Total budget outlays for the first full calendar year in which the increase is effective will be approximately $3 billion. AUTOMATIC ADJUSTMENTS Benefits will be adjusted automatically to reflect increases in the cost of living. The uncertainty of adjustment under present laws and the delay often encountered when the needs are already apparent is unnecessarily harsh to those who must depend on Social Security benefits to live. Benefits that automatically increase with rising living costs can be funded without increasing Social Security tax rates so long as the amount of earnings subject to tax reflects the rising level of wages. Therefore, I propose that the wage base be automatically adjusted so that it corresponds to increases in earnings levels. These automatic adjustments are interrelated and should be enacted as a package. Taken together they will depoliticize, to a certain extent, the Social Security system and give a greater stability to what has become a cornerstone of our society's social insurance system. REFORMING THE SYSTEM I propose a series of reforms in present Social Security law to achieve new standards of fairness. These would provide: 1. An increase in benefits to a widow who begins receiving her benefit at age 65 or later. The benefit would increase the current 8212 percent of her husband's benefit to a full 100 percent. This increased benefit to widows would fulfill a pledge I made a year ago. It would provide an average increase of $17 a month to almost 3 million widows. 2. Noncontributory earnings credits of about $100 a month for military service from January 1957 to December 1967. During that period, individuals in military service were covered under Social Security but credit was not then given for wages in kind-room and board, etc. A law passed in 1967 corrected this for the future, but the men who served from 1957 (when coverage began for servicemen) to 1967 should not be overlooked. 3. Benefits for the aged parents of retired and disabled workers. Under present law, benefits are payable only to the dependent parents of a worker who has died; we would extend this to parents of workers who are disabled or who retire. 4. Child's insurance benefits for life if a child becomes permanently disabled before age 22. Under present law, a person must have become disabled before age 18 to qualify for these benefits. The proposal would be consistent with the payment of child's benefit to age 22 so long as the child is in school. 5. Benefits in full paid to persons over 72, regardless of the amount of his earnings in the year he attains that age.-Under present law, he is bound by often confusing tests which may limit his exemption. 6. A fairer means of determining benefits payable on a man's earnings record. At present, men who retire at age 62 must compute their average earnings through 3 years of no earnings up to age 65, thus lowering the retirement benefit excessively. Under this proposal, only the years up to age 62 would be counted, just as is now done for women, and 3 higher-earning years could be substituted for low-earning years. CHANGES IN THE RETIREMENT TEST A feature of the present social security law that has drawn much criticism is the so-called "retirement test," a provision which limits the amount that a beneficiary can earn and still receive full benefits. I have been much concerned about this provision, particularly about its effects on incentives to work. The present retirement test actually penalizes social security beneficiaries for doing additional work or taking a job at higher pay. This is wrong. In my view, many older people should be encouraged to work. Not only are they provided with added income, but the country retains the benefit of their skills and wisdom; they, in turn, have the feeling of usefulness and participation which employment can provide. This is why I am recommending changes in the retirement test. Raising the amount of money a person can earn in a year without affecting his social security payments-from the present $1,680 to $1,800 is an important first step. But under the approach used in the present retirement test, people who earned more than the exempt amount of $1,680, plus $1,200, would continue to have $1 in social security benefits withheld for every $1 they received in earnings. A necessary second step is to eliminate from present law the requirement that when earnings reach $1,200 above the exempt amount, social security benefits will be reduced by a full dollar for every dollar of added earnings until all his benefits are withheld; in effect, we impose a tax of more than 100 percent on these earnings. To avoid this, I would eliminate this $1 reduction for each $1 earned and replace it with the same $1 reduction for each $2 earned above $3,000. This change will reduce a disincentive to increased employment that arises under the retirement test in its present form. The amount a retired person can earn and still receive his benefits should also increase automatically with the earnings level. It is sound policy to keep the exempt amount related to changes in the general level of earnings. These alterations in the retirement test would result in added benefit payments of some $300 million in the first full calendar year. Approximately 1 million people would receive this money-some who are now receiving no benefits at all and some who now receive benefits but who would get more under this new arrangement. These suggestions are not by any means the solution to all the problems of the retirement test, however, and I am asking the advisory council on social security to give particular attention to this matter. CONTRIBUTION AND BENEFIT BASE The contribution and benefit base-the annual earnings on which social security contributions are paid and that can be counted toward social security benefits-has been increased several times since the social security program began. The further increase I am recommending from its present level of $7,800 to $9,000 beginning January 1, 1972 will produce approximately the same relationship between the base and general earnings levels as that of the early 1950's. This is important since the goal of social security is the replacement, in part, of lost earnings; if the base on which contributions and benefits are figured does not rise with earnings increases, then the benefits deteriorate. The future benefit increases that will result from the higher base I am recommending today would help to prevent such deterioration. These increases would, of course, be in addition to those which result from the 10-percent across-the-board increase in benefits that is intended to bring them into line with the cost of living. FINANCING I recommend an acceleration of the tax rate scheduled for hospital insurance to bring the hospital insurance trust fund into actuarial balance. I also propose to decelerate the rate schedule of the oldage, survivors, and disability insurance trust funds in current law. These funds, taken together, have a long-range surplus of income over outgo, which will meet much of the cost. The combined rate, known as the social security contribution, already scheduled by statute, will be decreased from 1971 through 1976. Thus, in 1971 the current scheduled rate of 5.2 percent to be paid by employees would become 5.1 percent, and in 1973 the current scheduled rate of 5.65 percent would become 5.1 percent. The actuarial integrity of the two funds will be maintained, and the ultimate tax rates will not be changed in the rate schedules which will be proposed. The voluntary supplementary medical insurance (SMI) of title XVIII of the Social Security Act, often referred to as part B medicare coverage, is not adequately financed with the current $4 premium. Our preliminary studies indicate that there will have to be a substantial increase in the premium. The Secretary of Health, Education, and Welfare will set the premium rate in December for the fiscal year beginning July 1970, as he is required to do by statute. To meet the rising costs of health care in the United States, this administration will soon forward a health cost control proposal to the Congress. Other administrative measures are already being taken to hold down spiraling medical expenses. In the coming months, this administration will give careful study to ways in which we can further improve the social security program. The program is an established and important American institution, a foundation on which millions are able to build a more comfortable life than would otherwise be possible-after their retirement or in the event of disability or death of the family earner. The recommendations I propose today, which I urge the Congress to adopt, will move the cause of social security forward on a broad front. We will bring benefit payments up to date. We will make sure that benefit payments stay up to date, automatically tied to the cost of living. We will begin making basic reforms in the system to remove inequities and bring a new standard of fairness in the treatment of all Americans in the system. And we will lay the groundwork for further study and improvement of a system that has served the country well and must serve future generations more fairly and more responsively. THE WHITE HOUSE, September 25, 1969. RICHARD NIXON. LETTER OF TRANSMITTAL THE SECRETARY OF HEALTH, EDUCATION, AND WELFARE, Hon. JOHN W. McCORMACK, DEAR MR. SPEAKER: Washington, D.C., September 30,c 1969. DEAR MR. PRESIDENT: I am transmitting with this letter draft legislation to amend the social security program. Also enclosed are a summary and a sectionby-section analysis of the draft bill. This draft is designed to carry out the recommendations made in the President's message on social security of September 25, 1969. The proposed legislation calls for an across-the-board increase of 10 percent in social security payments, effective March 1970, to make up for increases in the cost of living since Congress last raised the benefits. The legislation also provides for subsequent automatic increases in benefits based upon increases in the cost of living. Other provisions would substantially revise the retirement test, increase the earnings base to $9,000 per year and increase it automatically thereafter, increase the benefits payable to widows and dependent widowers who begin drawing benefits at age 65 or later from 822 percent of the deceased worker's benefit to 100 percent of that amount, make aged dependent parents of retired and disabled workers eligible for benefits and liberalize the provisions for determining the insured status and benefit computation for men. We urge that early and favorable consideration be given to the enactment of this bill, and we would appreciate your forwarding the proposed legislation to the appropriate committee. The Bureau of the Budget advises the enactment of this bill would be in accord with the program of the President. Sincerely, 6 ROBERT H. FINCH, Secretary. SUMMARY OF THE PROPOSED SOCIAL SECURITY AMENDMENTS OF 1969 Benefit increase The bill provides for a 10-percent across-the-board increase in cash social security benefits, effective March 1970 and payable in April 1970. Under the proposal, an automatic increase in benefits is provided in the event of future increases in the cost of living. Whenever the Consumer Price Index prepared by the Department of Labor rises by at least 3 percent, benefits will be increased by that percent. These automatic increases would not be made more often than once a year. Certain people age 72 and over would receive a 10-percent increase in the special amount that is paid them. These individuals are not now insured under the regular social security cash benefits program. The increase would be effective for March 1970. The bill changes the present method of determining eligibility for benefits and benefit amounts based on a man's earnings record, making it similar to that now in use for women. Average monthly earnings for a man-and it is on this average that the monthly benefits are based-are now determined over a period equal to the number of years up to age 65, while for women they are figured over a period equal to the number of years up to age 62. The result of this difference is generally that a man's retirement benefit amount is lower than that of a woman with exactly the same earnings record. Under the bill, this difference would be eliminated. As a result, the treatment of men and women workers under the benefit provisions would be the same, and the retirement benefits payable to men, the benefits payable to their wives, and the benefits payable to survivors of men who live beyond age 62 would be increased. Widows and widowers The bill provides benefits for a widow at age 65 equal to 100 percent of the amount her husband would have received at age 65, rather than 822 percent as under present law. Benefits for widows aged 62-64 would be graded down according to the age of the widow at the time she first gets benefits; a widow coming on the rolls at age 62 would rerecive 8212 percent of the husband's benefit, as she does under present law. This provision would be effective with benefits for January 1971. Contribution and benefit base The bill provides for an increase in the contribution and benefit base (that is, the amount of annual earnings that may be counted for social security purposes) from the present $7,800 per year to $9,000 per year. This provision becomes effective on January 1, 1972. The bill provides also for automatic adjustment of the contribution and benefit base to future increases in wage levels, beginning with 1974. The adjustments of the base could not be made more frequently than every second year. |