Finance Committee under Harry F. Byrd would stand for financing any part of the social security system in a way that was not sound. We come in here time and time again and find that the approach taken by this committee is a conservative approach. I do not think this committee, or this group of people, or this administration or any President has to apologize for the social security system of America.

Mr. ALGER. Mr. Chairman, at this point I ask permission to quote verbatim the statement of these gentlemen, the trustees, as it relates to the actuarial soundness of the program, and I will take it out of the transcript of the trustees report.

The CHAIRMAN. Without objection, that will be done. (Statement referred to follows:)

ACTUARIAL STATUS OF THE TRUST FUNDS

Old-age, survivors, and disability insurance benefit payments will increase for many years not only in dollars but also as a percentage of taxable payroll. Long-range estimates are needed to show how much the cost is likely to increase and to indicate whether the scheduled tax rates are adequate. This section presents cost estimates that are revisions of those in the previous report. Revision was made to reflect recent operating experience, especially in regard to the relatively new disability insurance program, and to use the 1959 earnings level (instead of 1956).

The cost of benefits to aged persons, which constitute almost 90 percent of the total cost, will rise for several reasons. The U.S. population cannot continue to increase indefinitely; births cannot continue indefinitely to exceed deaths. When a balance is reached or a reversal in the present trend occurs, the population as a whole will have become relatively much older. A relatively older population will also result because the present aged population is made up of the survivors from past periods when death rates were much higher than they are now; thus, in the future, relatively more persons will attain age 65 and older ages.

The cost of the program is thus closely related to the ratio of the population aged 65 and over (potential beneficiaries) to the population aged 20 to 64 (potential contributors). At present this ratio is 16.7 percent. In a stationary population with present death rates it would be 24.9 percent, but such a situation would be very unlikely to occur for many decades. It is expected that this ratio will eventually become even greater because of further decreases in mortality.

Another reason for the increasing cost is that the proportion of the aged population receiving benefits will increase. Many of the present persons aged 65 and over were not in covered employment long enough to obtain benefits, or, in the case of widows, their husbands were not sufficiently long in covered employment. Although the system began in 1937, many jobs were not covered until 1951 or 1955. It is estimated that the proportion of the aged population eligible for some type of benefit under the system will increase from the present level of about 73 percent to between 92 and 97 percent by the end of the century.

Because the actual cost could reasonably vary over a wide range, three complete sets of estimates are made-low cost, intermediate cost, and high cost. The cost estimates are based on high employment and 1959-level earnings assumptions. Each provides estimates of such items as taxable and creditable payroll, contributions, beneficiaries, benefit payments, and administrative expenses for every future year. The data are presented here for selected future years. All figures are assumed to remain constant after 2050.

It is considered likely, although by no means certain, that actual costs as a percentage of payroll will lie between the low-cost and high-cost figures. The intermediate-cost estimates of beneficiaries, benefit payments, and payrolls are taken halfway between the low-cost and high-cost figures. The intermediate percentage-of-payroll figures are obtained by dividing total benefit payments by taxable payroll, each on the intermediate basis, and are therefore not exactly equal to the average of low-cost and high-cost percentages.

Table 20 shows benefit payment costs for selected years and the level-premium cost, all expressed as percentages of payroll, under each of the three estimates. The level-premium cost is that constant combined employer-employee tax rate that, together with a tax on the self-employed at 75 percent of such combined rate, would exactly pay for all future benefits and administrative expenses, after making allowance for the effect of the existing trust fund and for future interest earnings. All percent-of-payroll figures are adjusted so that they represent the tax rate that employees and employers combined, and the selfemployed at three-quarters of the combined rate, would have to pay in any given year to meet exactly the benefit disbursements in that year. Tables 21 and 22 show, for each set of estimates, the contributions, benefit payments, administrative expenses, amount paid to or received from the railroad retirement system, and the balance in the trust funds for selected years.

TABLE 20.-Estimated costs of old-age, survivors, and disability insurance system as percent of payroll,1 high employment and 1959 level earnings assumptions, 1970-2050

1 Taking into account the lower contribution rate for the self-employed, as compared with the combined employer-employee rate.

2 Based on the average of the dollar costs under the low-cost and high-cost estimates.

Level-premium contribution rate, at 3-percent interest rate, for benefits after 1959, taking into account interest on the trust fund on Dec. 31, 1959, future administrative expenses, the railroad retirement financial interchange provisions, and the lower contribution rates payable by the self-employed.

TABLE 21.-Estimated progress of old-age and survivors insurance trust fund, high employment and 1959 level earnings assumptions, 3-percent interest basis 1

1

1 At 3 percent, except 2.6 percent in 1959, 2.7 percent in 1960, 2.8 percent in 1961, and 2.9 percent in 1962. Beginning with 1957, the actual figures are somewhat overstated because this trust fund currently bears the administrative expenses of the disability insurance system and is later reimbursed therefor by the disability trust fund.

A positive figure indicates payment to the trust fund from the railroad retirement account; a negative figure indicates the reverse.

Not including amounts in the railroad retirement accounts to the credit of the old-age and survivors insurance trust fund. In millions of dollars, these amounted to $377 for 1953, $264 for 1954, $163 for 1955, $65 for 1956, and nothing for 1957 and thereafter.

Fund exhausted in 2008.

TABLE 22.-Estimated progress of disability insurance trust fund, high employment and 1959 level earnings assumptions, 3-percent interest basis1

1 At 3 percent, except 2.6 percent in 1959, 2.7 percent in 1960, 2.8 percent in 1961, and 2.9 percent in 1962. The actual figures are somewhat understated because the old-age, survivors and insurance trust fund currently bears the administrative expenses of this program and is later reimbursed therefor by this fund. A positive figure indicates payment to the trust fund from the railroad retirement account; a negative figure indicates the reverse.

Annual benefit payments as a percentage of payroll are less than the scheduled tax rates in the early years (with a few exceptions), but-except under the lowcost disability estimate eventually rise well above the ultimate scheduled combined employer-employee tax rate of 82 percent for old-age and survivors insurance and one-half percent for disability insurance. To measure the extent to which the financing arrangements of the system result in a surplus or de ficiency, a level rate equivalent to the actual increasing contribution rates has been computed, taking into account future interest. The level-premium equivalent of contributions minus the level-premium equivalent of benefit and administrative costs, after making allowance for the effect of the existing trust fund, gives the amount by which the contribution rate in all years would have to be changed to put the system in exact long-range balance according to the estimate.

A negative figure indicates that an increase is needed. The figures shown below, in percentages of payroll, are computed on a 3-percent interest basis as of the beginning of calendar year 1960:

Based on adjusted payroll that reflects the lower contribution rate for the self-employed as compared with the combined employer-employee rate.

* Including adjustments (a) to reflect lower contribution rate for the self-employed as compared with the combined employer-employee rate; (b) for interest on existing trust fund; (c) for administrative expenses; and (d) for the railroad retirement financial interchange provisions.

In view of the very long-range nature of these projections and the many variable factors involved, the deficiency for the old-age and survivors insurance system under the intermediate-cost estimate is so small that the system may be considered in approximate actuarial balance; on a 32-percent interest basis (well below current market yields on long-term Government securities), instead of the above deficiency of 0.20 percent of payroll, there would be a surplus of 0.04 percent. The disability insurance system is more than in actuarial balance under all three estimates. The estimates contained in the previous report showed about the same results for the old-age and survivors insurance portion of the program. On the other hand, the disability insurance system was shown to be in almost exact balance. The more favorable current status of the disability insurance trust fund arises from a detailed analysis of actual operating experience that recently became available. Further discussion of this matter is presented in appendix I.

If the experience exactly follows the assumptions, the deficiency would gradually increase under the high-cost or intermediate-cost estimate for the old-age and survivors insurance system, while the surplus would increase under the lowcost estimate for old-age and survivors insurance and under all the estimates for disability insurance. Any deficit or surplus in the contribution schedule (as compared with the required level-premium tax rate) gradually increases through the years because of the effect of interest accumulations. In the case of a surplus, the excess contributions actually earn interest, while a deficit grows because of annual interest that would have been earned if the proper contributions had been paid. With continuing study of the emerging experience under the program, there will be ample time to make any changes in the tax rate that may be necessary to keep the system in actuarial balance.

It is important to note that these estimates are made on the assumption that earnings levels will remtain at their present magnitude into the indefinite