Dr. DAWE. As far as 4222 goes, yes, it would. But I think the development will go on beyond that, since there would be increasing pressure for it to be developed beyond that. I think the experience in Britain and every other country which has governmental health service shows that. In England that happened. With increasing pressure, it entirely covered the entire country and the entire profession. Mr. KING. You believe, then, the millions of workers in the United States would not protest, but would willingly accept, added taxes upon them for benefits that would not come to them immediately?

Dr. DAWE. Yes, I do; because I do not think they know the truth; as I do not believe the British people knew the truth. Had they realized what the system was going to be, I think the British people would have wanted it as it was.

Mr. KING. It would be more readily understandable, though, that Americans would know the truth, when only a segment of them is being taxed to pay these benefits, than in England, where you had had no preparatory plan that would give the English citizen an opportunity to know more about what his plans were to be.

Dr. DAWE. I think the thing is not clear to people, even though, because people do not know exactly what Government medical service means in operation, until it comes.

Mr. KING. Well, I cannot personally imagine the future Congresses of the United States being unmindful of the attitude of people that would be taxed beyond their means to pay, nor can I believe that the American citizen who is now paying out of his paycheck every month is unaware of what is going on. That was a little different, perhaps, in England, at the time they enacted the program.

But my only purpose here, Doctor, is to have you admit that what has gone on in England with respect to health care is not provided for in my bill. It does not approach that system. It does not provide for anything similar. And it has a written-in guaranty, in my opinion, that we cannot be reckless with it, because the people who would be paying for it would protest. And their numbers amount to about five times the number who would at any time be receiving benefits. So that would offer some degree of protection. Would you not think so?

Dr. DAWE. I think, sir, your bill bears the same relation to the British health services that a single shoot bears to a tree. It will grow into it.

Mr. KING. You think whatever is started is certain to grow?

Dr. DAWE. I think so.

Mr. KING. Even to the point of your responsible Government being actuarially unsound?

Dr. DAWE. You see, people do not realize how unsound it is until it is actually in operation. You get pie in the sky promises. As I say, all of the arguments that I have heard from the proponents of the bill I have heard before. I heard them before 1938 in Britain. We had the same tranquilizing assurances then. And in actual practice it turned out quite different. I think this has been the experience in every country where a governmental system of medicine has turned into operation. It has turned out in practice to be a good deal different from that which was envisaged.

Mr. KING. Do you not feel that the Kerr-Mills bill and what it provides is much closer in technique and mechanics to the British system than what would be under the present bill under consideration? In that case, Doctor, the Federal Government, out of general funds, and the State governments out of general funds, give all coverage in medical care, devices, glasses, dentures, all quite similar to that enacted in Britain.

But you are not concerned about that, evidently-or that law, rather.

Dr. DAWE. I think only because of the six important words that you mentioned earlier. If those words were stricken out of it, there would be no difference between that bill and the British health service. But those six words I think are very important. I think they are the crux of the whole thing.

Mr. KING. That is all.

The CHAIRMAN. Well, those six words that he referred to, Doctor, were in the California law implementing the program. The important words in the Kerr-Mills Act are the fact that the Federal Government will not participate in any State program wherein a needs test is not used; so that the States cannot eliminate the needs test without losing Federal funds.

Now, the Congress could take out the needs test. But it has not done so with respect to other programs predicated upon what has been in existence for some 25 or 26 years.

The language Mr. King referred to was in the California law.

Mr. KING. You believe, Doctor, in our social security system, here! Mr. DAWE. Do I believe in social security? Yes, I do, sir.

Mr. KING. Do you believe in the disability provisions enacted in recent years?

Mr. DAWE. Yes, I do. I believe in helping those who need help. Mr. KING. That is all. Thank you, Doctor.

The CHAIRMAN. Thank you again, Doctor, for coming to the committee.

Now we do have our last witness for the day.

Mr. Dickinson, you have been before the committee on other occasions, but at this time will you identify yourself for the record?

STATEMENT OF FRANK G. DICKINSON, BRONXVILLE, N.Y.

Mr. DICKINSON. I am Frank G. Dickinson of Bronxville, N.Y., a research economist. I do not appear here to represent any organization.

Since the hour is late, I will try to wind this dessert up in apple pie order.

The CHAIRMAN. We have given you 5 minutes, here, to tell us how to resolve all of these problems that we have before us.

Mr. DICKINSON. I would like to make this clear, Mr. Mills. You have a 9-page statement on, here, and I ask permission to insert some published items. Are they to be inserted?

The CHAIRMAN. Your entire statement and those items will be included, and you can proceed.

Mr. DICKINSON. I also gave Mr. Irwin five more short pieces, which I will now identify, which I would like to have inserted in the record, and then I can be very brief.

They are, first, an editorial, entitled, "The Aging and the Aged," in the Wall Street Journal; two articles by Arthur Crock, published in the New York Times, in which Mr. Crock made reference to some of my writings on social security; a 2-page piece in which I tried to explain actuarial soundness to a high school student, and the use and abuse of that term with reference to OASI; and a letter published in the New York Times on changes in the ages of voters, particularly as manifested in the New Zealand elections.

If that may be inserted, I will appreciate it.

The CHAIRMAN. Without objection, that may also be included in the record.

(Mr. Dickinson's prepared statement and the materials referred to follow :)

STATEMENT OF FRANK G. DICKINSON, BRONXVILLE, N.Y.

MAKING SOCIAL SECURITY MORE SECURE

Mr. Chairman, I am Frank G. Dickinson, a research economist residing at 1225 Midland Avenue, Bronxville, N.Y. The chairman and several members of the committee have written me about my writings on social security; they know that I do not represent any organization. My purpose today is to treat H.R. 4222 in relation to the problem of making social security more secure. making social security more secure is the most important aspect of this bill for the committee to consider. The published remarks of members of this committee do so indicate, I believe.

TAX EMPHASIS

For

I shall not refer to this bill section by section. I do note that the Kerr-Mills law of 1960 can provide medical, hospital, and nursing home care for all indigent and low income old. This law is in the fine tradition of public philanthropy Since the Reformation. The present bill would provide some of these benefits for the middle and high income old by imposing an additional tax on the rich and poor young. Nor shall I discuss the potential medical and hospital problems, the probability that age 65 or 62 would not long remain the minimum age the so-called "three toes in the door" technique-the size of the huge gift from the young to the rich old now above the minimum age, etc. Rather, I shall concentrate on the tax aspects of this measure. (I may well be the only one who does.) But first we must try to define or describe social security (OAB and OASI) and then proceed to comments on the tax aspects of H.R. 4222.

WHAT IS THE SOCIAL SECURITY PRINCIPLE?

Some members of the committee have commented privately on my article, "The Social Security Principle,” published in the December 1960 issue of the Journal of Insurance. Mr. Chairman, I respectfully request that this 13-page (prizewinning) article be included in the record of these hearings. If so ordered, I will only summarize the article today. In passing, it might be noted that the second article in the December 1960 issue of the quarterly journal of the insurance teachers was by Wilbur J. Cohen.

What is the image of social security (OASI) emerging after a quarter century of development? What is the social security principle? In this short article I sought to define and describe the basic principle by reference to several basic facts which I shall summarize today. First, persons age 62 and over paid 5 percent of the social security taxes in 1959 and this age group received more than 85 percent of the benefits. Second, this age distribution of the taxes paid and the benefits received indicates that one basic feature is that social security requires transfer payments from the rich and poor young to pay benefits to the rich and poor old. Third, on the legal side, the Government's briefs and two decisions of the U.S. Supreme Court clearly state that social security (OAB and OASI) is a tax welfare program, not an insurance program. Fourth, the maximum annuity theoretically "prepaid" by the maximum employee tax on a covered employee from January 1, 1937, to December 31, 1960, would have been $7 a month for a person retiring in 1961. Fifth, the OASI trust fund is becoming a petty cash fund or a necessary claims fluctuation fund in the range of $15 bil

lion to $25 billion, large enough to meet 1 or 2 years' OASI benefits; accordingly, the fraction of claims of retired persons which could be met by the OASI trust fund alone if no more tax revenues were received has declined. Sixth, a doctrine or attribute of sovereignty will prevent the social security principle from becoming an insurance principle. President Eisenhower in the concluding paragraph of his veto message of August 4, 1958 (Congressional Record, p. 14675), stated regarding the appropriation bill to strengthen the inadequate reserve funds of the civil service retirement fund:

"It is true that this favorable balance in the fund will not continue indefinitely. However, while there may be compelling reasons for full funding of private pension plans to insure employees that they will receive earned benefits even though the employer goes out of business, no such eventuality faces the employees of the Federal Government. The Retirement Act promises to make certain payments under specified conditions, and regardless of the size of the balance in the retirement fund at any particular time, these benefits will be paid because the promise to do so is backed by the Government. To assume otherwise is to call into question the full faith and credit of the U.S. Government." (Also quoted on p. 6 of my article.)

Why hurry? The power to tax will not disappear. Seventh, in 1950 those who were drawing OASI benefits had theoretically prepaid (counting employers' taxes) an average of about 5 or 6 percent of their benefits; in 1959 the percentage was only 4 or 5. Thus OASI has been and continues to be about 95 percent OAA, or public charity. Eighth, a brief review of the history of fraternal assessment societies is presented and comparisons with the history of OASI and OAB are drawn. The conclusion is inevitable, gentlemen: The social security principle is (the lately lamented) fraternal assessment insurance backed by the sovereign power to tax. Ninth, the sovereign power, unlike the earlier fraternal assessment societies, can compel the young to join and pay. But the young-note well the postwar baby boom-can protest. Tenth, the value of the lifetime taxes to be paid by a young person entering the labor force in 1963, certainly in 1966, will exceed 200 percent of the value of his lifetime benefits under existing law. Except for the sovereign power to tax, social security will then be "priced out of the market," so to speak. We who are older, like the charter members of the early fraternal societies, should not gloat over this exploitation of the young. We can and should act now to avoid this invitation to the young workers, rich and poor, to revolt against this unfair taxation.

THREE STAIRSTEP TAX REFORM

I suggest that the tax rate be tilted downward in favor of the young employee and the young self-employed, and tilted upward for the older taxpayers who will pay fewer months; that the uniform, unjust flat or uniform tax rate regardless of attained age be repealed. Last year existing data indicated that 11⁄2 percent for employees below age 32, 3 percent for employees age 32 to 49 and 41⁄2 percent for employees age 50 and over would yield the same aggregate revenues as the flat 3 percent rate. The 1-2-3 stairstep rates for the self-employed would be one-half higher, and the tax on the employer would remain unchanged; no reduction or change in benefits proposed. (The increase from 3 percent to 3% percent, enacted into law last month, would require some upward adjustments too detailed and unimportant to discuss today.) The stairstep schedule starting on January 1, 1963, would be 14 percent, 31⁄2 percent, and 54 percent; note that the rate would increase when the taxpayer goes from age 31 to age 32, and from age 49 to 50. The stairstep schedule starting on January 1, 1966, would be 2 percent, 4 percent, and 6 percent. The stairstep schedule starting on January 1, 1969, would be 24 percent, 4% percent, and 64 percent. Why only three stairsteps? I suggest that the machinery of Government is too complex to handle more than three. Note also that this tilting of the tax will not price social security "out of the market" for the young entrant at age 20 for my proposed rate for him even in 1969 would be only 24 percent, less that scheduled flat rate of 4% percent. This tilting of the tax should allay some of the fears that have been expressed by members of this committee about how high social security taxes can be raised in the future. Moreover, these stairstep rates would obviously be fairer to the young taxpayers who are busy feeding and rearing their families; and they should pay lower taxes because they must pay so many more years than those of us who are closer to retirement. We older workers should be willing to pay at the third step for another reason; we have an immediate stake in making social security more secure. At least, we

should urge you to place tax reform ahead of H.R. 4222, which would increase the existing flat tax by an unknowable amount.

PUBLIC REACTION TO MY PROPOSED TAX REFORM

Mr. Chairman, I respectfully request you include in record of these hearings the short editorial entitled "Rejiggering Social Security" which appeared in the New York Daily News of April 2, 1961. It explains my three stairstep reform and urges consideration of my proposal. I have received several dozen oral and written comments. In all honesty, I must report no grass roots response. I travel alone; the road is rather lonely. In the June issue of the Journal of Insurance 17 pages are devoted to a discussion of my article, "The Social Se curity Principle," by three prominent actuaries-Robert J. Myers, the present Chief Actuary of the Social Security Administration, W. Rulon Williamson, formerly with what is now the Social Security Administration, and Ray M. Peterson, associate actuary of the Equitable Life and leader of the famous social security symposium of the Society of Actuaries (November 1959, 108 pages), and, of course, the author's rebuttal. Mr. Chairman, I respectfully request that these 17 pages from the J'une issue of the Journal of Insurance be included in the record of these hearings. You are entitled to see the criticisms of my article. I shall omit reference to their technical points such as the problem of keeping track of ages of taxpayers as they pass from age 31 to age 32 and from age 49 to age 50. But I am troubled by their little concern about the need to prevent the flat tax rate from pricing social security "out of the market" for the young man entering the system at age 20. As you read their critical comments, you will doubtless note their concern that my reform would endow the lady, so to speak, with more virtue than the proposal warrants. Admittedly, my tax reform could increase the pressure on this committee for even more unwarranted increases in benefits because my reform moves in the direction of equity; it could increase the false notion that these benefits "are mine," "my employer and I have prepaid the cost" when, even under my proposal, they have "prepaid" only a small part of the whole cost. I will close this section of my testimony by repeating the last paragraph of the author's rebuttal (p. 127):

"Three highly competent actuaries have commented on my article. We four and the editor must await the verdict of the readers about this first issue of a 'Comments' section in the Journal of Insurance. Perhaps I can say for the three (or the four, or the five) of us that what 'social security' needs most today is an ever-increasing circle of warmhearted, hardheaded friends who comprehend the high hopes and the dismal failures of the earlier fraternal assessment societies; and are steadfastly opposed to allowing 'social security' to drift further down that ever seductively attractive road. Somewhere ahead, a bridge is out."

THE FUTURE

In considering public policy and the financing of health care of the aged, some cautions are required. It does not follow that the national problem will increase as our older population increases. The rapid growth of savings in many forms during the preretirement years may be considerably faster than the increase in the number of persons age 65 and over. I strongly suspect that the cohort age 65 to 69 has enjoyed a greater relative and perhaps absolute increase in affluence, including tax concessions, since 1940 than any other 5-year cohort of 1940. I also strongly suspect that income per capita is already higher for the population age 65 and over than for the much larger segment under age 65. Admittedly, many or most of those over age 50 at the onset of the great depression did not recoup their affluence before retirement; now in their eighties, they need the help of the provisions of the Kerr-Mills law of 1960. I daresay, gentlemen, that the difficult problem with which you are dealing is more likely to diminish than to increase in the long years ahead.

At the outset, I stated that I did not represent any organization. I have tried, however, to speak for the younger taxpayers. I have no commission to represent them. But I urge you not to forget them in considering H.R. 4222. The rich and the poor young would be required to make transfer payment to the present rich and poor old. At this time, Mr. Chairman, I respectfully request that my four-page paper, "Health Insurance for Retired Persons," be included in the record of these hearings even though Mr. Keogh kindly had is inserted in the Congressional Record of January 20, 1959 (p. A351). It was published in the spring 1959 number of the Journal of Insurance. In paragraph 7, I proposed