Even a 10-percent contribution would fall short of fully funding military retirement. An enlisted man retiring as an E-7 after 20 years of service would have had to contribute 80 percent of his basic pay each year-or 40 percent if the contribution were matched by the Defense Department-to fully fund his retirement if one assumes only a 3-percent annual inflation rate. An officer retiring as an 0-6 after 30 years would have had to contribute about 60 percent of his base pay throughout his career, again assuming 3 percent inflation. These percents do not of course imply that Defense would have to set aside 60 to 80 percent of basic pay to fully fund military retirement since many military members do not stay until retirement.

Consistency with the Federal Civil Service System would suggest a compulsory contribution for military personnel. However, civil servants are not covered by social security, which is one reason their retirement payments are compulsory. Military personnel, on the other hand, are required to participate in social security. As long as that requirement remains in effect, there would be an argument for putting contributions for military personnel on a voluntary basis.

A voluntary option would avoid deductions from junior personnel who did not wish to participate. Under a compulsory option these deductions, even though they would eventually be refunded if the person left before retirement, might make recruiting more difficult by lowering starting take-home pay. Also the prospect of a large lump sum refund if one chooses not to reenlist may cut down on reenlistments. On the other hand, a voluntary option has the major disadvantage that personnel who elect not to participate in the first years they are in the military, but who later are considering a career and wish to participate, would be faced with a large make-up payment which might cause them to decide against a career. Some advantages of both options might be obtained by making the system voluntary up to 5 years of service and compulsory thereafter.

All options assume that military members would still be required to participate in social security. This assumption would make the new military retirement system different from its civil service counterpart, whose members are exempt from social security, but not different from most private pension plans. Keeping the military in social security would avoid any adverse short-run effect on funding of the Social Security System. Taking the military out of social security would reduce the system's current income by almost $2 billion per year but would not reduce benefit payments for many years. All options also assume that military contributions would be taxable, as is now the case for civil service contributions.

Costs

Table 1 below indicates savings to the government under the 7 percent and 10 percent options and, within each, under a voluntary and compulsory option. Savings under the voluntary options assume "perfect foresight" (i.e., only those who eventually retire choose to participate). Savings under the compulsory options are based on estimates adjusted for inflation.

Table 1 reflects all major savings in fiscal 1977-1981, but savings may change in the longer run. By reducing the take-home pay of those continuing to retirement, a contributory retirement system should reduce the numbers who stay until retirement. Fewer personnel con

tinuing to retirement would eventually save money by reducing the costs of military retirement. On the other hand, higher losses will increase the costs of recruiting and training. Even though neither of these increases or decreases in costs are included in the savings in Table 1, they should have little effect on costs in fiscal 1977-1981.

Table 1. SAVINGS UNDER MILITARY RETIREMENT OPTIONS [In millions of dollars; Path B inflation 1]

The savings in Table 1 do not consider tax effects. Currently, almost all military annuities are taxable. But if military contributions are taxed (as is assumed in Table 1), then annuity payments up to the amount of the contribution should be tax free. Thus, some fraction of the savings, perhaps 20 percent or so, would eventually be lost to the government through reduced tax revenue. But there would be little effect in the first few years and hence little effect on the savings in table 1.

E. OTHER PENDING LEGISLATION

INTRODUCTION

Congress has before it several proposals for reforms in veterans' pensions, the black lung disability program and supplemental security income. Another bill would increase the retirement income tax credit.

This section discusses the background and budgetary impact of each of the proposals for change.

VETERANS AND SURVIVORS PENSIONS

Legislation

VETERANS AND SURVIVORS PENSION REFORM ACT (s. 2635)

Under current law a needy, wartime veteran is eligible for pension benefits if he has a total and permanent non-service-connected disability or is age 65 or older. Needy widows and minor children of deceased wartime veterans also are eligible for pension benefits.

Provisions of existing law which determine the amount of pension payments that eligible veterans or their survivors receive have resulted in inequitable treatment among pension recipients and are inconsistent with the principles of other Federal income security programs. The pension reform provisions of S. 2635 retain the basic eligibility tests of current law while restructing the pension program itself.

The goal of S. 2635 is to correct inequities and technical problems in the current VA pension program. Such corrections are intended to result in a better targeting of funds on the neediest recipients. Major reform provisions include

(a) the creation of a system which more smoothly relates benefits to income;

(b) an automatic adjustment in the basic level of annual income wherever social security benefits are increased;

(c) elimination of 11 of the 18 existing income exclusions, including the total exclusion of spouses' earned income in pension payment calculations;

(d) equalization of widows' benefit rates; and

(e) revisions in the aid and attendance allowance and housebound allowance payment system.

Budgetary impact

The Congressional Budget Office and the Veterans Administration have provided the Senate Budget Committee with estimates of the fiscal 1977 costs of implementing the pension reforms of S. 2635. Based on the best available data, it is estimated that the pension reform package will have a net cost of from $390 to $460 million in fiscal 1977 over and above the cost of extending current pension law with anticipated cost-of-living increases. Included in the 1977 estimate are offsets that would result because of reduced SSI and food stamp benefits which many individuals eligible for pension benefits are now receiving.

The number of veterans' pension beneficiaries is expected to increase markedly in the next decade as large numbers of World War II veterans reach retirement age. Thus, a corresponding growth in total pension payments can be expected to occur during that period. This trend was taken into consideration when the Senate Committee on Veterans Affairs developed S. 2635. Because the final pension reform package has restructured the pension program by simultaneously increasing benefits to the neediest veterans and lowering eligibility for those benefits, Congress can expect a control of program growth as

World War II veterans enter the system. Although 5-year projections are difficult to make because of a lack of detailed information about the age and income characteristics of the future aged veteran population, the evidence suggests that S. 2635 would result in a long-term cost-savings by the mid-1980's.

Status of legislation and schedule for action

S. 2635 was passed by the Senate in December 1975. Because the pension reforms will affect fiscal 1977, a Budget Control Act section 303 (a) (4) waiver was required prior to consideration of S. 2635 on the Senate floor. The Senate Budget Committee favorably reported the waiver resolution in view of the Senate Veterans Committee's efforts to encourage the House to accept pension reforms. The waiver resolution was agreed to by the Senate prior to passage of S. 2635. Although the House Committee on Veterans Affairs has not yet considered pension reform measures, it is expected to do so in the near future so that legislation can be agreed to by the House and the Senate by early

summer.

On December 17th and 18th, the Senate and House respectively agreed to H.R. 10355, a bill to provide an 8-percent cost-of-living increase to veteran pensioners. Prior to Senate passage of H.R. 10355, an amendment was added to the bill which limits the 8 percent increase to a period beginning January 1, 1976 and ending September 30, 1976. By adding this amendment, the Senate hoped to spur House consideration of pension reform measures.

COAL MINERS DISABILITY

Legislation

BLACK LUNG BENEFITS REFORM ACT (H.R. 10760)

The Federal Coal Mine Health and Safety Act of 1969 was developed as a response to the black-lung related health and compensation needs of disabled miners in coal-producing States.

The act provided for the development and implementation of health and safety standards to minimize conditions in mines which cause black lung disease; creation of a Federally financed compensatory income and health benefits program for disabled miners and their survivors; and development of a program, effective in 1973, that would relieve the Federal Government of future liability for miners' compensatory benefits through a system of State-administered compensation plans financed through assessments on coal mine operators.

By the early 1970's, it was apparent that many disabled miners and their survivors were not technically eligible for benefits and that the proposed 1969 plan for transferring the total responsibility for black lung payments from the Federal Government to the States and coal mine operators was unworkable. In an attempt to resolve these and other specific problems, the House Committee on Education and Labor has reported a bill, H.R. 10760, to amend the Federal Coal Mine Health and Safety Act. Major amendments include a number of pro-

visions to expand the beneficiary population and provisions establishing a non-governmental trust fund financed by an assessment on all mine operators but initially funded by a repayable U.S. Treasury loan. The new trust fund would assume total responsibility for the payment of black lung benefits to those miners and their survivors who applied for benefits after December 31, 1973, as well as to those miners and their survivors eligible to apply for benefits under the new law. The Federal Government would continue to be liable for the payment of black-lung benefits to those miners and their survivors who applied for benefits on or prior to December 31, 1973.

Budgetary impact

The Congressional Budget Office estimate of costs for H.R. 10760 indicates that provisions of the bill expanding the beneficiary population would add $122 million to the estimated $1 billion to be paid miners in fiscal 1977 under existing entitlement law. Further, the reimbursable trust fund loan would result in an additional expenditure by the government during fiscal 1977 of $67 million, for a total cost of $189 million in fiscal 1977. It should be noted that the trust fund will be assuming the liability for a projected $38 million in black-lung benefits which the Federal Government would continue to be responsible for without changes in the law. Therefore, the estimated expenditures of $189 million should be reduced by $38 million to get an accurate picture of the net cost ($151 million) to the Federal Government of H.R. 10760.

By fiscal 1982, the loan payback with interest, the decreasing benefit payment total due to the mortality rate of miners and their dependents for which the Federal Government will retain liability, and the savings to government resulting from the trust fund arrangement should produce a total savings of $1 million during that year.

The language in H.R. 10760 is unclear and there is some question as to whether the initial trust fund loan will be regarded as an off-budget item. Although the net cost estimates made by CBO will remain the same regardless of the outcome of this decision or subsequent language changes made in H.R. 10760, the specific budgetary impact is difficult to ascertain. If the trust fund is determined to be on-budget, outlays will be increased by $67 million. If the trust fund is determined to be off-budget, outlays will not reflect the $67 million loan to be made to the trust fund by the Treasury. It is likely that this issue will be resolved prior to final passage of H.R. 10760 by the House.

Status of legislation and schedule for action

The House Committee on Education and Labor reported H. R. 10760 on December 31, 1975. The bill is presently awaiting floor action. Consideration of the bill by the House prior to May 15, 1976, would require a Budget Control Act section 303 (a) waiver resolution.

There is no comparable black-lung legislation pending before the Senate, but the Senate is likely to give such legislation rapid review once a bill is passed by the House.