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The original documents are located in Box 1, folder "Elderly and Social Security" of the
Foster Chanock Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the
United States of America her copyrights in all of her husband's unpublished writings in National
Archives collections. Works prepared by U.S. Government employees as part of their official
duties are in the public domain. The copyrights to materials written by other individuals or
organizations are presumed to remain with them. If you think any of the information displayed
in the PDF is subject to a valid copyright claim, please contact the Gerald R. Ford Presidential
Library.
AUG 25 1975
GERALD
R.
Mr. Boone Robinson, Executive Secretary
State of California
FORD
Commission 00 Aging
926 "J" Street, Suite 914
LIBRARY
P. 0. Box 350
Sacramento, California 95802
Dear Mr. Robinson:
Your letter of June 19 to the President regarding the direction of the
Administration OB matters affecting the olderly has been referred to
ne for response. Please forgive the delay in replying. The President
is always interested is having comments and suggestions on matters of
public policy.
You may be assured that the President and this Administration are
deeply concerned over the financial difficulties faced by many older
Americans today. The President is making every effort to combat
recession, inflation, and the energy crisis, which affect all Americans,
while at the same time seeing to it that the elderly, who generally
have fewer resources to draw upon than do younger adults, are helped
to meet these added burdens.
You are aware, 1 am sure, that the President did not propose to re-
duce or freeze social security benefits, but to hold the annual
social security benefits increase to 5% as a means of combating in-
flation. The actual increase was 8% effective in June and was reflected
in checks received July 3. This spring. the President signed a $22.8
billion anti-recession tax-cut bill that carried a number of provisions
favorable to the elderly, including payment of $50 each to some 34 million
individuals receiving Social Security, Railroad Retirement, and Supplemental
Security Income benefits. Extension of unemployment compensation benefits,
tax rebates for 1974, and tax reduction for 1975 are features of the bill
that benefit many older persons. Also, rules concerning tax deductions for
expenses of caring for an elderly relative were liberalized.
Since 1971, social security benefits have been increased several times
for 31 million recipients, and the Supplemental Security Income (5SI)
program has been established to maintain a minimus income level for
the elderly poor.
Page 2 - Mr. Boone Robinson
Attention has been given to private-sector income maintenance plans
also. On Labor Day 1974, the President signed into law the Employee
Retirement Income Security Act, which will offer the approximately
35 million persons covered by private employee benefit plans and their
beneficiaries new protections and guarantees. ERISA encourages the
growth of private pension and welfare plans, insures that participants
do not lose benefits because of unduly restrictive eligibility provisions
or because the plan did not accumulate and retain sufficient funds to
meet its obligations, and provides greater equity in tax treatment of
private savings for retirement.
In vetoing two bills recently passed by Congress in the areas of
employment and housing, the President stressed the importance of
holding down the federal deficit and avoiding exacerbation of
budgetary and economic pressures. He has been particularly con-
cerned about over-stimulating the economy and setting off an-
other round of inflation that would be seriously harmful to
elderly persons on fixed incomes as well as to nearly every
other segment of society.
GERALD
R.
Last year, the President signed a historic housing bill having a
FORD
number of provisions with considerable potential for older
Americans--the Housing and Community Development Act of 1974.
LIBRARY
For example, Section 8 of the Act provides for subsidized housing
for low-income renters, while the newly revised Section 202
authorizes direct, low-interest federal loans for construction of
housing for the elderly, among others. This expanded, more
flexible housing program, when fully operational, can go far to-
ward relieving critical housing problems for many older persons.
In the critical area of health care for older persons, the
Administration is working on a number of proposals and projects
that should contribute to better use of present and potential
resources for delivery of services to the elderly with a goal of
improving health and quality of life. The newly established
National Institute on Aging will not only conduct and support
research on the biological aspects of aging, but will examine the
social and physical environment for its effect on the aging process.
Mindful of wide-spread criticism of long-term care facilities for
the elderly, the Department of Health, Education and Welfare
is collecting data on conditions in nursing homes nationally 30 as
to be able to recommend sound policies and programs to improve long-
term care for the elderly. Also, a national rating system for
nursing home receiving Medicaid and Medicare funds is currently
being developed.
Page 3 - Hr. Boone Robinson
Housing and health services are two of a number of areas in which
the Administration on Aging (HEW) is undertaking cooperative efforts
with other federal agencies. AOA, which is charged with serving as
an advocate for the elderly, is working with the Public Health
Service and the Department of Housing and Urban Development re-
spectively toward the better use of present and potential resources
for delivery of services to older Americans.
There are currently several programs aimed at helping older Americans
who wish to work find employment. Title IX of the Older Americans
Comprehensive Services Amendments provides for establishment of part-
time employment opportunities in community service activities for
persons 55 years or older who have limited incomes. Under this are
specialized employment programs such as Senior Community Service
Projects, Senior Community Aides, Green Thumb, and Operation
Hainstream. There will be at least 12,400 job slots funded in Fiscal
Year 1976. Also certain ACTION programs pay a stipend to elderly
volunteers who participate in Foster Grandparents and similar pro-
jects.
There are other areas in which federal activities on behalf of the
elderly have increased recently. The Older Americans Act of 1965,
which marked its 10th anniversary last month, is making a major con-
GERALD
tribution to the well-being of a growing number of elderly persons
in the Nation. Your agency is but one of the designated agencies
FORD
on aging now functioning in every State and in 412 communities, for
the purpose of coordinating existing and potential resources, and
LIBRARY
providing information and referral services. The national Nutrition
Program for the Elderly now serves 228,000 meals a day, five days a
week. The recent action placing the annual operating level for this
program at $150 million (an increase of $50.4 million over the
previous year) will mean more elderly persons served at existing meal
sites and new sites to be opened in communities not previously served.
Under the new Title XX of the Social Security Act, funds will be
available to the States that can be used for development of coordi-
nated, comprehensive social service programs for low-income older
people. The law requires that services provided be coordinated
with plans for such programs as those set up under the Older Americans
Act.
The Administration has repeatedly urged State and local officials on
aging to make full use of federal revenue-sharing funds on behalf of
the elderly. The philosophy behind the New Federalism, supported by
the Ford Administration, has been to direct greater accountability to
elected officials in States and localities, believing that they can
Page 4 - Hr. Boone Robinson
best determine and solve local problems. To date, studies indicate
that the States have used revenue sharing for older persons only to
a limited extent. Nevertheless, health services and housing are
among the areas in which some towns and counties have sucessfully
utilized revenue sharing to benefit older residents.
Thank you for writing to share the views of the California Commission
on Aging with the President. I can assure you that he gives careful
consideration to such opinions in the formulation of policy affecting
older Americans.
Sincerely yours,
/s/ Stanley B. Thomas Jr.
Stanley B. Thomas, Jr.
Assistant Secretary
for Human Development
CC: Sarah Massengale
GERALD R. FORD
OS/OHD/AoA
LHertz/lms
8/11/75
RUMMING in amo
Commission on Aging
926 "J" STREET, SUITE 914
P.O. BOX 350
SACRAMENTO, CALIFORNIA 95802
(916) 322-5630
June 19, 1975
p.n.
GERALD
R.
The Honorable Gerald R. Ford
President of the United States
FORD
The White House
1600 Pennsylvania Avenue
Washington, D.C. 20500
LIPRARY
Dear President Ford:
At their regular monthly meeting on June 12, the California
Commission on Aging expressed their continuing concern about
the direction of your administration on matters affecting
the welfare of the elderly.
Priority areas of need include income maintenance, housing,
health care and employment. Yet, in each of these cate-
gories of need your administration has failed to support
actions that would help to alleviate the problem and improve
the condition of older Americans. Your administration has
impounded funds appropriated by the Congress for housing
programs of particular importance to the elderly and you have
vetoed employment bills and failed to support an adequate
senior public service employment program.
The Commission has instructed me to express to you their
dissatisfaction with these actions. They see a pattern of
priorities developing that disturbs them because it neglects
the needs of the elderly. The Commission repectfully suggests
that this is a matter for your immediate and serious consid-
eration.
Boone Robinson
Executive Secretary
BR: jb
THE COMMISSIONER OF SOCIAL SECURITY
3122 FORBURH
BALTIMORE MARYLAND 21235
THI
October 22, 1975
PERASE Ramin
DSK
Mr. Arthur F. Quern
Associate Director, Domestic Council
GERALD
Room 231 Old Executive Office
BEFORD
Building
FORD
Washington, D.C. 20500
LLORANY
Dear Art:
This letter is to follow up on our discussions on Thursday,
October 9. As you requested at that time, I would like to
provide additional information about the status of our
efforts in decoupling, where we would like to see them lead
in the decisionmaking process, and the interrelation of
the decompling and financing issues within this process.
In addition, I think it would be useful to set forth my
own thoughts on how the question of revisions in the
social security system which go beyond decoupling, per se,
might be addressed.
Bill Morrill and I hope to meet with Secretary Mathews
before the end of the month (tentatively, October 30 or 31)
to present for his consideration two basic altornatives for
revising and stabilizing the social security benefit
structure ("decoupling"). I should say at the outset that
both of these alternatives have three characteristics which
I believe are essential if we are to reach agreement on a
decoupling proposal within the Administration this year and
present it to Congress early next year. These characteristics
are:
1. The proposals provide for stable (rather
than declining) replacement rates.
2. The replacement rates correspond as
closely as possible, given the
characteristics of each model, to the
replacement rates which would exist in
present law at the time of transition to
a decoupled system.
3. The proposals do not attempt to "fix
everything that is wrong" with the social
2
security system. In other words, they
aim at a minimum of change from the
effects of the present law.
While, as we observed in our previous discussions, most
possible decoupling models can be adjusted to alter the
weighting in the benefit formula and/or to permit a decline
in replacement rates over time, we believe that any
initiative which has as its objective correcting the
imbalances in the system at an early date (i.e., calendar 1976
legislation) has little chance of succeeding in that timeframe
unless the above principles are adhered to. Moreover, one
of the two alternatives which we will be presenting to
Secretary Mathews has as its primary raison d'etre the
fact that it results in almost no change from the present
law system in effect at the time, other than, of course, the
fundamental change of decoupling the benefit structure.
Let me discuss this particular model or option first.
Decoupling Models
The first decoupling model we will suggest is commonly
called the "high 20." As noted, it involves the very
minimum of change from present law in effect at the time
the approach is implemented. Benefits would be based on
actual dollar earnings averaged over 20 years; this is
the averaging period under present law for people reaching
age G2 (the age at which a social security beneficiary can
first obtain retirement benefits) in 1976. A weighted
benefit formula has been devised that would so closely
approximate benefits payable under present law at the time
of implementation that it would be unnecessary to devise a
special provision to assure a smooth transition to the new
system.
The great virtue of this option is its similarity to present
law. It appears to change very little other than eliminating
the long-term consequences of running a coupled system. It
minimizes transitional difficulties. It would, however, be
vulnerable to criticism on the grounds that it has one
effect that does not exist, or at least would exist to a
much more limited degree, under present law. While present
law over time will extend the wage averaging period to
35 years, thereby providing an implicit length-of-service
factor for the lifetime worker, the proposed system would
be frozen at 20 years. The result is that in the future the
high-20 system would not treat workers with more than 20 years
BERALD
R.
FORD
3
of covered work any more favorably than otherwise comparable
workers with only 20 years of: covered work history. It is
also subject to criticism which can be leveled at the present
system: the use of actual dollar wages in a dynamic economy
may tend to give undue weight to recent earnings as
compared with earnings at an earlier time. Such an arrange-
ment could be viewed by some as "discriminatory" against
workers who had their best relative earnings early in life
(e.g., some women and unskilled workers).
2,
Both of these criticisms are substantially blunted under the
alternative approach which we have called a 35-year indexed
model. Under this model the computation period would
lengthen each year until it ultimately reached 35 years, as
under present law. 21 worker's actual earnings, however,
would be indexed in relation to average earnings in the
economy so that they are updated to the period immediately
preceding the period in which the worker retired, became
disabled, or died. In this approach, as in the first
approach, a weighted benefit formula (adjusted for changes
in average wages) would be used to determine initial
benefits, and an individual's benefits would be adjusted for
increases in the cost of living after entitlement.
Wage indexing is an essential feature needed for stability
in this model. Because of the indexing, it would not be
possible to provide as close an approximation of the benefits
payable under present law, so it would almost certainly be
necessary to provide a special transitional provision to
assure that people would not get less than was payable under
present law at the time the new system took effect.
The 35-year indexed model is more complex than the high-20
model, primarily because of the indexing. While the indexing
would eliminate criticisms leveled at the high-20 model (and
at present law) that recent earnings are treated more
favorably in the benefit structure than earlier earnings, it
also means that certain classes of beneficiaries will be
treated differently (less favorably) than under present law.
The most notable effect would be on benefits paid to the
young disabled worker or the survivors of a young worker who
has died. Under present law such individuals receive high
benefits in comparison to long-service workers, primarily
because the earnings on which their benefits are based are
all fairly recent and therefore tend to produce higher average
wages for benefit calculation purposes. Indexing the system
GERALD R. FORD FORD
4
would result in their wages being treated on a par with long-
service workers for purposes of calculating a benefit. The
result would be to lower their benefits, both relative to
benefits for long-service workers and also in absolute
dollar terms. This is an inherent feature of indexing, and
further complicated provisions would be required if one
wished the present law effect to be maintained.
While the use of the long earnings computation period
(eventually 35 years) provides a fairly substantial implicit
recognition of length of service, it does not distinguish
between workers who have low average earnings because or
regular low wages and those who had fairly high wages but
worked in fewer years. Those who believe such a distinction
should be made (and that the heavier weighting for low
average earnings should not apply for the latter group of
workers) would favor including in the plan an explicit length.
f-service provision.
We are hopeful that these two plans, with supporting analyses
and cost estimates, can be presented to the Secretary within
2 weeks or so and soon thereafter to the Domestic Council,
OMB, etc. I am enclosing preliminary drafts of the two
plans and other pertinent issue papers. (not attached honet
SSA/NEW Position on Models
In my opinion, the 35 year indexed model is probably superior
to the high-20 model in a "social equity" sense. The great
virtue of the high-20 model, as I have noted, is in its
replication of present law effects. It raises a minimum
number of issues about treatment of beneficiaries in a way
different than under present law and requires no administratively
cumbersome and costly transition. On the other hand, it does
a poor job of preventing "windfall" benefits from being
awarded to short-service workers and lacks what many see as
the advantages which flow from wage indexing--advantages
which become more significant in a volatile economy.
I believe the issue between the two models is really one of
deciding whether the programmatic "dcficiencies" of the
high-20 model override its advantages and political
saleability as at least an interim measure to decouple the
system and improve the long-term financial picture without
disrupting the relationships between wages and benefits and
between beneficiary groups that now exist under present law.
BERALD
FORD
LIBRARY
5
In any event, we will be recommending to the Secretary that
he send forward to higher authority both options, with
whatever recommendations he may choose to make.
Cost Estimates
While we have not yet finalized our cost estimates for the
two models, it would appear that they would yield much the
same result throughout the 75-year valuation period used
in OASDI estimates. The following table provides a rough
indicator of the effect of either model as compared with
present law.
OASDI INCOME AND OUTGO AS A. PERCENT OF TAXABLE PAYROLL
(Employee and Employer, Combined)
Present Law
Time Period
Expenditures
Tax Income
Deficit
1975-1999
11.168
9.90%
- 1.26%
2000-2024
15.12
11.02
- 4.10
2025-2049
22.09
11.90
-10.19
1975-2050
16.26
10.94
- 5.32
Decoupled System
Time Period
Expenditures
Tax Income
Deficit
1975-1999
11.06%
9.90%
- 1.16%
2000-2024
13.43
11.02
- 2.41
2025-2049
16.78
11.90
- 4.88
1975-2050
13.83
10.94
- 2.89
The amounts in the table should be taken as order of
magnitude figures rather than precise estimates. Current
economic projections are changing, and the precise effect
of decoupling under either model has not been completely
pinned down. It should also be noted that these figures
are premised on the economic assumptions used in the 1975
Trustees Reports. While a change in these assumptions
should not have much effect on a decoupled system, it could
SERALD FORD
6
have a marked effect on the present coupled system. Thus,
while it appears from the data that decoupling is of little
significance to system costs over the next 25 years (and
might therefore be postponed for some time) significant
departures from the short-torm assumptions used in the
Trustees Reports, which we now believe are optimistic,
could exact a financial penalty over the long run if we
GERALD
fail to decouple the system soon.
FORD
Financing
LIBRARY
Let me turn now to the subject of financing. The above
table illustrates some of the key deficiencies in the
present financing arrangements. Basically it shows that,
given current economic assumptions, the deficit over the
next 25 years is on the order of 1.2 to 1.3 percent of
payroll (employee and employer, combined) whether or not the
system is decoupled. After that, of course, the deficit
escalates rapidly under present law. Our decoupling
proposals would have a significant dampening effect, but
would by no means eliminate the problem.
Obviously, short-range financing is the most immediate
problem facing the social security cash benefits program.
The cash benefits trust funds are declining annually and
will be exhausted in the early 1980's. They will reach a
ratio of assets to outgo of 33 percent (or less if economic
recovery is not as rapid as predicted) by the beginning of
calendar 1978. As you recall, this spring we proposed
adoption of a one-third ratio as the minimum to which the
trust funds should be allowed to fall, and I believe there
was general consensus within the Administration that this
was the lowest standard that could be accepted (some thought
it too low). Given this standard, I believe it is necessary
to provide at least some increased revenue to the system
during calendar year 1977.
While the decoupling proposals, particularly the 35-year
indexed model, could have some transitional costs associated
with them, our present thinking is that these costs would
not be of a magnitude which would significantly affect the
design of a short-term financing solution. The possibility
of transitional costs simply increases the need for bringing
additional financing into the program in calendar 1977.
I think you are thoroughly familiar with the various options
for producing additional revenue:
If we eliminate general revenue financing
as an option at: this time, we are left with
tax rate increases, contribution and benefit
base increases, or a combination of the two.
A shift of financing from III to OASDI is
also possible, but the HI situation has
changed somewhat since the discussions
of this spring.
We should note that, due primarily to increases in the
estimates of outgo, the 25-year deficit for the HI program
has risen to 44 percent of payroll. The HI asset to outgo
ratios are projected to docline from 75 percent at the start
of calender 1976 to 52 percent by 1981, despite the infusion
of additional revenues through an increase of 2 percent of
payroll (employee and employer, each) in 1978. While a
wage base increase applicable to the entire social security
program would cause this situation to improve somewhat by
adding revenue to the HI program, estimates of HI costs are
so volatile that, in our judgment, a substantial reserve
ratio is nacessary in the program. We therefore feel that
it would be unwise to adopt a financing proposal which is
predicated on a shift of revenues from HI to OASDL. This,
of course, can be a matter for further discussion.
The essential question on short-term financing, I believe,
is whether one proposes a straight tax rate increase, or
whether one proposes to ameliorate the effect of such a tax
increase on low-income workers by using a modest increase
in the wage base to provide part of the necessary income.
With respect to a wage base increase, we have taken a close
look at the effect of changes in the wage base on long-term
costs under coupled and decoupled systems. It must be
recognized at the outset that tax rate increases have no
effect on outgo, while wage base increases under any system
must to some degree increase program outlays in the long
run.
The data displayed below show the effect of a major increase
in the wage base to $24,000 in 1977, rather than the present
law estimate of $16,800 in comparison with the short-range
revenue-producing equivalent, a tax increase of 75 percent
of payroll (employer and employee, combined).
SERALD
FORD
LEBRARY
8
INCOME MINUS OUTGO,
EXPRESSED AS A PERCENTAGE OF TAXABLE PAYROLL,
FOR EQUIVALENT SHORT-RANCE REVENUE-PRODUCING MEASURES
Tax Rate Increase: .758 of taxable payroll in 1977
Taxable Base Increase: TO $24,000 in 1977
Total
First
Second
Third
75 Years
25 Years
25 Years
25 Years
System
(1975-2049)
(1975-1999)
(2000-2024)
(2025-2049)
TAX RATE INCREASE
Coupled
0.738
0.69%
0.75%
0.75%
TAXABLE BASE INCREASE
Coupled
-0.21
0.65
0.17
-1.39
TAX RATE INCREASE
Decoupled
0.73
0.69
0.75
0.75
TAXABLE BASE INCREASE
Decoupled
0.42
0.58
0.34
0.36
There are several conclusions that can be drawn from these
data. From the standpoint of the fiscal integrity of the
social security system, I believe the data show that a wage
base increase is definitely contraindicated as long as the
program romains coupled. While the base and tax changes
both improve the financial position of the trust funds
throughout the 75-year valuation period in a decoupled
system, the improvement afforded by the wage base is
significantly less. Even in a decoupled program, a
major increase in the wage base (such as the $24,000 amount
GERALD
FORD
LIBRARY
9
used in the above example) forces one to make a subjective
decision as to whether the social, political or macro-
economic effects that he may see as arguments for a wage
base increase are enough to compensate for the additional
long-range expenditures that such an increase would
entail. An important point to note, however, is that
the more modest the size of the base increase, the less
the absolute difference between the effects of a base
increase and a comparable tax increase. We estimate
that a wage base increase to $19, 500 in 1977, as used
in the illustrative example shown below, would have a
relatively minor effect on long-range costs as compared
with an equivalent tax rate increase--probably less than
0.2 percent of payroll in the last 25 years of the
program.
To give you some idea of the basic options from which one
might choose in addressing the short-range financing
problem, we have prepared two illustrative examples of
financing programs which would carry the OASDI program
through 1985. One example employs only tax rate increases;
the other uses a modest increase in the wage base (to
$19,500 in 1977) in combination with tax rate increases.
Relatively minor increases in the tax rates above the levels
shown would, under current assumptions, be sufficient to
finance either a coupled or a decoupled system until about
the turn of the century.
BERALD
FORD
LIBRANT
ILLUSTRATIVE OASDI SHORT-TERM PINANCING OPTIONS
(Tax rates shows are IOD employee and employer, each)
Calendar Year
1976
1977
1978
1981
1905
Present Law
OASDI Tax
4.95%
4.95%
4.95%
4.958
4.958
Medicare Tax....
0.90
0.90
1.10
1.35
1.35
Total Tax
5.850
5.85%
6.058
6.300
6.303
Earnings Base
$15,300
$16,800
$18,600
$23,100
$29,400
Option A - Tax Rate Increase
OASDI Tax
4.95%
5.30%*
5.400*
5.50%*
5.500
Medicare TRX....
0.90
0.90
1.10
1.35
1.35
Total Tax.....
5.85%
6.20%
6.50%
6.85%
6.85%
Earnings Base
$15,300
$16,800
$10,600
$23,100
$29,400
Option B - Tax Rate and Pase Increase
OASDI Tax
4.95%
4.95%
5.25%
5.35%
5.358
Medicare Tax....
0.90
0.90
1.10
1.35
1.35
Total Tax
5.85%
5.85%
6.350
6.708
6.70%
Earnings Base
$15,300
$19,500*
$21,600
$27,000
$33,900
Income Minus Outgo
(in billions)
Present Law
$-5.4
$-5.0
$-5.8
$-9.01/
$-23.41/
Option A
-5.4
0.3
2.6
6.3
1.2
Option B
-5.4
-2.6
3.0
7.3
1.9
Ratio of Assets at Start of Year
to Outoo During Year
Present Law
55%
430
33%
118
2/
Option A
55
43
39
38
40
Option B
55
43
36
38
42
GERALD
FORD
"Denotes change from present law in year it occurs.
LIBRAST
2/ Figures are purely theoretical because, on the basis of the under-
lying assumptions, it is estimated that the DI trust fund will be
exhausted in 1980 and the OASI trust fund will be exhausted in 1982.
2/ Funds exhausted by 1982.
The essential prerequisite to developing any kind of
definitive long-range financing proposal is agreement within
the Administration on the basic features and effects of a
decoupling proposal. Given the proposals we will be putting
forward to the Secretary, it is clear that significant
increases in tax rates or other revenue-producing measures
will be requircd--although comparison with the present
coupled system, the long-term deficit is cat approximately
in half.
Corollary Issues
With this background I think it might be useful to discuss
briefly what we at SSA feel would be the most appropriate
procedures for dealing with the question of structural reforms
in the social security system which are not directly related
to decoupling per se. As you know, it is my view that
taking on this question in the context of decoupling and
financing could dangerously delay solving the immediate
financing problem. To put it another way, the more we
depart from a straightforward attempt to decouple and
adeguately finance the present system, the more chance
we stand of bogging the whole effort down both within
the Administration and in the Congress. Moreover, although
the degree of control the Administration can exercise over
congressional deliberations on social security issues of
this kind is likely to be minimal, particularly in an
election year, I believe that the Administration's position
is best served if we take a stance which calls for holding
to the minimum change necessary to financially stabilize
the system.
Needless to say, both within the Administration and the
Congress there are various parties at interest who would
like to use the decoupling/financing issue as a vehicle
for making further changes or reforms to the social security
system. I would agree that there probably are a number of
changes and reforms that should be made. The difficulty is,
as you know, that "one man's reform is another man's poison,"
and trying to get agreement on what should be done is bound
to be a long, arduous, and contentious process. While I
think such a process is, in the long run, desirable and
necessary, I don't believe we can afford to let it intrude
on the immediate objective.
As I see it, there are two kinds of: changes that people
want to make in the system. The first group of changes
address what I would call "programmatic" or "equity"
concerns: concerns that various provisions of the program
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do not treat certain classes of beneficiarios equitably, or
conversely, provide them with greater benefits than they
deserve. I think this type of concern can very easily be
treated outside the context of decoupling, and is little
affected by either of the decoupling models we would be
proposing (practically not at all by the high-20 model)
The other category of change, which has been labeled with
the tag "capital formation, is more difficult to deal with
as separate and distinct from the decoupling issue. If in
very crude terms we equate "capital formation" with an
argument that social security revenues should be increased
substantially and/or program costs significantly reduced,
then decoupling is central to the issue since it offers a
means to decrease long-term system outlave by various
degrees. I assume that those particularly concerned with
the "capital formation". aspects of the system would argue
for reduced or declining replacement rates.
HOW to Proceed from This Point
We have thought more about the question of whether a second-
stage study group of some kind would prove advantageous in
drawing programmatic issues away from the financing issue.
In short, while agreement at this time to create a second-
stage broad review might have that effect, the more we think
about it, the more we are concerned we would have trouble in
executing a "special" study-group approach.
The present law requires a new Advisory Council be formed year
after next, and we are, at this moment, just coming off the
1975 Advisory Council. * What we would suggest is a commitment
now to the effect that the broader and in-depth issues of
economic impact, capital formation and the like would be
specifically assigned to that group, and the membership of
the group would be established with that in mind.
The 1975 Council did, in fact, take into account some of the
questions that are now so bothersome. This last Advisory
Council, which was basically a conservative group (both
politically and fiscally) and whose most influential members
were from the private sector, gave particular attention to
capital formation, but, in the end, decided that there wasn't
much that one could, or should, do about it. They reached
the conclusion that maintaining the present social security
replacement rates and providing financing designed essentially
to match outgo were the only viable courses of action for
both the near and middle term.
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Decoupling/Financing vs. Welfare Reform
Cne last point. I recognize that present analytic and decision-
making procedures are not well-equipped to deal with the
question of major long-term structural change in the income
maintenance system generally. Bill Morrill and others at
BEW are, of course, working on ideas for such long-term
change, but admittedly we can only treat with selected
pieces of the puzzle. I'm not sure how to address this
question in a broad and comprehensive context--what mechanism
might be employed with some chance of success--but I feel
quite certain that this is not a subject that needs to,
or should, get tangled up with the present decoupling/financing
issues.
Sincerely yours,
CBC
James B. Cardwell
Enclosures
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