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IMPROVING PUBLIC CONFIDENCE IN

SOCIAL SECURITY

FRIDAY, JUNE 2, 1989

U.S. SENATE,

SUBCOMMITTEE ON SOCIAL SECURITY AND FAMILY POLICY,

COMMITTEE ON FINANCE,
Washington, DC.

The subcommittee met, pursuant to notice, at 9:33 a.m. in room SD-215, Dirksen Senate Office Building, Hon. Daniel P. Moynihan (chairman of the subcommittee), presiding.

Also present: Senator Pryor.

[The press release announcing the hearing follows:]

[Press Release No. H-28, May 18, 1989]

FINANCE SUBCOMMITTEE TO HOLD HEARING ON BILLS TO IMPROVE PUBLIC CONFIDENCE IN SOCIAL SECURITY

WASHINGTON, DC-Senator Daniel P. Moynihan, (D., New York), Chairman of the Senate Finance Subcommittee on Social Security and Family Policy, announced Thursday that the Subcommittee will hold a hearing on two bills aimed at improving public confidence in the Social Security program.

The hearing is scheduled for Friday, June 2, 1989 at 9:30 a.m. in Room SD-215 of the Dirksen Senate Office Building.

Both bills to be considered at the hearing were introduced by Senator Moynihan. One bill would remove the Social Security Administration (SSA) from the Department of Health and Human Services and establish it as an independent executive branch agency headed by a bipartisan board. The other would require the Secretary of Health and Human Services to provide periodic account statements to workers to inform them how much they have paid into the Social Security system and how much they and their families could potentially receive in Social Security retirement, disability, and survivors benefits.

In announcing the hearing, Moynihan said, "Social Security is our most important domestic program, a true government success story, and it is vital that we maintain a system in which the public can have full confidence. Establishing SSA as an independent agency administered by a bipartisan board, as it was originally, would improve the public's confidence in Social Security by insulating it from partisan politics and improving administrative efficiency.

"Also, having SSA send out biennial account statements would overcome a problem we currently have, which is that we never hear from Social Security until we become beneficiaries, even though we see money withheld for Social Security from every paycheck. The Canadian government sends out Social Security account statements and they report it has been extremely successful in improving public understanding of their system. I am sure we could expect the same result here," Moynihan said.

(1)

OPENING STATEMENT OF HON. DANIEL P. MOYNIHAN, A U.S.

SENATOR FROM NEW YORK

Senator MOYNIHAN. I'd like to welcome our guests this morning, some of the more distinguished persons in the history of our Social Security system and some of the newer, more vigorous advocates. This is a hearing of the Subcommittee on Social Security and Family Policy, and it addresses two large questions of organization of our social insurance system. There are two bills, S. 216 and S. 1079, and they have related purposes, one being much more significant than the other. First, S. 216 has to do with the organization within the executive branch of the Social Security Administration, a matter which we have dealt with from time to time over half a century.

We have the very distinct privilege of having with us today Mr. Robert Myers, the former Chief Actuary of Social Security who in 1934 worked on the planning group that put together the Social Security Act of 1935-and if ever it could be said of a group that they built better than they knew, it would be of that group-and with him his long colleague and friend, the Honorable Robert Ball, who joined the Social Security Administration in 1939 and served as Social Security Commissioner for 11 years, from 1962 to 1973, longer than anyone else who has held that post.

The Social Security Administration began as an independent body. It had a bipartisan governing board and an administrator, and set about laying the basis of the American social insurance system. It was a small group and a beginning program, and it may have seemed of no great consequence when, after some time, the Social Security Administration was taken down from its independent status and put under an umbrella agency later to be called the Department of Health, Education and Welfare, and now Health and Human Services. Of course, the very existence of such a department was a statement about the acceptance in American national life of the initiatives that we associate with the New Deal. They were now to be institutionalized.

That seemed reasonable at the time because still Social Security was a rather small activity. Only a few persons had entered the retirement stage, and it was not until the Eisenhower Administration that disability insurance was added, and SSI in 1974, and with the maturing of the Social Security System activities of the Social Security Administration became very large indeed.

And even as they reached the point of today where the budget of the Social Security Administration is 62 percent of the budget of the Department of Health and Human Services, you could almost not find the Social Security Administration in the administrative hierarchy of the Department. Typically the Commissioner works in Baltimore and is just not very much to be seen.

The office of Commissioner has declined from the unequaled elegance and efficacy of Robert Ball's tenure and the majestic years with Robert Myers, who taught actuarial science to the world from his eminence as Chief Actuary of Social Security. We have come down to a succession of perfectly well-meaning but essentially ineffective administrators. In 16 years we have had 10 administrators of Social Security, 10. I recall one young man in the Carter Admin

istration who, in the saying of the military, simply punched his ticket as head of Social Security. He left the Secretary's office, went over there for 12 months, got that on his resume, and then opened a law firm, which took me, as I recall, to the floor of the Senate to say, "Now what has happened to the sense of public service here?"

Well, one of the things that happened is the organizational reality that this extraordinary program which provides monies for 39 million people every month-39 million people-which collects them from 125 million people, has no real identity or independence. And the need for this was recognized with great clarity in the report of our National Commission on Social Security Reform in 1983 when a bipartisan commission, headed by Alan Greenspan, now the Chairman of the Federal Reserve, and including the distinguished Republican leader of the Senate, we endorsed the proposal that we return to an independent agency, perhaps headed by a bipartisan board. We convened a study group headed by our very able, former head of the GAO, Elmer Staats, which suggested perhaps a single executive with an advisory board. That's something reasonable persons can clearly argue about and differ with intelligence.

But the fact is that something needs to be done because there is a great problem that has emerged. First of all, in substance the trust funds are in some important sense unguarded. In 1985 this Committee learned that the Treasury Department had in effect taken enormous sums of money out of the trust funds and used them for the general purposes of government.

It can be said of the amounts of money that they are so large that they are nonindictable. Nobody can be indicted for removing $28 billion from a trust fund. As my distinguished friend and former Governor and an attorney, Mr. Pryor, would know that if you took $28,000 from a trust fund, the probability is jail. But $28 billion in 1985; $10 billion the previous year, 1984. Well, these sums have no meaning in the normal range of experience.

But the most important thing is that when this was done, no one was told. It was done in circumstances where the Secretary of the Treasury had a difficult choice to make. He was up against the debt ceiling. He had to have cash and he could not borrow it. It was a dilemma that was real. But it was one that being real, all the more should have been shared with the Congress, elementally shared with the Secretary of Health and Human Services, surely told to the Social Security Board of Trustees, of which the Treasury Secretary is one, the Secretary of Labor another, and two public trustees which we established in 1983. Not told to anybody. Why? Because there was no organizational imperative to do the elementally responsible thing.

In 1983 we moved Social Security to a partially funded basis-we had been on a pay-as-you-go basis-but only to see Social Security surpluses spent and not saved. The surpluses, of course, should be used to increase saving and provide for the retirement of the baby boom in the next century. And the Social Security trust funds now rise at $1 billion a week, but that has not imposed any sense of responsibility on the Office of Management and Budget to see that the money is saved. To the contrary, the Treasury has used it as if

it was general revenue. They issue a debt certificate to the trust funds, but spend the money for whatever purposes are at hand. And, depending on your political dispositions, you can say they spend it on battle ships or the spend it on food stamps. I do not know which. But they spend it on things other than that for which the money was collected to be put in trust.

Not surprisingly, confidence in our Social Security System is very low. In the late 1970's a nationwide public opinion study that was conducted by Peter D. Hart Research Group found that 61 percent of non-retired adults had little or confidence that the Social Security would be there when they retired, 61 percent. In 1985 the very distinguished firm of Yankelovich, Skelly & White found that 66 percent, two-thirds, of non-retired adults thought it unlikely that they would see their retirement benefits.

Now when people think about government, they must look to its reputation. What does it say of America, of our public, that as much as two-thirds think the government takes this money from them and will never give it back. I mean, you know, there is a word for that. I think Senator Pryor would find a word for it in court. And if that is the case, we have to respond.

A measure that we think will help, and we have introduced this bill, would be to mail out to Social Security contributors on a periodic basis a statement of what they have contributed, what their employer has contributed, and what, at the rate they are going, they could expect in the way of a retirement benefit, a disability benefit, death, survivors benefits, and such like. This is easily done. The technology is well within our hands.

The Canadians do it beautifully. We will hear about them later on. The government of Canada has been hugely cooperative, and Mr. Donald Walsh, who is the head of the division of Canada Pension Plan that makes those arrangements, will testify later on. The largest expense in Canada is the price of the stamp. I mean, it is easily done.

And you can see a pattern where a young person in their 20s will look at the piece paper and wonder what it is and throw it away immediately. And a person in their 30s will look at it and put it somewhere but lose it. By the time you are 40 you will have a drawer where you start putting this thing, and then you will start thinking about what this means to your future, and you should be able to do.

I guess I joined Social Security in 1942 and they have been taking money from me ever since. But whether they know I exist, I have no evidence of that fact. Well, actually I do. I wrote in and asked them. I had to write them three times, but I did get an answer and they do have my name. But if you do not ask, you are never told.

And so, these are the purposes of our hearings. We do this in one last context, if I can be indulged one more time. Something is afoot in the land that wants to, on the one hand, plunder the Social Security trust funds and, on the other hand, play to a strangely latent and easily aroused sense of fear about the equity of the system, about its dependability.

We have seen an element of demagoguery that this field has never before known. We had to hold a hearing early this year on

the so-called "notch" question. The issue of the notch-I can reveal something and I do not know if it has been printed. If there is anybody here that would like to print it, I welcome them do. If C-Span would record it, I wish they would. Among the candidates in the Iowa Primary for President of the United States in 1988, the issue of the notch was known as "the question that came from hell." It aroused passions as nothing else, and it could not be explained to the satisfaction of audiences anywhere.

An altogether spurious proposition, but demagoguery had brought it to the point of a national issue. I think we settled it earlier this year in our hearings. But still, had this been addressed with some executive energy in the early 1980's when it began to appear, we could have been spared all that.

But there is no executive energy in the Social Security Administration. It in no way claimed the attention and time of the people who would have to make the decision. And so we find that right now that program, which you might properly consider our most successful of all the social initiatives of the 20th Century, is the one most assailed with charges of wrongdoing, inequity, and indeed worse, real charges of bad faith and illegality.

Which is a large subject, but this is a large committee, and we have large witnesses before us, and this lecture hereby ends.

I am very happy to have my distinguished colleague, the able Senator from Arkansas, former Governor of Arkansas, to open our hearings as in the traditional courtesy of the Senate.

[The prepared statement of Senator Moynihan appears in the appendix.]

Senator MOYNIHAN. Senator Pryor, good morning, sir.

OPENING STATEMENT OF HON. DAVID PRYOR, A U.S. SENATOR FROM ARKANSAS

Senator PRYOR. Senator Moynihan, Mr. Chairman, thank you. Not only are you today one of the chief advocates and the chief architects of the saving of the Social Security system-I say that with no reservation-you are also a friend. You are a colleague. To some degree, we are even co-conspirators in one or two issues. But you are also a professor, Professor Moynihan, and we always learn from you. And to be able to sit at this side of the table and listen to you give us a history of this issue puts everything into perspective, and I do not think anyone can begin to match your eloquence, Mr. Chairman, in this area. And I thank you for that opportunity—— Senator MOYNIHAN. You are very generous, Senator.

Senator PRYOR [continuing]. Not only to be here, but to listen to

you.

I think what you are attempting to do, to create an independent agency, is a concept whose time has come, and I deeply appreciate the opportunity to join with you in this effort.

Recently the Social Security Administration was probably considered the flagship of all Federal agencies for efficiency and quality of public service. SSA, in my opinion, has lost that reputation for excellence and problems continue to mount.

A hearing that I recently held as the Chairman of the Special Committee on Aging revealed that SSA is presently, today, at

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