ITEM 3. DR. JOSEPH A. PECHMAN, DIRECTOR OF ECONOMIC STUDIES, THE BROOKINGS INSTITUTION, WASHINGTON, D.C. EXHIBIT A. RESPONSES FROM DR. PECHMAN TO QUESTIONS FROM THE CHAIRMAN The chairman, in a letter written shortly after the hearing, addressed the following questions to the witness: MAY 12, 1969. Dear DR. PECHMAN: You will remember that at the conclusion of your testimony at our April 30 hearing, you graciously agreed that I might ask further questions after reviewing the Brookings pamphlet, "Improving Social Security Benefits and Financing". I would now like to pursue one question raised in general terms by Dr. Sheppard about gearing the maximum earnings amount to median family income. My concern relates specifically to the working wife. We in the legislature receive countless letters from working wives who feel that they get no return for their contributions, especially when the 50 percent wife's benefit is higher than that based on her own earnings. They receive scant consolation from the knowledge that they have had disability insurance, survivor's protection for their children, and that they can retire on their own benefits without waiting for their husbands to retire. As I understand your proposal, the earnings of the husband and wife would be combined for purposes of computing the benefit; a couple would receive a flat $30 more than a single worker. The combination of earnings would give the working wife a clear-cut advantage over the non-working wife if the combined earnings were below the taxable maximum. But since you do not propose raising the present maximum in recognition of the combination of earnings, the working wife of a man with earnings close to or above the maximum would receive no credit at all for her own earnings. Would you please explain (1) why you did not propose an increase in the maximum taxable earnings to accompany the combination of earnings and (2) how the retirement test would work in such cases. My other question relates to your proposal that all persons over 65 be eligible for social security benefits, if not covered by other retirement systems. What would you do about those persons whose coverage under other retirement systems yields a lower benefit than that proposed under the Social Security system? My thanks in advance for your further help in the Committee's work. Sincerely, HARRISON A. WILLIAMS, Jr., Chairman. (The following reply was received:) THE BROOKINGS INSTITUTION, DEAR SENATOR WILLIAMS: I am very happy to respond to the questions you raise in your letter of May 12 regarding some details of the proposals in our Brookings book on social security. 1. With respect to the working wife, there is no problem in the event that financing of social security comes out of general revenues, as we prefer. In this circumstance, the wage-related benefit would depend upon the combined earnings of the husband and of the working wife, up to the statutory limit of benefits. With a system in which the financing of the benefit is related to the payroll tax, we propose that a married couple be regarded as a unit for payroll tax purposes. Thus, a married couple would be required to pay tax on earnings up to the same limit that is applied to single persons and taxes of married couples in excess of amounts due on the taxable limit would be refunded. This would remove the inequity of taxing couples with a working wife more heavily than those without working wives. Separate records would be maintained on wives to be used in the event of divorce or early death of her spouse, but in the normal case would not be used. As to the retirement test for married couples, we believe that retirement benefits should not be paid for persons who are younger than age 65 and who are employable, and this applies to married couples with and those without working wives. There would, of course, be a transition problem for those who are already retired early, but we do not think it would be necessary to remove them retroactively from the benefit rolls. 2. With regard to blanketing in of all persons over age 65, two answers are necessary. If the anti-poverty and wage replacement functions of social security come to be dealt with independently, then we believe that, for purposes of the negative income tax portion of our system, all other income (including other retirement benefits) be deducted from the negative income tax allowances. With respect to the wage-related pension, benefits from public retirement systems should be treated as benefits from private retirement systems (i.e., as supplements to social security). However, if the anti-poverty and wage-related functions of social security continue to be dealt with under a single system, we feel that recipients of public retirement benefits should receive only a fraction of the normal social security benefit. Thus, if a worker has spent 30 years in the civil service and ten years in outside employment covered by social security, the worker might be allowed to receive a social security benefit roughly one-fourth as large as that to which his wage history would have entitled him after a forty year period of employment under social security. I hope this clears up these particular questions for you. JOSEPH A. PECHMAN, Director of Economic Studies. 32-346 0-69—pt. 1 -17 EXHIBIT B BROOKINGS RESEARCH REPORT 94 Improving Social Security Benefits and Financing Highlights of SOCIAL SECURITY: PERSPECTIVES FOR REFORM by Joseph A. Pechman, Henry J. Aaron, and Michael K. Taussig THE BROOKINGS INSTITUTION 1775 Massachusetts Avenue, N.W. Washington, D.C. This report is adapted from SOCIAL SECURITY: PERSPECTIVES FOR REFORM 352 pp. Cloth $6.75 Paper $2.95 CONTENTS 1. Introduction 2. The Economic Status of the Aged 5. The Benefit Structure 6. Social Security and Retirement 7. Costs and Benefits of Social Security 8. Financing Social Security 9. Agenda for Reform Appendixes The findings and conclusions are those of the authors and do not necessarily represent the views of the trustees, officers, or staff members of the Brookings Institution. Copyright 1968 by the Brookings Institution |