STATEMENT OF ROBERT MYERS, EXECUTIVE DIRECTOR, NATIONAL COMMISSION ON SOCIAL SECURITY, WASHINGTON, D.C.

Mr. MYERS. Thank you very much, Mr. Chairman.

It is really a pleasure to be here testifying before this Subcommittee on Social Security, which, as you indicate, is one of the most important elements in our social and economic life in the United States, and which has problems, as I will get into, but which problems I think can be solved by the Congress and the administration working together.

Mr. Chairman, members of the subcommittee, I would like to discuss in the time available, two subjects.

First of all, I would like to go into a little more detail as to what the National Commission on Social Security Reform is doing and is supposed to do, and second, I would like to discuss briefly the financing problems of the social security system.

Last year, when the Reagan administration took office, it was realized, as it had been realized before, that social security was facing financing problems, both short and long term. The administration developed a proposal to remedy this situation. At the same time, the Congress was working on the matter too. And unfortunately, there became a political conflict on the matter. Some of the suggestions that the administration made got a great deal of public criticism. So the whole thing became politically deadlocked last year.

As a result, President Reagan proposed last September that a National Commission be formed on a bipartisan basis to study this matter and to bring forth a consensus as to what the social security problem was, and how it could be solved. The Commission has 15 members, 5 appointed by the President, 5 by the House, and 5 by the Senate on a bipartisan basis. As a result, the National Commission has on it 8 Republicans and 7 Democrats.

Interestingly enough, for the first time in the history of the social security system, of any advisory group, there are Members of Congress on this Commission; 7 out of the 15 are active sitting Members of Congress. They include the distinguished chairman of the Select Committee on Aging, Mr. Pepper. The other members are those who are very influential in the Congress in developing legislation. So it would appear that anything that the National Commission decides on would have a very good chance of being enacted.

The Commission meets monthly. The Executive order says the report is to be due by the end of this year, although there is some indication that the report may be finished by early November, so that Congress can come back after the elections and deal perhaps solely with this matter.

It is too early to say just what the Commission's report will be at the moment. We are studying the matter, defining what the problem is, looking at various solutions.

Now, what is the financing problem facing social security?

I believe that this has been rather overemphasized in the public press. It is true there is a problem, but it is not nearly as serious as I believe many people understand it to be.

Many senior citizens I think are very much afraid that the system is going to stop sending out benefit checks any month now, and it is really hopeless that the system will continue. I can assure you this is not so. At the same time, many younger people, in fact most polls that are taken usually show that some 75 percent of young people believe the system is not going to be in existence when they reach retirement age. Again, I am certain this is not so. The problems are not that overwhelming. There are many solutions. And I am convinced that the system in more or less its present form will be in existence over the long-term future.

Now, what is the specific short-term problem?

Mr. Jeffords has referred to the long-term problem caused by the demography of the situation. But there is also, and perhaps even more pressing, a short-term situation.

The facts of the matter are that come July 1983, if present law is not changed, benefit checks would not go out in a timely manner because there would not be enough money in the trust funds to write the checks. They would be delayed for a few days, and the matter would get worse and worse as we went on through time.

However, I am equally convinced, and I hasten to add this, this situation is not going to occur. Congress and the administration working together will prevent it.

Now, how did this situation come about? The situation came about that Congress, very intentionally you might say, put its feet to the fire and last fall, when legislation was passed to assure that benefits would be payable for at least the next year and a half by being able to borrow money for the Old Age and Survivor Fund from the other two trust funds, at that time Congress said we won't let there be any more borrowing than enough to take the system past the middle of 1983. Therefore, Congress committed itself to further action in the very near future.

Well, finally, what action can Congress take? And I am not saying now what I think the National Commission will recommend nor of course what the Congress at its pleasure will do, nor am I saying what I believe should be done. I am just illustrating to you the various possibilities.

Quite simply put, there are really only two broad solutions. One is to raise more money. The other is to reduce the increase in benefits, the growth in benefits.

I want to make it very clear that I have seen no proposals that anybody has made that would cut present benefits. In other words, somebody now getting $400 a month, there is no proposal they be cut to $380. Rather, any proposals would be to not have benefits grow as rapidly in the future.

Well, with that in mind, how can you raise more money? There are several ways.

One, the social security tax rates could be raised, not very many people are enthusiastic about that. Others propose that money from general revenues should go into the system. And some people oppose that and say there are no moneys in general revenues, but rather there is a $100 billion deficit.

As to reducing the growth of benefits, there are a number of areas that this could be done. I think it would be done-most proposals are that it be done gradually. One, is in regard to the index

ing or the increase of benefits each June for increases in the Consumer Price Index. Other proposals would be to gradually, over many years' time, raise the requirement age from 65 to 68. Of course this would not affect any people now or people reaching 65 in the near future.

Still another type of proposal is to gradually reduce the relative size of the benefits. Again I want to emphasize, this does not mean people retiring in the future would get lower benefits in dollars, but there would not be quite as much increases as there are now. And some of these proposals would do so, would still see the people at the same purchasing power, but they would not have the increased purchasing power that would happen under present law.

The final general type of proposal that has been made is to have what is called universal coverage. In other words, to have all people in the country who work for a living and earn money be in the system. At present there are a few excluded groups, namely Federal employees, some State and local government employees, and some employees of nonprofit organizations. Again, this would help the financing of the system.

There are those in favor, those opposed. But in any event, Mr. Chairman, I am convinced, and I think most other people who have really studied social security are convinced that the systems are viable, there are some important changes needed. But they are not changes that would completely destroy the present character of the system, would not have adverse effects by reducing benefits for people who are currently receiving them, or who will be receiving them in the near future.

I think the system can be placed on a sound basis and one which the people of the country could count on.

Thank you, Mr. Chairman.

Mr. JEFFORDS. Thank you, Mr. Myers. We appreciate that. And obviously the audience appreciated your comments.

I would now ask Mr. Gregg if he has questions.

Mr. GREGG. First, Mr. Myers, I want to thank you again for coming up here to Vermont to participate with us in this hearing. Folks here are so used to having important people in the area that they are probably not as impressed as they should be by the fact that you have come up here. Really, if there is one person who is going to be responsible for catalyzing an effective and responsible approach to the social security issue, it is going to be you. So you are sort of holding in your hands the fate of 36 million recipients and 90 million wage earners. You are a pretty important person nationally, and I certainly appreciate your coming here for us.

I guess the first question I would have is, do you think that your Commission is going to be able to reach a consensus position?

Mr. MYERS. Well, Mr. Gregg, this of course was the assignment given to us by the President-and I think the members of the Commission and I also try to do what we are assigned to do. We are going to try very hard to get a consensus. It is going to be a very difficult matter to get a consensus on everything that will have to be done.

We are moving along well so far, but as you well know, the members of the Commisson-there is a wide range, as there should be, of political and social philosophies. So there is no ironclad guaran

tee we will get a consensus. But we are certainly trying very hard to do so.

Mr. GREGG. Has there been any discussion in the Commission about the possibility of moving some of the programs which are on social security, in the Social Security Trust Fund today, out of the trust fund, such as disability or medicare? If so, what are the ramifications of doing that from a dollar standpoint on the fund?

Mr. MYERS. Undoubtedly we will discuss that sort of thing. We have not really done so yet. To date we have been discussing what the nature of the long-range problem is, if there is one, and if so, what magnitude it is, and how this can be solved.

What you are suggesting would be one of the solutions is that if some parts of the program were moved out of it and, as some have suggested, placing like the hospital insurance program, financing parts of that out of general revenues, and freeing up some of the payroll tax for the old age program, quite obviously that would help to solve the burden on the payroll tax.

Mr. GREGG. Would you anticipate that a solution would include, or is it possible a solution would include the opportunity for a percentage of or the entire payment to go into a private annuity down the road as the plan became more solvent as a result of the corrections which were made?

Mr. MYERS. Again, there have been proposals along these lines. We have not taken them up.

I would say so far the discussion to date has been that the private pension plans are a very desirable thing, and that they are very much needed to coordinate and supplement, complement as it were, social security. But we have not gotten into the matter of say substituting private plans for social security. Rather, most of the discussion has been they each have their role to play, and it is a question of delineating how much each one should do.

Mr. GREGG. In the area of taxes, you mention that you don't anticipate-maybe you didn't say "anticipate"-you mentioned there was discussion of raising payroll taxes on social security. What would you say the likelihood of that occurring would be? Or would you rather reserve judgment on that?

Mr. MYERS. In my position I can't really say what the likelihood of things are. This is just one possibility of solving the financing problem.

Within the Commission, I think this has been mentioned briefly, nobody particularly has advocated it. Although Senator Long, the chairman of the Finance Committee, has mentioned that at times, I think in the current climate of not wanting to raise tax rates, I would not say there is a strong possibility of it, but just from a technical standpoint that would be one way of solving or partially solving the problem.

Mr. GREGG. When you talk about raising the retirement age, are you talking about the proposals which would have the retirement age work gradually up to 68 so that in the year 2000 it would be 68?

Is that what you are talking about?

Mr. MYERS. That is the general thing I was referring to. Most of these proposals that have been put out so far would raise the age to something like 68. And that would not be reached until maybe

the year 2000 at the earliest, maybe 2012. There have been different proposals by different people. None of them would begin raising the retirement age for at least 10 years.

Mr. GREGG. Am I incorrect in describing the social security problem as being a short-term cash flow problem through 1990, and then there is actually a dip in the retirement age population relative to the wage earner population that gives it a fairly positive position through the year 2010, 2015. Then we get another serious problem in the postwar baby boom?

Mr. MYERS. Yes. In general that is the case.

As you know, beginning in the 1990's, the births of the depression years of the 1930's start reaching retirement age. There were relatively smaller numbers of births then. The only problem, however, in the 1990's with this large surplus that is coming in is that it depends on economic conditions. Under certain assumptions, pessimistic assumptions of economic growth, it might be there is not such large surpluses in the 1990's. However, as you also indicated, beginning in the 1990's, there are great financing needs for the hospital insurance system according to the current estimates.

Mr. GREGG. Are we looking at trying to address a short-term problem, to sort of hop over the next 5 to 10 years, 5 or 6 years, and then addressing the long-term problem? Can you sort of divide the issue of social security into two distinct areas that way?

Mr. MYERS. Yes, that is correct. And the National Commission is looking, by examining first the long-term problem, because anything you do for the long-term problem might also help for the short term. Then after we have decided what to do about the long term, we will see how much of the short-term problem is still left and address that issue.

Mr. GREGG. Just to go over some ground that you have already mentioned, you don't anticipate any benefits are going to be reduced? You think that that is not being considered by the Commission?

Mr. MYERS. I certainly think so. The only thing that might be done is to slow down the growth, and not actually cut benefits, which I think people often misinterpret many of the proposals in thinking that current benefits will be cut or the people retiring in the future will get less purchasing power than people retiring today. I don't think that is in the cards.

Mr. GREGG. What sort of dollar shortfall are we talking about in the next 5 or 6 years if there is no adjustment to the plan?

Mr. MYERS. The shortfall, again depending very much on economic conditions, could be I think under the intermediate estimates, it runs perhaps between $10 and $15 billion a year on the average. If economic conditions were very, very good, extremely good, probably more so than we could hope, we could get by this next 10 years by in essence borrowing from the other trust funds for the Old Age Fund, and then in the 1990's, as you say, when the Old Age Fund has plenty of money because of the lower population and higher tax rate that is scheduled then, it could repay them. That is if conditions are very good. However, under intermediate conditions, the shortfall will be $10 to $15 billion a year.

Mr. GREGG. We already have built into the system a large amount of tax increases over the next few years. How much does