Statement of Wendell E. Primus
Director of Income Security
Center on Budget and Policy Priorities

Testimony Before the House Committee on Ways and Means

Hearing on the Use of an Expert Panel to Design Long-Range Social Security Reform

April 1, 1998

Summary of the Testimony of Wendell E. Primus

Social Security reform can best be achieved by educating the public about issues facing the program, involving them in the reform process through public forums, and then developing a bipartisan agreement through the regular legislative process. While the goals of this bill are consistent with that, the process the bill would employ would create a council that would duplicate initiatives currently underway, rely on the Internet as a key means of communication with constituents -- a tool that may exclude low- and moderate-income households -- and develop a commission to conduct work that could best be carried out by this Committee.

Members of this Committee already have at their disposal the means for establishing dialogues, including the legislative hearing process and town hall meetings within your districts. Beyond hearing from your own districts, there are two bipartisan national dialogues underway. Bipartisan regional hearings are being organized at the request of President Clinton by the American Association of Retired Persons and the Concord Coalition. Additionally, the Pew Charitable Trust is sponsoring nonpartisan hearings through its Americans Discuss Social Security initiative. Unlike the Internet, these approaches to engaging the public in the dialogue will create access for individuals of all income levels to participate.

This Committee is also in the best position to put together a bipartisan agreement to restore the solvency of Social Security. Although it is difficult to argue strongly against forming a panel of experts, the creation of yet another advisory panel does not appear necessary. This Committee is in the best position to access research and information available or being generated on Social Security and to hear first-hand from the American public. This is the regular legislative process that should be used to address Social Security.

If the Committee proceeds with the creation of the Dialogue Council and Panel, I would recommend some changes.

There are three additional points that need to be made concerning the importance of Social Security and how best to preserve this system.

1. Social Security plays a crucial role in eliminating poverty among the elderly.

2. Congress can substantially enhance the long-term solvency of Social Security by preserving the budget surplus and using these funds to pay down the debt.

3. We should adhere to the President's call to "save Social Security first."

Mr. Chairmen and members of the Committee on Ways and Means:

I appreciate your invitation to testify on H.R. 3546, the National Dialogue on Social Security Act of 1998. My name is Wendell Primus, and I am Director of Income Security at the Center on Budget and Policy Priorities. The Center is a nonpartisan, nonprofit policy organization that conducts research and analysis on a wide range of issues affecting low- and moderate-income families. We are primarily funded by foundations and receive no federal funding.

Title I-National Dialogue on Social Security

Two important steps in achieving Social Security reform are to provide the public with education on issues facing the program and to obtain their views through public discussions, debates, and hearings. The goals of Title I, to promote a national dialogue and provide a forum for the American people to learn more about the program, are consistent with this view. I applaud these goals. However, this title would create a council that would duplicate other initiatives currently underway. The title also would instruct members of the Committee to develop ongoing systems of communication with constituency groups, a process in which I am sure every member is already fully engaged. Additionally, members would be required to rely on the Internet as a key tool for educating the public and means for communicating with constituents. This approach may exclude many low- and moderate-income individuals for whom Social Security is an essential program.

The creation of a 36-member Dialogue Council adds a layer between members of this Committee and the public when what is needed is direct access to the public and individuals with expertise on Social Security. I have great respect for this Committee, its expertise and role in the legislative process. Thus, I really believe that members of this Committee are in the best position to gather and weigh information on Social Security reform, as well as to help stimulate discussions and debate on the issue.

You have at your disposal existing mechanisms for creating dialogues in which members of this Committee can participate directly and become informed on a first-hand basis. One is through the Congressional hearing process. Your position on this powerful Committee gives you access to the most knowledgeable individuals on Social Security.

In addition to this system for holding hearings, you have ongoing access to the general public residing in your districts. I know many, if not all, of you have been holding town-hall meetings and similar sessions with your constituents to learn their views and concerns. I am sure Social Security has been raised as an issue on numerous occasions. Organizing town hall meetings in your districts that specifically address Social Security would be an excellent way for you to become that much more knowledgeable about aspects of the program that are of particular concern to the people you represent. It seems unnecessary to pass a law instructing members to perform activities they currently conduct.

Beyond hearing from your own districts, there are two bipartisan national dialogues underway or in the finally planning stages. President Clinton called for four regional meetings that would engage the general public in a discussion on Social Security. They are being organized by the American Association of Retired Persons and the Concord Coalition. These are organizations with differing views on how best to reform Social Security. Consequently, their joint effort to bring people together should lead to a full and open debate on the issues.

Similarly, Americans Discuss Social Security is holding a series of town meetings and conferences, as well as developing strategies to stimulate dialogues on college campuses. This initiative is nonpartisan and fully funded by the Pew Charitable Trusts. The goal is to educate the public on Social Security. As recently as March 21, 1998, the organizers held a 10-city teleconference. Speaking time was allotted for both President Clinton and Representative Nick Smith.

In light of work being done by these organizations, I do not think there is a need for the Dialogue Council. If, however, this Committee chooses to pursue it, I would suggest that the proposed method for creating this body is problematic. Eighteen private organizations would be vested with the right to nominate Council members. Controversy will undoubtedly be created about the process for selecting the 18 organizations and reasons why others were not included. For example, three important organizations are not mentioned: the National Committee to Preserve Social Security and Medicare; the National Council of Senior Citizens and the 2030 Center. While most of us would agree that these organizations should take part in the debate, it is less clear why they should be given the authority to designate members of the Dialogue Council. Furthermore, a council comprised of representatives of such a large number of organizations that hold very diverse opinions about Social Security could easily get bogged down. A number of these organizations have already stated diametrically opposed positions on Social Security from which they will not budge.

Title I also proposes to establish an Internet Advisory Board and Dialogue Coordinator to assist members in establishing a system of communications in their districts. The Internet, while widely available to many of us, is primarily available to those who have access to computers at work or at home. Many of the people most in need of Social Security have few resources available for accessing the Internet. Consequently, they could easily be left out of the education and discussion process if the Internet is relied upon as a primary vehicle for communication.

Research cited in several recent news article indicates that the ownership of personal computers is correlated with income. The March 10, 1998 issue of the Wall Street Journal stated thseholds with income over $100,000 have personal computers, while only 25 percent of households with incomes under $30,000 have them. (This research was conducted by Computer Intelligence.) The New York Times described research by International Data Corporation in its March 8, 1998 issue. According to this study, the average income of Internet users is $70,400. Thus, communication through the Internet can miss many households this Committee should reach. On the other hand, the approaches I previously discussed create opportunities for people of various means to have access to individuals who are discussing and explaining the issues.

Title II-Bipartisan Panel to Design Long-Range Social Security Reform

Title II of the bill would create a third body -- the Bipartisan Panel to Design Long-Range Social Security Reform -- that would be given responsibility for designing recommendations for reform. The creation of another advisory panel does not appear necessary.

The National Commission on Social Security Reform was appointed under substantially different circumstances. The regular legislative process had gone awry. In early 1981, both the ranking member of this Committee and the Social Security Subcommittee Chairman had introduced bills to restore the solvency of the Social Security program. Congressman Pickle constantly urged the Administration to present a Social Security plan. In May 1981, the Administration did produce a plan, but it was rejected overwhelmingly by a 96-0 vote through a Senate resolution. The regular process had broken down, and a Commission was needed to restore short-term solvency to the Social Security program.

The circumstances we confront today are different from those in 1981. There is no reason the regular legislative process should not work. And while it is important to begin taking action now to address the financial status of Social Security, there is time to work through this process to achieve a bipartisan solution. I would like to think that the members of this Committee can reach a bipartisan agreement on eliminating the long-term imbalance in Social Security. This Committee is composed of bright, capable people. The first votes on Social Security will be made by this body. You are the equivalent of a board of directors who will have to determine how to reform the program. Rather than distance yourself from the process, I would hope you and the ranking member would engage the Committee in a series of events such as hearings, seminars, and retreats. You are in the best position to gain access to research and other information that is being generated on Social Security and to hear in person from the American public. I am confident that you can do this without creating a panel.

In addition to the remarks I have shared on H.R. 3546, there are three points I would like to make concerning the importance of Social Security and how to proceed on restoring solvency to it.

1. Social Security plays a crucial role in eliminating poverty among the elderly.

2. Congress can enhance the long-term solvency of Social Security by preserving the budget surplus and using these funds to pay down the debt.

3. We should adhere to the President's call to "save Social Security first."

Importance of Social Security to People's Lives

Social Security is one of the most important programs affecting your constituents. That this is so is shown by recent Census data on income from earnings, Social Security and other government programs. These data show how many elderly people (as well as people of other ages) are below the poverty line before receipt of government benefits and how many remain poor after receipt of various types of benefits.

These Census data show that of all age groups in the population, it is the elderly who depend on government programs to the greatest degree. Half of the population aged 65 and older -- 50.1 percent in 1996 -- would be poor if not for the benefits of government programs. After counting government benefits, the poverty rate among elderly people dropped to 9.2 percent in 1996.

Social Security is the primary reason that government benefit programs have such a large impact in reducing poverty among the elderly.

• The Census data show that government benefit programs lifted 13 million elderly people out of poverty in 1996. Of this 13 million, some 11.7 million -- or nine of every ten elderly people lifted out of poverty by government programs -- were lifted out by Social Security.
  
  

Poverty rates have dropped consistently over the past two decades among people 65 and older, largely because of the increased effect of Social Security.

• In each year since 1979 for which data are available, about half of the elderly population was poor before counting government benefits.
  
  
• After counting social insurance benefits (mainly Social Security) but not other government benefits, the poverty rate among elderly people was 17.4 percent in 1979. By 1996, the elderly poverty rate after social insurance benefits are counted had dropped to 12.3 percent. In other words, the proportion of elderly people lifted out of poverty by Social Security has increased in recent decades.
  
  
• In 1979, two-thirds of the elderly people who would otherwise be poor -- 68 percent -- were lifted from poverty by social insurance programs, mainly Social Security. In 1996, three-quarters of those who would otherwise be poor -- 75.6 percent -- were moved out of poverty by these programs.
  

Social Security also is important to low-income elderly people because it contributes a large portion of their income. In 1995, Social Security made up two-thirds of the total incomes of elderly people who were poor under the official measure of poverty.

Social Security plays an important role in the economic well-being of the non-elderly, too. Some 3.5 million non-elderly adults and 800,000 children were lifted out of poverty by Social Security in 1996.

Preserving the Federal Budget Surplus is the best Way to Strengthen Our Retirement System

Given the significance of Social Security to the lives of so many people, the budget surplus should be used in a manner that helps to address the long-term solvency of the program. The use of the surplus that would best serve both Social Security and the U.S. economy is to reduce the national debt.

• If the projected surplus in the unified budget is used to pay down the debt, national saving and investment should rise and produce a somewhat larger economy over time; a larger economy would bring in more Social Security payroll tax revenue without raising the payroll tax rate. A bigger economy also would enable us better to afford modifications in the Social Security benefit and/or revenue structure needed to restore the system to long-term balance.
  
  
• Using the surplus to reduce the debt will drive down federal interest payments. Funds that would otherwise have been spent on interest will be available to meet future fiscal policy challenges of the baby boom generation as it retires and requires Social Security and Medicare benefits.
  
  
• The budget surplus is temporary. If the surplus is preserved, the point at which deficits return and the debt begins to rise can be delayed. Social Security and other programs will not need to be reduced as much in the long term nor will tax burdens on future generations need to be as great as they would if the surplus were not used to bring down the debt now. If the surplus is used for other purposes, deficits will return sooner and rise to higher levels.
  
  
• Shrinking the national debt will give us more room to borrow in the future when the baby boom generation retires, if that should prove necessary.
  
  

If a portion of the surplus is used now to cut taxes or increase government expenditures, some of the surplus will be used for current consumption rather than investment that can boost economic growth and income. The national debt and the interest paid on it will be larger than they would if the surplus were preserved. Higher interest payments will mean fewer resources for meeting other needs. Deficits will return earlier and the debt will begin to rise sooner if the surplus is forfeited, ultimately creating greater pressure to cut programs or raise taxes. A large national debt will place the government in a weaker economic position to borrow in the future if necessary to meet pressing needs when the baby boomers retire.

There are important national priorities that need attention. Preserving the surplus does not imply ignoring those needs. It means that those national priorities should be considered under the regular federal budgeting rules. If increased expenditures are required to address a national need, other expenditures should be lowered or taxes increased to finance those expenditures, as the budget rules require.

"Save Social Security First"

President Clinton has called on the nation to "save Social Security first." The President has asked Congress not to spend the projected budget surpluses until Social Security is restored to long-term balance. His call is designed to ensure that if Congress and the Administration decide to use some or all of the surplus to shore up Social Security, that option has not been foreclosed by Congress having already used the surplus for other purposes. And as I argued earlier, preserving the surplus has important economic benefits.

Social Security is an important component of income for many individuals and families when reaching retirement age. That only 50 percent of individuals reaching retirement have a pension is also a matter of concern. There is a need to bolster those aspects of retirement security as well.

The establishment of individual accounts is, however, a fundamental change and should be considered in the overall context of eliminating the long-term imbalance that currently exists between income and benefits in the Social Security program. Because Social Security is so important to the lives of low- and moderate- income families, changes such as the establishment of individual accounts or other efforts to strengthen individual savings or the pensions should be considered while, or after, the long-term funding imbalance in the Social Security program has been eliminated.

Individual accounts are established without addressing this long-term imbalance, the nature of the debate could shift from restoring solvency to bolstering these accounts. Before (or at the same time) any steps are taken to create individual accounts or make other structural changes in Social Security, a bipartisan agreement should be put in place to restore long-term solvency.

Some specific proposals have been developed by members of Congress that would use the surplus to establish individual accounts. Mr. Kasich recently introduced his bill, and Mr. Roth intends to introduce a similar measure in the near future. As noted here consideration of such proposals before considering overall Social Security reform would be premature and could be counter-productive. An assessment of those proposals is beyond the scope of this testimony, but I would note that we have examined them and have identified a number of concerns with them.

Conclusion

Mr. Chairman, rather than creating a Council and Commission, I would urge that you follow the regular order and the process already underway to reach a bipartisan agreement on Social Security. A Council and Commission have the potential of being counter-productive. These entities may distance you from the process of hearing from the public and gathering information on Social Security. They may distract from the normal legislative process. Requiring that six of the eight members of the Panel to reach agreement including both the co-chairs, may not be possible.

Instead, you and the Members of the Committee can assist greatly in reaching consensus by participating directly in the national dialogues that already are underway. In addition, through the Committee process (bipartisan hearings, retreats, and seminars), you can educate yourselves first-hand on the crucial issues facing Social Security and the impact that various proposals would have upon working and retired individuals and families.

Social Security is one of the most important programs affecting the American public. It lifts millions of people out of poverty each year. Given its importance to the economic well-being of so many, we need to "save Social Security first" by using the surplus to pay down the debt and by restoring long-term actuarial balance before any actions are taken prematurely to restructure the program.