Long-Term Outlook for Social Security Hearing
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S. HRG. 109–102 LONG-TERM OUTLOOK FOR SOCIAL SECURITY HEARING BEFORE THE COMMITTEE ON FINANCE UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION FEBRUARY 2, 2005 ( Printed for the use of the Committee on Finance U.S. GOVERNMENT PRINTING OFFICE 22–953—PDF WASHINGTON : 2005 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 11-MAY-2000 15:35 Aug 25, 2005 Jkt 095484 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 22953.000 SFINANC2 PsN: SFINANC2 COMMITTEE ON FINANCE CHARLES E. GRASSLEY, Iowa, Chairman ORRIN G. HATCH, Utah MAX BAUCUS, Montana TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West Virginia OLYMPIA J. SNOWE, Maine KENT CONRAD, North Dakota JON KYL, Arizona JAMES M. JEFFORDS (I), Vermont CRAIG THOMAS, Wyoming JEFF BINGAMAN, New Mexico RICK SANTORUM, Pennsylvania JOHN F. KERRY, Massachusetts BILL FRIST, Tennessee BLANCHE L. LINCOLN, Arkansas GORDON SMITH, Oregon RON WYDEN, Oregon JIM BUNNING, Kentucky CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho KOLAN DAVIS, Staff Director and Chief Counsel RUSSELL SULLIVAN, Democratic Staff Director (II) VerDate 11-MAY-2000 15:35 Aug 25, 2005 Jkt 095484 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 22953.000 SFINANC2 PsN: SFINANC2 C O N T E N T S OPENING STATEMENTS Page Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee on Finance ............................................................................................................ 1 Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 2 AGENCY WITNESSES Goss, Stephen, Chief Actuary, Social Security Administration, Washington, DC .......................................................................................................................... 5 Holtz-Eakin, Hon. Douglas, Director, Congressional Budget Office, Wash- ington, DC ............................................................................................................. 9 ALPHABETICAL LISTING AND APPENDIX MATERIAL Baucus, Hon. Max: Opening statement ........................................................................................... 2 Chart: Average Ratio in Earnings Quintile, Current Law versus Plan 2 ...................................................................................................................... 55 Bunning, Hon. Jim: Prepared statement .......................................................................................... 57 Goss, Stephen C.: Testimony .......................................................................................................... 5 Prepared statement .......................................................................................... 57 Responses to questions from: Senator Grassley ....................................................................................... 64 Senator Baucus .......................................................................................... 65 Senator Bingaman ..................................................................................... 67 Senator Crapo ............................................................................................ 68 Senator Kyl ................................................................................................ 70 Senator Lincoln ......................................................................................... 71 Senator Rockefeller ................................................................................... 73 Senator Schumer ....................................................................................... 74 Grassley, Hon. Charles E.: Opening statement ........................................................................................... 1 Holtz-Eakin, Hon. Douglas: Testimony .......................................................................................................... 9 Prepared statement .......................................................................................... 75 Responses to questions from: Senator Grassley ....................................................................................... 80 Senator Baucus .......................................................................................... 80 Senator Bingaman ..................................................................................... 81 Senator Crapo ............................................................................................ 82 Senator Kyl ................................................................................................ 84 Senator Lincoln ......................................................................................... 85 Senator Rockefeller ................................................................................... 87 Senator Schumer ....................................................................................... 87 Johnson, Hon. Tim: Prepared statement .......................................................................................... 88 (III) VerDate 11-MAY-2000 15:35 Aug 25, 2005 Jkt 095484 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 22953.000 SFINANC2 PsN: SFINANC2 VerDate 11-MAY-2000 15:35 Aug 25, 2005 Jkt 095484 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 22953.000 SFINANC2 PsN: SFINANC2 LONG-TERM OUTLOOK FOR SOCIAL SECURITY WEDNESDAY, FEBRUARY 2, 2005 U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. The hearing was convened, pursuant to notice, at 10:03 a.m., in room SD–215, Dirksen Senate Office building, Hon. Charles E. Grassley (chairman of the committee) presiding. Also present: Senators Hatch, Lott, Snowe, Kyl, Thomas, Santorum, Smith, Bunning, Baucus, Rockefeller, Conrad, Binga- man, Kerry, Lincoln, Wyden, and Schumer. OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE The CHAIRMAN. Good morning, everybody. The purpose of our hearing today is to review the long-term fi- nancial outlook of the Social Security program. We have in front of us Stephen Goss, Chief Actuary, Social Security, and Douglas Holtz-Eakin, the Director of the Congressional Budget Office. Social Security is perhaps the most popular government program ever created. Over the last 70 years, it has become part of the fab- ric of our society. Social Security has kept millions of senior Ameri- cans out of poverty. It is a vital part of the safe and secure retire- ment that we want for every American. We all have a stake in the future of Social Security. That is true whether you are receiving benefits, just now planning your retire- ment, or you may be an entirely new person in the workplace. For everybody who is receiving benefits today, Social Security, as you know it, will not change. You can count on those benefits for the rest of your life. But the same cannot be said for the younger worker. Social Secu- rity will not be able to provide the same level of benefits for each generation of our Nation’s children and grandchildren. Social Security, as we know it today, is unsustainable. It will not be able to pay all the benefits scheduled under current law. Both the Social Security Administration, as well as the Congressional Budget Office, have prepared long-range projections of the financial status of the Social Security program. There are minor differences in assumptions and methods, but both agencies have concluded that benefit payments will exceed payroll taxes within the next 15 years. Both agencies say that So- cial Security will face rising deficits in the foreseeable future. Now, many people are skeptical of such long-range projections, and that is understandable. But as we will hear from our witnesses (1) VerDate 11-MAY-2000 15:35 Aug 25, 2005 Jkt 095484 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 22953.000 SFINANC2 PsN: SFINANC2 2 today, Social Security’s future deficits are the result of our Nation’s changing demographics. The retirement of 78 million baby boomers, along with rising life expectancies and, of course, the falling birth rates, have produced a declining ratio of workers to beneficiaries, currently 3 to 1, but declining to 2 to 1 over the next 35 years. When this program was set up in the 1930s, with the first pay- ment being made in the 1940s, I have seen figures saying at least 16 workers were paying for each retiree. As members of the Senate Finance Committee, we sit in the driver’s seat when it comes to mapping out the future of this very popular program that is part of the fabric of our society and one that ought to be maintained. But in this process, and particularly in this body of the Senate where nothing gets done that is not bipartisan, we have an obliga- tion to keep an open mind. If we make a commitment to build a bipartisan consensus, those of us on this committee can break down the partisan road blocks that threaten the future of Social Security. If we go to work now, we can make incremental changes that will prevent the need for drastic action and more painful choices in the future. It is part of our responsibility to address this issue right now, be- fore the situation gets worse. We have people say, I will not in- crease taxes. We have heard other people say, I will not decrease benefits. Some have said the same thing, will not increase taxes or de- crease benefits. That was said prior to 1983 when, all of a sudden, we had to do both, increase taxes and decrease benefits. So we know what lies before us. We ought to be