COST OF LIVING INCREASE?

Senator HARTKE. During the campaign last year the candidate for President, now President of the United States, made a statement in Pennsylvania, and I am not holding you responsible for that statement. I asked the same question of Secretary Finch at the time of his being sworn in.

The President made a statement which said that as far as he was concerned that he was for the social security system and that he was in favor of tying the cost of living to the benefits which were going to be paid.

Now Mr. Finch as the Secretary designate at that time, and has since been confirmed, said that yes, he did make that statement. He said he had advised him against making that statement but that he did make that statement. I asked him at that time whether they intended to follow through with that recommendation.

So now I ask you as the Director of the social security fund, are we going to keep that commitment to the American people?

Mr. BALL. Senator, in my judgment the idea of tying the benefits automatically to the cost of living is quite a close question. I am not able at this time to come down 100 percent for it or against it.

Senator HARTKE. I am not asking you to do it, I am asking, are they going to recommend it. I am not asking for your personal opinion. You are part of an administration which has committed itself to that policy and has now the choice of either keeping that commitment or reneging on it. Now what is the present policy going to be? I understand that there are arguments pro and con. But I am now asking what Ï the recommendation is going to be to the Finance Committee and to the Ways and Means Committee.

Mr. BALL. Senator, as far as I know at this time, the initial recommendations are for a cost of living increase of an ad hoc, one-time nature, increasing the general benefit level by 7 percent.

Senator HARTKE. And that is nothing new than any other increase that we have given to them in the past, isn't that true?

Mr. BALL. That is correct.

Senator HARTKE. This is an old policy and this is not the breakthrough and not the commitment made by President Nixon when he said he was going to tie the social security benefits to the increase in the cost of living, so these people say the cruelest tax of all is inflation, right?

Mr. BALL. Yes.

Senator HARTKE. That is a repeated statement, the cruelest tax of all is inflation and these people here are suffering from that cruel tax. The way to alleviate that is to say that if there is an increase in the cost of living that you would tie to it the benefits with a percentage increase based on cost of living, which is done in many labor contracts, for example, for those who work for a living.

I bought President Nixon's campaign pledge. I would just like to see him keep it.

Mr. BALL. The position, Senator Hartke, is that these recommendations that have already been made are interim recommendations to respond to the price increases that have taken place. The longer run, fundamental issues such as you are raising should await at least an interim report by this new advisory council.

Senator HARTKE. I am going to introduce the bill and I am going to see if people have the courage to put their vote where their mouth is. Let me just ask you one final question. Prescription drugs are a big cost in expenses of these older people. What about something that is very necessary to these older people, what about hearing aids, eyeglasses and teeth, false teeth?

Mr. BALL. I think prescription drugs and the matters that you refer to, Senator, and also another uncovered part of health insurance, the question of relatively long-term care in nursing homes-now all of these

Senator HARTKE. I understand this, what about teeth and eyeglasses and hearing aids?

Mr. BALL. All of these additions

Senator HARTKE. I don't want to know about all of them. I am asking you about those. Is that an expensive proposition?

Mr. BALL. Oh, yes, very expensive. I would be glad to furnish an estimate for the record.* I know it is a very expensive matter. The reason is, Senator, particularly in the dental area, you have quite a backlog of unmet work.

Senator HARTKE. You have a lot of people with no teeth.

Mr. BALL. Are you speaking only of providing dentures? I thought you meant dental care.

Senator HARTKE. I am talking about false teeth. I don't know if you ever talk to people that need false teeth.

That is all I have.

The CHAIRMAN. Thank you very much, Senator Hartke.

Senator Miller, do you have any questions or any observations? Senator MILLER. Thank you, Mr. Chairman. First I would like to commend the advisory panel for their excellent work and for their presentation. I have only a couple of observations.

*The estimate, made by Robert J. Myers, Chief Actuary, was forwarded by Commissioner Ball under date of May 27, 1969.

We have prepared the actuarial cost estimate to cover hearing aids, eyeglasses, and dentures for people aged 65 and over. The cost estimate used the following assumptions: (1) The hearing aids, eyeglasses, and dentures will be covered under the SMI program with the existing $50 deductible and 20% coinsurance.

(2) The reimbursement will based on usual, reasonable and customary charges.

(3) The benefit will cover the hearing aids, eyeglasses, and dentures, as well as the professional services related to the prescribing, fitting, and examination therefor.

The first-year cost will be higher than the ongoing cost, because there is some "need" accumulated from the past. The cost after the first year will be mainly due to replacements, change in physical condition, and new people reaching age 65.

If somehow you could get this information available for the record, I would appreciate it. One of the items, I believe, the panel gave us was the percentage of people on social security and private pension plans. Of course, that is an important statistic but I think it would be helpful if you could make that a little more specific by giving us the number of people in the higher social security brackets who are on private pensions plans.*

My guess is that the percentage there will be very large and would be more meaningful to Senator Hartke and me on the Finance Committee if we had that information.

A second point is with respect to chart I. Professor, I think it would be helpful for us to have some idea to what extent that should be refined by the number who are receiving assistance from their children.

Now you may recall that a couple of years ago this committee spent considerable time evaluating the possibilities of having some income tax credits or deductions available to children who support their parents. I think that with that as a background, it might be helpful for you to refine that chart a little more for our benefit.

Now, Mr. Chairman, our colleague, Senator Prouty is unable to be here. He has several questions for Mr. Ball and I would ask permission of the Chair to submit these to Mr. Ball to answer for the record.

The CHAIRMAN. Without objection, it will be done. (See app. 3, p. 238.)

Senator MILLER. Mr. Ball, to put things in perspective, is it not true that the matter of the unified budget, which took into account the surplus in the Social Security trust fund, was handled in exactly the same fashion by the Johnson budget as by the Nixon budget?

Mr. BALL. Yes, sir.

Senator MILLER. So if there might be any cheating, which I understand you deny most vehemently, if perchance there might be, this existed in previous administration as well, is that not so?

Mr. BALL. I would hate to consider even the hypothetical possibility, Senator; it is not true in either situation. There is absolutely nothing that can remotely be considered improper about the consolidated budget. One might argue about its desirability but there is certainly nothing improper about this way of presenting it.

Senator MILLER. Thank you. Now as a matter of the record, Mr. Ball, you are familiar with the fact that 4 years ago I offered an

*The following information was provided by Social Security Administration: According to findings of the 1963 Survey of the Aged, beneficiaries with relatively high benefits were more likely than others to have private pensions. Data by primary insurance amount are not available on receipt of private pensions alone, but they are available in combination with public pensions other than OASDI (which are less than half the combined total of the two types of pensions). The following figures show the percent receiving retirement pensions other than OASDI by primary insurance amount:

The 1963 Survey showed also that couples without pensions were three times as likely as those with them to have low-income status. i.e., to be poor or near poor, and for nonmarried beneficiaries without pensions the likelihood was more than twice as great. These differences were even greater in the case of the more stringent poverty measure.

amendment in the Senate to put Social Security benefits on an automatic cost of living basis, are you not?

Mr. BALL. Yes; I am aware of that, Senator.

Senator MILLER. And I also offered that amendment last year; did I not?

Mr. BALL. Yes, sir.

Senator MILLER. May I point out for the information of my colleague from Indiana, that on November 21, 1967, a rollcall was taken in the Senate on that very amendment and it will be found that the Senator from Indiana voted no. I am delighted to know that he has finally got religion.

Mr. Ball, I understand that this is, as you term it, a long-range matter. Four years ago this came up, and what I can't understand is why we have to study it some more. I would like to see a reconsideration of this proposed 7-percent increase and to couple with that the automatic cost of living increases in our social security benefits.

I might add I have already offered my bill all over again. As a member of the Finance Committee, I assure you it will come before that committee, but it will be very helpful if you in the administration will support it.

I detect that the panel indirectly supports my proposal because you may note in their report that they refer to "constant purchasing power bonds" as one of the inducements for younger people to engage in a savings program.

Now, what is the difference between engaging in a savings program with constant purchasing power bonds and paying into a social security fund to obtain constant purchasing power benefits?

I think, Mr. Ball, that on the basis of my familiarity with this, and talking with a great many people, that we are overdue for this. I want to emphasize how important it is. Now how many billions of dollars were paid out of social security funds this last year? Do you have the figure on 1968, calendar year 1968?

Mr. BALL. It would be approximately $26 billion, I believe.

Senator MILLER. Can you give us an estimate of how much of that $26 billion was actually funded by the contributions of those receiving

benefits?

Mr. BALL. In the cash benefit area it would be around 10 percent, I would think. That is, if you were to do it on a private insurance basis the part of the cost paid for by the combined contributions of employers and employees would represent about 10 percent of those payments.

Senator MILLER. Where does the other 90 percent come from?

Mr. BALL. Well, Senator, the social security program is designed so that you will meet the costs as they fall due on into the future out of the contributions.

Senator MILLER. I understand, Mr. Ball, I understand that perfectly, but where does that 90 percent come from? Are you saying that the 90 percent comes from people who are now working?

Mr. BALL. Yes, from them and their employers, and they in turn, when they draw retirement benefits, a significant portion of what

they draw will come from the contributions of people working at that time.

Senator MILLER. How much would that portion be?

Mr. BALL. Of course they will have paid longer and at a higher rate, so instead of 10 percent it would be significantly more. I don't have an estimate in mind and it would depend on one's assumptions as to further trends in the economy, but let's say it might eventually be as much as 30 or 40 percent of the value of their benefits if they are kept reasonably up to date with the rising wages and prices. You are talking about their own contributions?

Senator MILLER. That is correct. Why should the current worker, and his employer, have to pay this tax on the employment tax basis? Why should he have to pay that in order to take care of this 90 percent that the present recipients didn't pay? Why shouldn't that come from the general fund in the Treasury into which tax money is generally paid according to relative ability to pay?

Mr. BALL. It seems to me you could almost make the case the other way around. Even the young workers who are going to be paying at maximum rates over their whole working lifetime assuming that these benefits are kept up to date reasonably with rising prices and wages, as I would assume they would-will not through his own contribution be paying very close to what the benefits are worth. Senator MILLER. Maybe I misunderstood you. I thought you were looking down the road and suggesting that maybe up to 30 or 40 percent would be paid for.

Mr. BALL. I am saying he is only paying, even in the long run— he is paying out of his own contribution only, say, 30 or 40 percent of the value of the protection. Now for those starting at 21, and paying at the maximum and considering only the employee contribution, as a group they will be paying about 80 percent of the value of their protection assuming that the program is not substantially improved. If it is kept up to date the proportion they will be paying will be much less.

Senator MILLER. Looking down the road the day may come when as much as 80 percent will have actually been paid by the beneficiaries and their employers for the benefits they are receiving?

Mr. BALL. Yes, Senator. Indeed if the benefits remain as in present law, the employee contribution alone could reach that level, but I think this will be a program that either on an ad hoc basis, or with an automatic adjustment provision such as you and Senator Hartke are proposing, will have constantly improving cash benefit levels so that actually people won't be paying for as high a proportion of their protection as it would appear from what we have just said.

Senator MILLER. I understand, but the information you have given enables me to illustrate this point. Looking down the road, the day may come, if things go on as they are now, where upward of 80 percent of the benefits received will have been paid by the beneficiary and the employer and only 20 percent will be made up for by the current tax payments of those on the payrolls, whereas today only about 10 percent of the benefits have been paid by the beneficiaries, as I understood your answer. So what I am concerned about, particularly, is n hat it is going to be like 20 or 30 years from now, I am