Statement for the Record
Max Richtman
President and CEO
National Committee to Preserve Social Security and Medicare
Committee on Ways and Means
Subcommittee on Social Security
U.S. House of Representatives
Hearing on Social Security Fundamentals: A Fact-Based Foundation
April 26, 2023
Chairman Ferguson and Ranking Member Larson:
My name is Max Richtman, and I am the President and CEO of the National Committee to Preserve Social Security and Medicare. The National Committee is a grassroots advocacy and educational organization dedicated to preserving and strengthening the programs which are vitally important to the well-being of our nation’s seniors.
On behalf of our millions of members and supporters, I am honored to submit this statement for the record as the Subcommittee explores the fundamentals of Social Security. We believe the timing of this hearing is fortuitous. The release of the most recent Report of the Social Security Trustees estimating that the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds are expected to be able to pay 100 percent of benefits until 2034 provides Congress with an exceptional opportunity – to strengthen this critical program’s finances while at the same time providing meaningful benefit improvements for the first time in half a century.
Let me make one point clear: Social Security is more than just a safety net program. Over the years, Social Security has become the foundation of economic security for American families. It is an earned benefit that workers contribute to with each and every paycheck that provides families with insurance to help cover the loss of income if their primary breadwinner dies, becomes disabled or retires.
The retirement benefits provided by Social Security were once considered only one source of a worker’s retirement savings. When combined with traditional defined benefit pensions and personal savings, a worker could be reasonably confident of a comfortable standard of living in retirement. However, as we know, few workers are covered by traditional pensions today, and individual retirement savings plans such as 401(k) plans and Individual Retirement Accounts (IRAs) have proved to be woefully inadequate in providing retirement security.
Hundreds of billions of dollars in tax and other incentives have been provided by Congress over the years to encourage retirement savings, including $325 billion in 2022 alone and over $2 trillion through 2026, according to the Joint Committee on Taxation. Despite this massive effort, according to the U.S. Bureau of Labor Statistics, only about two-thirds of today’s private sector workers have access to a retirement savings plan through an employer. Of those who do have access, about one-half fail to participate at all, and many of those who do participate only accumulate small savings balances.
A recent report by the Federal Reserve shows that over the past 15 years wealth in this nation has grown dramatically, but the growth has been concentrated with those with the highest incomes. As of the first quarter of 2020, 68 percent of America’s wealth was in the hands of only 10 percent of Americans. Breaking this data down further, a new survey conducted by Qualtrics on behalf of the personal finance website Credit Karma provides a stark retirement future for the remaining 90 percent of Americans. According to the survey: nearly one-in-five respondents age 59 and older do not have any retirement account, the highest percentage of any generation, and another five percent of respondents in this age bracket say they cannot afford to contribute to their retirement account at all.
The study also finds that the outlook for younger generations is equally troubling. The largest group of Americans is no longer the baby boomers (born between 1946 and 1964) but millennials, who were born between 1981 and 1996. Nearly two-fifths of this large group, totaling about 73 million Americans, also do not have any retirement plan. The numbers are similar for the generation between the boomers and the millennials, the so-called Generation X.
Even for those who manage to save, Wall Street’s history has not favored the average investor. Many fail to realize that, when inflation is taken into account, the markets have spent about 70 of the last 100 years either in downturns or recovering from them. It is clear, Social Security has become the foundation upon which the vast majority of American workers rely for their economic security in retirement, with individual savings providing an additional layer of security only for those who can afford to save during their working careers.
This retirement savings “pyramid” was not part of Social Security’s original design concept, but it has evolved to fill this role as decades of stagnating wages for middle-class families and skyrocketing health care costs have pushed saving for retirement out of reach for so many of our nation’s workers. This trend is not expected to change in the future. According to the most recent Social Security Trustees Report, the average annual rate of increase in average real OASDI covered earnings, over the 65-year period from 2032 to 2097, is assumed to be 1.14 percent under the Trustees’ Intermediate Assumptions. This compares to a 1.17 average increase over the past 65 years, from 1956-2021.
Younger Workers Have Time, But Many Will Not Have More Money to Save For Retirement
Yet some persist in the view that Social Security benefits for younger workers can be cut because they have more time to adapt and save for retirement on their own. While they may indeed have more time to confront the end of their working lives, that does not mean they will have the money to save on their own while they are working. And as I mentioned previously, there are no guarantees that those who are able to save will have the resources to save enough money to provide a comfortable retirement. According to the most recent Census Bureau data, the median value of the retirement accounts held by U.S. households in 2020 was only $75,000. When combined with changes in the nature of work, particularly for younger workers in the emerging gig economy, and the disproportionate burden of student loan debt, it is clear Social Security will be just as important for our younger generations of workers as it has been for today’s seniors.
It is also important to remember that Social Security is not only a retirement program. It is contributory social insurance designed to help families when the primary breadwinner is incapacitated due to death, disability or retirement.
Survivor Benefits
The prospect of any child losing a parent is frightening and heartbreaking. Without Social Security’s survivors’ benefits, however, the possibility could also mean financial impoverishment for a child. Social Security is our nation’s largest permanent antipoverty program for children. It is the only significant source of life insurance protection for the vast majority of the nation’s children, providing coverage worth over $725,000 to workers, paid for as part of their payroll contributions. This coverage would be unaffordable for many families if they had attempted to purchase comparable policies in the private market, and in many cases, coverage would not be available at any price as a result of preexisting health conditions or hazards associated with the workplace. This is especially true in communities of color. For example, African American parents are more likely than others to become disabled or die before retirement. Because of this, the percentage of African American children who receive Social Security survivor benefits is higher than their percentage representation in the population of all children.
Disability Insurance
Social Security’s Disability Insurance (SSDI) program pays benefits to millions of disabled workers and their dependent family members, providing a crucial source of financial security for people who are severely limited in their ability to work because of a disabling illness or injury. The SSDI program is also financed through worker payroll contributions, and for most workers is the only disability insurance available to them. A young person starting a career today has a one in three chance of dying or becoming disabled before reaching age 67. For most beneficiaries, SSDI is their primary source of income. Almost one-half of disabled workers rely on Social Security for the majority of their family income. Without SSDI, nearly one-half of disability beneficiaries would be living in poverty. For the average wage earner with a family, SSDI benefits are equivalent to a $680,000 disability insurance policy. For low-wage earners, SSDI replaces approximately 61 percent of past earnings. For medium-wage earners, the replacement rate is approximately 42 percent.
Communities of color have higher rates of disability than other workers, and consequently are more likely to receive benefits from the SSDI program. African Americans, for example, make up approximately 12 percent of the American population; however, they represent 20 percent of SSDI beneficiaries. Latino children are also disproportionately represented among those receiving disability benefits because their parents are more likely than the population at large to receive disability benefits.
Privatization
Various proposals have been offered to privatize Social Security over the years. None of them, however, have identified ways to preserve, let alone strengthen, Social Security’s survivors and disability programs in the absence of the payroll contributions that would be diverted into private investment accounts. In addition, the diversion of contributions would subject even more workers who rely on Social Security’s retirement benefits to the uncertainty of Wall Street.
Across Party Lines, Public Support for Social Security is Overwhelming
The American people are well aware of the importance of Social Security in their lives, not only as a program that provides financial support to their parents and grandparents in retirement, but also as the backbone of their own financial security. Over the years, this is reflected in numerous polls by organizations spanning the political spectrum which show voters of every political affiliation strongly support expanding and strengthening Social Security. Equally strong is their opposition to benefit cuts – either for current beneficiaries or for those in the future – and their belief that the programs’ solvency should be extended not on the backs of the middle-class, but by asking wealthier Americans to pay their fair share.
Last month, a poll by the Associated Press-NORC Center for Public Affairs Research found that 79 percent of respondents said they opposed reducing the size of Social Security benefits and 75 percent opposed raising the full retirement age for Social Security benefits from 67 to 70.
In 2017, the National Committee commissioned a poll conducted by Celinda Lake of Lake Research Partners that found 79 percent supported paying for an increase in benefits by having wealthy Americans pay the same rate into Social Security as everyone else.
Opposition to Making the Wealthy Pay Their Fair Share Translates into Unpopular Benefit Cuts
This strong public support places many members of Congress decidedly out of step with their own constituents. Some lawmakers have repeatedly refused to consider raising taxes on the wealthy to help shore up Social Security’s finances. In fact, while only a few of these members of Congress have been willing to put forth their own plans for extending the programs’ finances, those proposals that have been made public have consistently avoided adding even a single penny of new revenue to Social Security, instead increasing solvency through an array of benefit cuts and privatization schemes.
Proposals have been put forward, for example, to raise Social Security’s retirement age, which would result in a benefit cut for everyone in the affected birth years, no matter when they claim benefits. The deepest cuts would be borne by workers retiring early, but even those who can delay retirement because they are healthy enough to continue working would see deep cuts in their benefits. Another proposal would affect current beneficiaries by changing the formula by which Cost of Living Adjustments (COLAs) are calculated. Instead of providing a COLA that more accurately reflects the market basket of goods and services most purchased by seniors, known as the CPI-E, numerous proposals would shrink COLAs by applying a so-called “chained CPI” to benefit calculations. Social Security is one of the few retirement programs that provides automatic adjustments each year to help seniors keep up with the rising cost of living, but the current formula does not accurately reflect seniors’ higher spending on health care and other services whose costs typically rise faster than the general economy.
There have also been proposals described as making the program ‘more progressive’ by shrinking or eliminating benefits for higher income beneficiaries, or for their spouses or dependent children. The various forms of these benefit cuts have one thing in common. Although they purport to only affect wealthier beneficiaries, to have a meaningful impact on Social Security’s solvency they must begin phasing in at income levels that more closely represent the heart of the middle-class than the super-wealthy.
As an alternative to specifying which of their constituents’ benefits they would cut, some members of Congress have instead fallen back on the concept of creating some form of ‘commission’ or ‘special committee’ to identify benefit cuts, with provisions to fast-track the resulting legislation through Congress with no ability to make changes and little time for the public to fully understand the impact of the panel’s legislation. Process changes such as this help proponents avoid accountability for their proposals and are invariably designed to circumvent needed benefit improvements and to avoid revenue increases.
What Social Security Needs Now
Social Security reform proposals endorsed by the National Committee, on the other hand, would extend Social Security’s solvency and make much-needed benefit improvements by bringing more revenue into the system. When Social Security was created, most income was in the form of wages, so contributions took the form of payroll taxes. Over the years, however, this system has become decidedly skewed toward those with higher incomes. While the wages of middle-class workers have been stagnating for decades, the rich have gotten richer. Not only have forms of income changed so that more of the highest paid workers’ income comes in forms other than wages, wealthier Americans have at their disposal armies of tax professionals whose lives are dedicated to devising tax-avoidance schemes that include minimizing their payroll tax contributions.
For these reasons, plans to strengthen Social Security proposed by Subcommittee Ranking Member John Larson and Representative Jan Schakowsky have included various methods for capturing the revenue that is lost to the program through these forms of tax avoidance. Whether by raising the taxable maximum of wages subject to the payroll tax or by applying payroll taxes to the investment income of wealthier taxpayers, Representatives Larson and Schakowsky have shown that increased solvency can be achieved in ways that have the support of the American public.
At the same time, these proposals are designed to make long-needed benefit improvements. The last time Congress enacted legislation improving benefits was in 1972, over one-half century ago. Benefit improvements such as a change to the CPI-E for calculating COLAs, across the board payments to help mitigate for the erosion of benefits since the 1970s, a bump in benefits for the oldest retirees who are most likely to have exhausted other retirement savings, improved benefits for widows and widowers and their young children, modification or elimination of the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) – all of these improvements and more are needed to improve the financial security of America’s workers and their families. Improvements such as these are incorporated into legislation that extends Social Security’s solvency proposed by Representatives such as Ranking Member Larson in his Social Security 2100: A Sacred Trust Act, and Representative Schakowsky in the Social Security Expansion Act. We strongly support these bills on behalf of our members and the American people.
Finally, it is also important to note that enhanced Social Security benefits are not only good for workers and their families, they also provide much needed economic stability and growth to their local communities. A 2012 study by AARP found that each dollar paid to Social Security beneficiaries generated nearly two dollars in spending by individuals and businesses, adding about $1.4 trillion in total economic output to the U.S. economy and supporting more than nine million jobs. The infusion of money into local communities is especially important in rural areas with high concentrations of elderly residents. A NASI study found that almost ten percent of total personal income in rural areas came from Social Security payments in 2009, compared with five percent in urban counties. In some areas, such as the counties in Appalachia, the percentage of personal income represented by Social Security approached thirty percent. These areas would undoubtedly benefit the most economically if Social Security benefits are enhanced.
Making Up for Chronic Underfunding of the Social Security Administration
Finally, we would note the importance of providing appropriate funding levels to the Social Security Administration (SSA). As became especially obvious during the pandemic, Americans’ ability to access Social Security’s benefits is closely intertwined with their ability to interact with SSA’s field offices. Whether through the toll-free telephone system or through in-person visits, Americans need access to SSA’s employees if they are to receive the benefits they have earned. Customer service is also highly dependent on the Agency’s ability to hire, train and retain workers, which has been challenging in the face of chronic underfunding by Congress.
H.R. 2811, legislation to raise the debt limit currently under consideration by the House would only make accessing Social Security benefits more difficult. Should Congress opt to cap fiscal year (FY) 2024 discretionary spending at the FY 2022 level, as is currently contemplated in the House bill, this would result in approximately a six percent cut in funding for SSA. This cut would significantly affect SSA’s ability to serve the public and undermine the Agency’s core mission – producing longer wait times for benefits and to reach SSA representatives, as well as reduced access to in-person services. According to SSA, it would be forced to close field offices and shorten hours open to the public, institute a hiring freeze (resulting in a reduction of over 5,000 employees), furlough staff for four weeks and lay off about 6,000 employees, and eliminate overtime pay. All of these actions would result in a significant increase in wait times and a serious deterioration in services available to the public.
Cuts deeper than six percent (which would occur if certain discretionary spending, such as for defense, are exempted from the cuts) would be catastrophic for the Agency and for the people who depend on Social Security programs to support their daily needs. According to SSA, for every $100 million additional cut in funds, the Agency would be forced to lay off an additional 1,000 employees – the equivalent of closing over 40 field offices. These reductions would significantly impede Americans’ ability to access Social Security benefits.
Conclusion
Social Security is one of the federal government’s most successful program because it has provided economic security to generations of Americans. That’s why the program is strongly supported by the public regardless of party affiliation or age. That’s why Americans demand that Congress provide the SSA with the resources needed to offer better customer service and the ability to easily access their earned benefits. And, that’s also why they support proposals to improve long-term solvency, expand benefits to meet the needs of American working families today and for future generations, and to ask wealthier Americans to pay their fair share. Congress should not wait to reform Social Security until insolvency is imminent – just as they did in 1983. Now is the time for lawmakers to do their part without cutting the earned benefits of current and future beneficiaries.