rather than having to rely on the Social Security Administration. The National Social Security Commission would be an appropriate instrument for the numerous studies suggested by the temporary panels which have worked on various aspects of social security. OLDER AMERICA'S ENEMY NO. 1 IS STILL INFLATION While the seriousness of the current and future financial crisis facing social security's OASDI program has, because of its immediacy, been given primary emphasis in this statement, we must repeat our longheld view that inflation is the most serious economic problem of the aging. In both universality and severity of impact, it is still the No. 1 public enemy of older Americans. Inflation has been a major factor in OASDI's financial difficulties. years. In short, there are few problems faced by most older Americans which are not exacerbated by the cost-of-living spiral. As we reiterate our belief in the importance of a stable American dollar, we are fully aware that there may be moments in our Nation's history when the pay-as-we-go approach to the Federal budget-an essential to control of inflation-will not be in the best interests of the people. Today's war against recession, as surely as previous military wars to protect our shores, has necessitated unusual action by the Government. But our previous and continuing support of legitimate emergency measures to prevent needless hardship by our people during this difficult period in our country's life, is not an endorsement of longterm deficit policies such as those in recent years which contributed so sharply to the economic problems America now faces. We affirm the position taken in Minority Views of this committee since the inflationary spiral became an obviously growing problem in 1966, that long-range national spending patterns must aim at avoiding unmanageable rises in living costs. At no time can this country afford the kinds of waste and unjustifiable fiscal irresponsibility which has often characterized Federal spending during the past decade. SUMMARY Of the many problems facing older Americans, their need for income on which they can rely to buy the necessities of life is the most serious. Since social security's OASDI cash benefits program is the most important source of income for retirees, it is imperative that Congress take prompt action to meet the serious financial crisis facing OASDI. |