that the trust fund expenditures for older people are too high? Does he mean that the Federal Government should replace local and State government as the major source of education funds? How else would he redress the imbalance or close the gap that he thinks he has discovered?

Secretary Finch's statement of April 9 adds that: "We do not begrudge our expenditures on the aged; they are a group which needs special help. But the relative lack of emphasis on investment in children seems shortsighted in light of the high social and economic payoffs which such investments can have in terms of helping to produce fully effective members of society."

Mr. Chairman, in more than two decades of close association with the Department of Health, Education, and Welfare and its predecessor agency, I have never heard a more divisive and inflammatory statement by the Cabinet officer who heads it.

Mr. Finch has a mandate from Congress to look to the health, education, and welfare of the American people as a whole, not solely those whom he or his computers consider to have the potential of being "fully effective members of society" or of yielding "high social and economic payoffs." He is expressing a philosophy of his office, an approach to his responsibilities, that I believe Congress and the American people would reject out of hand, after but a moment's reflection. That philosophy in Nazi Germany led straight to the gas chambers which were, let us never forget, originally erected to solve the "problem" of the crippled and mentally retarded.

Secretary Finch has frequently described himself as "a political animal." Taking him at his word, I offer some advice I trust he will heed. It is this.

NOT A QUESTION OF "PAYOFFS"

The Department of Health, Education, and Welfare was not created to attain "high social and economic payoffs." Its programs were established by Congress on the basis of a profound moral obligation to help people, old and young, rich and poor, productive and improvident. The improvement or expansion of one of its many programs has never been achieved at the expense of another. The Secretary can make quite a good case for Headstart without deprecating social security. If the American people want both, they can and will pay for both. We know we can never have too much health, education or economic security.

And so we expect our Secretary of Health, Education, and Welfare to champion all our needs. We expect him to demonstrate his humanitarian concern for all our people, not the chilling myopia of the cost accountant, who knows the price of everything and the value of nothing.

Mr. ORIOL. Senator Williams has been called away but he should be back shortly. Before you leave there are two questions.

You said you tried to get the basis for the arithmetic used by Secretary Finch and you indicated you were unsuccessful. Where did you try to get that information and how much have you elicited?

Mr. SCHUCHAT. I sought advice and assistance in his Department and the people who were in charge of these statistics supplied the state

ment, the numbers that I used in my statement and confessed that they were not consulted when his statement was drafted and they are unable to verify the numbers that he used.

It looks to me as if he got his statement from some speech writer who was shooting from the hip.

Mr. ORIOL. So there is a sense of mystery. Another question. You touched upon an either/or attitude; either you help the young or you help the old. This can be very misleading, can't it? It is almost an artificial challenge that if we do something for the young we can't do something for the old.

Mr. SCHUCHAT. Yes; I think that is the thrust of my testimony, as the Secretary picks up these heavy new responsibilities of his, I would like to guide him away from the pitfall of assuming that he can not discharge one of his responsibilities except at the expense of others. That is entirely fallacious.

Mr. ORIOL. Thank you very much. Mr. Fichtner, we appreciate your coming from Florida. We understand you have a background in economics as well as a current interest in elderly persons.

STATEMENT OF MR. FICHTNER

Mr. FICHTNER. I have not been active in the field of economics for about 30 years but I still maintain an interest. I should like to compliment the task force and the staff on the excellence of the committee's working paper.

I represent the American Association of Retired Persons and the NRTA. I might say that we thoroughly agree with the implications of the document. I have filed a statement with the chairman and the staff in six parts but since the speakers on the task force have covered the subjects so well on the first three, and I think Mr. Greenough of TIAA will have some excellent comments on another subject, I shall proceed at once to section IV.

This relates to the impact of inflation on older Americans. The retired elderly are among those most severely and unfairly injured by inflation in the entire population.

INFLATION: A “TAX”

Inflation is no less a Federal tax than the income tax. Unlike the income tax, which bears an approximate relationship to ability to pay, the Federal inflation tax is regressive; it bears most heavily on those least able to pay.

A dollar of savings from work in the 1930's now has a purchasing value of only 35 cents, in the 1940's of about 45 cents, in the 1950's of about 71 cents, and in the early 1960's of scarcely 80 cents. The savings of older Americans in insurance policies, pension fund investments, annuities, and savings bonds have been eroded in the same drastic degree. Much of the speculative gains in land values, business enterprises and equities have been derived from the subtle transfer of billions of value, resulting from the depreciating dollar, from these past savings of older Americans.

More frightening is the runaway acceleration of rising inflation over the past 2 or 3 years. The Bureau of Labor Statistics consumer cost index has risen about 12 percent since early 1966, more than 5 percent

over the past year and at an annual rate of 9 percent in the latest reported month.

Even so, the index does not fully measure the rising living costs of older Americans which have approximated 20 percent since early 1966. Hospital costs are up 52 percent, physicians' fees 21 percent and dentists' fees 15 percent.

The elderly pay about three times more for medical costs than do persons under 65. Homeownership costs-property taxes, repairs, care of property-are up 18 percent. While Medicare has been most helpful to those actually hospitalized, it has absorbed only 35 percent of overall medical costs of the elderly.

Money incomes of most retirants are either fixed or declining. Real incomes invariably are declining. Conservative investments, suitable for the elderly with short life expectancies, have been eroded. Bond market prices have been in a bear market since 1955 with market price averages down 35 percent and, therefore, down 54 percent in purchasing power. Few private pension plans have been adjusted for inflation among older retirees, say, those who retired in the 1950's or early 1960's.

I ran into a top executive of Ford Motor Co. a day or two ago who challenged that statement. I checked with the research specialist on this subject in the Department of Health, Education, and Welfare who had all the facts on the Ford Motor experience. Mr. Reuther indeed had reimposed this relationship of pension plans to those being currently retired.

The Department of Health, Education, and Welfare specialist reported, however, that his information indicated that the statement in your workpaper is essentially true. Very few of the older retirees have had their benefits increased. Obviously private pensioners have no bargaining power, cannot rely greatly on unions, or vote themselves higher salaries as did the members of the Florida Legislature a few days ago in voting themselves a 900-percent increase in salary on the grounds of offsetting eroding incomes.

Older people are the victims and not the beneficiaries of a low rate of unemployment in a tight labor market; relatively few are employed at rising wages but all suffer from higher costs of services.

Inasmuch as NRTA-AARP recognizes that past fiscal and monetary policies have been the source of recent inflation and the rapidly depreciating dollar, the association supported the tax surcharge and supports its continuance. The association strongly supports the objectives of a budget balance, reduced Federal expenditures of lesser priority, high interest rates, and the discontinuance of the investment tax credit, hopeful that these classical inflation control measures may eventually restore monetary value stability, so essential to the welfare of older Americans. As there are no signs of a slow-down and little likelihood of any restoration of buying power of the dollar lost in past decades, the program for amelioration of inequities suffered by the elderly must rest on the assumption that national policy may tolerate continued inflation in the future, albeit hopefully at a reduced rate.

With a Federal debt of $362 billion largely monetized into a conglomerate monetary system of inflated bank deposits, naper and base metals, many years, possibly decades, may be required to restore the American financial house to some semblance of order.

The bitter medicine of disinflation is healthful for the entire Nation in the long run, to the aging of every generation, including the very young. To be repudiated are such dishonest doctrines as that inflation is the only way to retire the vast public debt, or such fallacious doctrines as that inflation is essential to a desirable economic level of employment.

The Phillip's Curve, for example, is a dangerous rule to follow. The fallacy is apparent in economic history and, if you wish also in Germany today, which is following conservative classical fiscal and economic policies and enjoys full employment.

Continuation of the present rate of inflation can end only in social chaos and disaster.

INCOME TAX DEDUCTIBLES

Because the Federal tax of inflation has borne so heavily on the retired, as a matter of equity and sound social policy, the level at which Federal income taxation begins should be raised and more deductible adjustments, not fewer, should be given to taxpayers over 65.

The withdrawal of full deductibility of medical expense since 1966 has been discriminatory and, in effect, a tax increase estimated at $210 million a year solely on the elderly.

Outside of Medicare, the elderly must pay for eye care, dental care, drugs and a rising share of hospital and physicians' charges. Health and health care costs, rather than death, continue to be the principal fears of most elderly.

The proposal of the Treasury to tax social security benefits and to eliminate double exemption deductions and the retirement income credit would be unfair and disruptive of financial planning for retirement. While the method of effecting these changes would further confuse an already complicated income tax, the NRTA-AARP endorses that phase of the proposal which would reduce taxes in the lowest income brackets.

The association, however, opposes the Treasury's plan for placing the cost of relieving lower income taxpayers largely on the moderate and upper-income retirees. The association submits that logically the loss of revenue should be assessed against the entire economic community, by which method the moderate and upper-income retired taxpayers would pay their full, fair share.

The Treasury proposal in its present devious form is inequitable, discriminating, and thoroughly unsound in financial, economic and social principle.

The CHAIRMAN. Mr. Fichtner, you refer to this as the Treasury proposal. That is not current. That is some time ago, wasn't it? Doesn't that bear the name Mr. Surrey?

Mr. FICHTNER. Yes, it was published in February 1969, as part of the three volume recommendations. You are correct, it is the idea of Mr. Stanley Surrey and I think it is a second version of the same idea rejected more than a year ago by the House Ways and Means Committee.

The CHAIRMAN. I don't believe that has the dignity of current Treasury proposal, does it?

Mr. FICHTNER. We hope the good judgment of the Congress will not accept the proposal. But I thought I had better get our opposition to it into the record.

The CHAIRMAN. All right. Very good.

Mr. FICHTNER. What should sound social policy of the Federal Government be toward the aged?

Among other measures, the foregoing observations, in summary, lead to several conclusions:

RECOMMENDATIONS

(1) Provision should be made for social security benefits, starting from a meaningful base such as $120 a month, to be promptly and automatically increased at least to parity with the consumer price index, as pledged in the platforms of both the Republican and Democratic parties in 1968.

(2) Provision should be made for additional upward adjustments on social security benefits in recognition of periodic increases in real national productivity. If necessary, this part of social security benefits would be assessed against general revenue sources.

(3) After study of other nations which have issued bonds of guaranteed purchasing power, consideration should be given to the issuance of U.S. retirement bonds whose money value would be correlated with the BLS consumers price index.

(4) Congress and the administration should exert every effort to restore honesty to the dollar; these powers reside solely in these branches of Government in their exercise of fiscal and monetary policies.

(5) The Federal tax code should retain the present double exemption provision for taxpayers over 65; it should retain the noninclusion of social security benefits as a matter of keeping faith with the retired; the retirement income tax credit should be updated; the full deductibility of medical expense should be restored; and finally, some type of deduction should be provided to offset the inflation tax based on losses of real value of past savings, similar to deductions now accorded to capital losses.

(6) Through the administration of the Internal Revenue Service and its controls on private pension systems, future plans in order to continue to qualify for tax deduction should be required to provide for upward adjustments in pensions being paid to older retired employees on a scale corresponding to improvements for pension plan participants in the active work force.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much. (Statement follows:)

SOME OBSERVATIONS ON THE ECONOMICS OF AGING

(By Charles C. Fichtner, Legislative Council of National Retired Teachers Association and American Association of Retired Persons; President of Greater Coral Gables Chapter of A.A.R.P.)

I

Incomes of retired older Americans are low as compared with those of persons in the working population who have succeeded to equivalent jobs. Incomes of the retired are usually much lower in money terms and invariably much lower in real terms as compared with their preretirement incomes. The longer the period since retirement, the lower become these ratios. Moreover, the gap between the incomes of older and younger people is becoming wider in recent years.