SOCIAL SECURITY REVISION MONDAY, MARCH 20, 1950 UNITED STATES SENATE, The committee met at 10 a. m., pursuant to recess, in room 312, Senate Office Building, Hon. Walter F. George, chairman, presiding. Present: Senators George, Byrd, Hoey, Millikin, Taft, and Brewster. Also present: Mrs. Elizabeth B. Springer, chief clerk, and F. F. Fauri, Legislative Reference Service, Library of Congress. The CHAIRMAN. The committee will come to order. Dr. Slichter, we are very glad to have you on H. R. 6000, the socialsecurity bill, which we are studying, and we shall be very glad to hear from you. Do you wish to submit a general statement before we question you, if any questions arise, or would it interfere with you to be interrupted at any time? STATEMENT OF DR. SUMNER H. SLICHTER, LAMONT PROFESSOR, HARVARD UNIVERSITY, CAMBRIDGE, MASS., ASSOCIATE CHAIRMAN OF THE ADVISORY COUNCIL ON SOCIAL SECURITY TO THE SENATE COMMITTEE ON FINANCE Dr. SLICHTER. Mr. Chairman, I have a prepared statement which I can read in part if you care to have me do so. I also welcome questions at any time. The CHAIRMAN. We are very glad to have you because you have your work on the Advisory Council, of course. We are familiar with the studies made by the council, and we recognize your peculiar fitness for this particular assignment that you have been good enough to assume this morning to come down here and talk to us about this bill. We have as the basis, of course, H. R. 6000 on which the hearings are proceeding. Dr. SLICHTER. Mr. Chairman, I have assumed that the members of the committee were familiar with the recommendations of the Advisory Council. Consequently, the statement which I have prepared does not go into detail but undertakes to underline some of the main features of the conclusions which the council reached. Suppose I read this rapidly and perhaps with a little skipping here and there, and then as I go along the members may see fit to interrupt. with questions or if they prefer to defer the questions until the end, all well and good. I am particularly interested of course in the questions. Perhaps I should remind the committee that Mr. Stettinius was the Chairman of the Advisory Council, and naturally we all regret that he cannot be here to do what I am doing this morning. The 17 members of the council were from various walks of life. Four of them, I think, might be regarded as technical experts in this field: Dean Brown, who was chairman of the preceding council; Mr. Folsom; Mr. Linton of the Provident Mutual; and Mr. Cruikshank, the social-security expert of the A. F. of L. As you are aware, it was a hard-working Council. It reached three basic conclusions concerning the problem of old-age security. 1. That the foundation of the country's system of old-age security ought to be a Federal system of contributory social insurance with benefits related to prior earnings and awarded without a means test. 2. That the present old-age and survivor's insurance act is not performing adequately the job that it was expected to do. 3. That the present act is sound in principle, and that its failure to do the job expected of it is attributable to three principal defects, all of them easily remedied. The Council made 22 recommendations to remedy these defects. On 20 of these the Council was unanimous. I wish to explain briefly to the members of the Finance Committee why the Advisory Council reached the conclusion that contributory social insurance related to prior earnings ought to be the foundation of the country's system of social security, and then I would like to explain briefly why the Council believes that the present act is not doing the job expected of it. Third, I would like to explain why the Council believes that improvements in the act will enable it to do the job. Then I should like to close by a few brief remarks on the problem of premature retirement of workers and the bearing of that on the cost of old-age security. I have a few remarks under one other heading, namely, the topic of insurance for total and so-called permanent disability, on which the Council made a second report. The Council was unanimous in believing that contributory social insurance should be the foundation of the country's system of old-age security. This same conclusion, may I remind the committee, was reached by the Advisory Council to the Committee on Economic Security which helped draft the act of 1935 and by the Advisory Council of 1937-38. Our conclusion on this point that contributory social insurance should be the foundation of the country's scheme of old-age security rested upon several reasons. In the first place, the pensions provided by contributory insurance are not charity. No means test is used, but pensions are awarded as a matter of right. Furthermore, the cost is met from the worker's own production in the form of a tax on pay rolls paid immediately by the employer and a tax on wages paid immediately by the worker. Hence the dignity and self-respect of the worker are shown consideration. After a lifetime of work, it is not right that men should be dependent upon charity. In the second place, old-age insurance encourages self-reliance and thrift instead of discouraging them. A man by being thrifty does not diminish the amount of the pension that he receives. He simply as sures himself of a better standard of living in his old age. This is in contrast to old-age relief based upon a means test. When a means test is used, the man who has been thrifty and who has provided for himself adequately gets nothing. The man who has partly provided for himself gets small benefits. The man who has made no provision for himself gets the largest grant. Senator BREWSTER. That makes it a penalty on thrift. Dr. SLICHTER. That is right. If you want to reward people for not being thrifty, that is the way to do it. In the third place, old-age insurance, which relates benefits in some measure to the prior earnings of workers, helps protect men from too drastic a drop in their standard of living on retirement. Naturally the standard of living of people tends to vary with their earnings. Since the purpose of old-age insurance is to protect men against having too drastic cuts in their standard of living when they retire, pensions should vary in some measure with past earnings. Flat benefits, which are not related to earnings but are the same for every one, would assure that there would be only an arbitrary relationship between men's standards of living before retirement and their standards of living after retirement. Under a system of flat benefits, the benefits that would be about right for some workers would be too small for many others and possibly too large for a third group. Senator TAFT. That is a substantial difference between our plan and the English. Dr. SLICHTER. Yes; one of the differences. In the fourth place, a Federal system of old-age pensions should be the foundation of the country's system of old-age security, because it can be applied to all members of the labor force and can be made as broad, therefore, as the problem with which it is expected to deal. This method of meeting the problem does not depend upon the willingness of an employer to grant pensions or upon the bargaining power of unions and their ability to compel employers to grant pensions. Furthermore, a system of old-age insurance can be applied to the self-employed as well as to the employees. Since about one out of five workers in the United States is self-employed, it is necessary that the scheme of old-age security be applicable to the self-employed as well as to the employees. Senator MILLIKIN. Professor Slichter, we have tried during this hearing to get some statistics on the number of self-employed who after reaching the age of 65 are needy and must take recourse to public assistance. Have you developed any statistics on that? Dr. SLICHTER. No, Senator Millikin; I am afraid I cannot give you a break-down between the self-employed and the employees on that. Senator MILLIKIN. We have been trying to get at the need for insuring self-employed, and obviously one aspect of that is what the later history of the self-employed so far as indigency is concerned. Dr. SLICHTER. There may be some figures in the report on lowincome families, but I have not had a chance to go over that in detail. That came out only several months ago, and I am sorry I can't help you out. I have one or two remarks on that point which bear somewhat indirectly on your question but I am afraid do not meet it head-on. Why did the Advisory Council reach the unanimous conclusion that the present act is not doing the job expected of it? There were three principal reasons for this conclusion. One reason is that, even after 13 years, only about 39 percent of the male workers who become 65 years of age would be eligible for benefits if they were to retire. Hence, it is plain that many people who need to receive protection are not getting it. The principal reason why they are not receiving protection is that the act applies to only three out of five jobs. Another reason is that eligibility to receive benefits is determined by the proportion of time that a man spends in covered employment, not by the proportion of time that he is at work. He may be quite steadily employed and still not qualify if he is one of the many workers who move back and forth between manufacturing, which is covered, and agriculture, which is not. For example, of the 6,600,000 farm operators, about 1 out of 4 has made contributions to the old-age insurance scheme but is not insured. Senator MILLIKIN. Doctor, are you referring to the proprietor or the farm worker? Dr. SLICHTER. I am referring to the proprietor. In the case of the farm worker the percentage is a little more than 30. About 30 percent of the farm workers have made contributions because they have worked at some time or other in manufacturing or some other covered industry, but they haven't worked a sufficient proportion of the time to be eligible for benefits. Senator MILLIKIN. In the case of a farm worker, does not experience show that a farm is able to carry an elderly worker further along than industry is? Dr. SLICHTER. It shows that they do. I shall have a few remarks toward the end of this statement on what I call premature retirements. I think industry has been a little arbitrary in retiring everyone at age 65 as if there were some magic about 65, as if above 65 everyone was unfit to hold a job. In agriculture that is not true, and I doubt whether it is true in industry, but there is a difference in practice be tween agriculture and industry. I will give you in a few moments a comparison between the rural and the nonrural parts of the community with respect to the proportion of the male population above 65 years of age at work. Å second reason for believing that the Insurance Act is not doing the job expected of it is that the average pension is too small and is considerably less than the average payment for old-age assistance, The average pension for a single person averages about $26 a mouth and for a retired person with one dependent about $40 a month. The average payment under old-age assistance is about $44.50. Although the recipients of old-age assistance are half again as numerous as recipients of old-ge pensions, total payments for assistance are nearly 211⁄2 times as large as total payments for pensions. The principal rea son why pensions are small is that the benefit formula is too low even for workers steadily employed in covered industries. It provides 40 percent of the first $50 and 10 percent of the next $200 of average monthly earnings, plus additional allowances for dependents, plus a 1-percent increment for each year of service in covered industries. The CHAIRMAN. Do you deal with the increment problem, Doctor' Dr. SLICHTER. No; not in this statement; but I shall be glad to answer questions about it. Senator MILLIKIN. Would you give us your viewpoint on that, Doctor? 1 The CHAIRMAN. Would you care to comment on that now? we would be glad to hear you. If so, Dr. SLICHTER. I see no reason why I should not. The view in the Council was that it would be preferable to pay more adequate pensions now rather than to get up to some standard of adequacy 20 or 30 years from now by the method of an increment. If you put an increment into the formula and you say this formula, including the increment, will give an adequate pension, you are really saying-are. you not?-that adequate pensions according to your standards, whatever the standard may be, will not be attained until 30 or 40 years from now, until the average person drawing a pension has had the benefit of the increment over a lifetime of employment in industry? If we assume that a lifetime of employment in industry is in the neighborhood of 40 years, that would mean that adequate pensions by whatever standard you accept will not be attained until 40 years hence. That was the dominant thinking in the Council, and I shared it. I think one can make this kind of case in favor of the increment. One can say, on the basis of past experience, that pensions have been slow to move up as rates of pay have moved up. For example, since 1940, as I shall point out in just a moment, although earnings per hour and earnings per week have more than doubled and per capita income has more than doubled, the average pension has risen only 14 percent. One can say, in a progressive economy such as ours, that the course of earnings is bound to be upward, and it is desirable to have in the formula some kind of automatic arrangement to keep pensions moving. That wasn't the original philosophy of the increment, and it is not a philosophy which I have heard expressed until very recently. Senator BREWSTER. That apparently is based on the assumption that we are going to go on expanding indefinitely. Dr. SLICHTER. That is right. Senator BREWSTER. Do you have any historic record that would indicate that we have now entered that happier era? Dr. SLICHTER. If we don't go on expanding, a lot of people who have been studying engineering and chemistry and physics have been wasting their time, and a lot of money which is being spent today on industrial research is being wasted. We have more time and effort and knowledge being expended today on raising the productivity of industry than ever before, and I think it would be very unrealistic to assume that that vast effort will be a complete fizzle. Senator BREWSTER. I am speaking now in terms of dollars rather than in terms of product. Dr. SLICHTER. Suppose productivity goes up and prices remain about the same, then wages will go up. Senator BREWSTER. Just a moment. On what do you base the idea that the value of the dollar is not going to change after what has happened in the last 20 or 30 years? How do you assume that the dollar is going to go on indefinitely being depreciated instead of being possibly appreciated? Dr. ŠLICHTER. I am not assuming that. I am willing to argue that if you want me to. Senator BREWSTER. That is the answer. This whole thing is based on dollars. Dr. SLICHTER. Oh, no; all that I am assuming is that the dollar does not necessarily depreciate in value, but that wages go up. |