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Social Security (4)
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This file contains material relating to proposals for reform of social security financing.
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The original documents are located in Box 33, folder "Social Security (4)" of the James M.
Cannon 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 Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.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.
Digitized from Box 33 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
THE WHITE HOUSE
WASHINGTON
May 5, 1976
FORD if LIBRARY GERALD
MEETING ON SOCIAL SECURITY
LONG-RANGE FINANCING (DECOUPLING)
Thursday, May 6, 1976
11:00 a.m. (one hour)
The Cabinet Room
From: Jim Cannon.
the
I. PURPOSE
To review with your senior advisors and with the
trustees of the Social Security system (Secretaries
of HEW, Labor and Treasury) the issue of "decoupling"
the Social Security system.
II. BACKGROUND, PARTICIPANTS & PRESS PLAN
A. Background: You have been provided with a
detailed presentation of this issue in a
4/30/76 memorandum which reviewed --
a) Your decision in December to deal with
decoupling in a manner described as
Option A; and
b)
The fact that the issue is being re-
examined because --
There is a belief that a more
detailed discussion would be helpful;
A Congressional sponsored study group
has recommended an approach similar
to Option B; and
Revised economic assumptions could
generate increased public concern
over the fiscal integrity of the
Social Security system.
To make this meeting most productive I
would suggest that you review the opening
six pages of the 4/30/76 memorandum, and
the section on staff recommendations.
B.
Participants:
White House
Phil Buchen
Ken Lazarus
Robert T. Hartmann
Jack Marsh
Max Friedersdorf
Bill Seidman
Jim Cannon
Art Quern
Allen Moore
OMB
Jim Lynn
Paul O'Neill
CEA
Alan Greenspan
FORD LIBRARY &
Burt Malkiel
HEW
Secretary Mathews
Bill Morrill
Bruce Cardwell
Labor
Secretary Usery
Henry Perritt
Treasury
Secretary Simon (may be absent)
Deputy Secretary George Dixon
Jim Van Horne
David Ranson
Commerce
Undersecretary Jim Baker
C.
Press Plan: The meeting will not be announced.
III.
TALKING POINTS
1.
The issue of "decoupling" the Social Security
system was reviewed in December and at that
time I selected Option A. I am interested in
hearing the arguments for and against changing
that December decision.
GERNED R. LISBARY FORD
CC: Quern
Moore
THE WHITE HOUSE
WASHINGTON
May 6, 1976
ADMINISTRATIVELY CONFIDENTIAL
MEMORANDUM FOR:
JIM CANNON
FROM:
JIM CONNOR JEL
SUBJECT:
SOCIAL SECURITY:
LONG-RANGE FINANCING
The President reviewed your memorandum of April 30 on the
above subject and approved the following:
Option A: Decouple -- Index Future Initial Benefits
To Growth In Prices and Real Wages
(Average benefits grow in direct proportion
to average earnings.)
The following notation was also made:
"I approve #A - as rationalized by Jim Lynn. 11
Please follow-up with appropriate action.
cc: Dick Cheney
THE WHITE HOUSE
WASHINGTON
May 6, 1976
ADMINISTRATIVELY CONFIDENTIAL
MEMORANDUM FOR:
JIM CANNON
FROM:
JIM CONNOR JEC
SUBJECT:
SOCIAL SECURITY:
LONG-RANGE FINANCING
The President reviewed your memorandum of April 30 on the
above subject and approved the following:
Option A: Decouple -- Index Future Initial Benefits
To Growth In Prices and Real Wages
(Average benefits grow in direct proportion
to average earnings. )
The following notation was also made:
"I approve #A - as rationalized by Jim Lynn. "
Please follow-up with appropriate action.
cc: Dick Cheney
and LIBRARY &
Black notebook complete
JMC's
THE WHITE HOUSE
DECISION
office
WASHINGTON
MEMORANDUM FOR THE PRESIDENT
FROM:
JIM CANNON
Social Security: Long-Range Teborte Financing
April 30, 1976
SUBJECT:
PURPOSE
The purpose of this memorandum is to respond to new
developments and significant new opinions regarding the
issue of "decoupling" the Social Security system. The memo
includes an expanded presentation of the issue, some new
information relevant to the subject, and revised policy
alternatives.
Because of the complexity and importance of this matter,
the Trustees, OMB, and I recommend that in considering the
alternatives, you meet with the Cabinet secretaries and
staff advisers most closely involved and concerned with
this issue so that views and assumptions may be discussed.
BACKGROUND
In December you addressed three major problems threatening
the financial integrity of the Social Security system:
1. The system is experiencing annual deficits.
Your response to this problem was a proposal
to increase revenues through a .6 percent
(.3 percent each for employers and employees)
Social Security tax increase, effective in
1977. This would solve the problem through
the early 1980's, but both the House Ways and
Means and Senate Finance Committees have
indicated that they will not attempt to enact
such an increase this year.
FORD LIBRARY is GERALD
THE WHITE HOUSE
ACTION
WASHINGTON
May 6, 1976
MEMORANDUM FOR THE PRESIDENT
FROM:
JIM CANNON
SUBJECT:
Statement by the President on
Social Security Proposal
Attached for your consideration and approval is a
proposed statement on Social Security which we
would like to release in connection with your
meeting this morning.
It has been reviewed and approved by Max
Friedersdorf and Paul O'Neill. Doug Smith has
approved the text.
RECOMMENDATION
I recommend that you approve the statement.
FORD is LIBRARY GERALD
Approve
Disapprove
STATEMENT BY THE PRESIDENT
I have today directed the Secretary of Health,
Education and Welfare to seek prompt Congressional
action on my legislative proposal to maintain the
fiscal integrity of our Social Security trust fund.
Simple arithmetic indicates that the Social
Security trust fund is headed for trouble. Unless
the Congress acts soon to ensure that the fund takes
in as much as it pays out, there will not be adequate
security for old or young.
In my State of the Union message in January, I
proposed a payroll tax increase of .3% each for
employees and employers to increase revenues into the
trust fund to ensure that benefits will be available
to all who have earned them.
My proposed increase would cost workers with a
maximum taxable income less than a dollar a week.
This increase will help stabilize trust funds so that
current and future recipients can be assured the
benefits that they have earned. I urge the Congress to
take the earliest possible action on my proposal to
preserve the integrity of the Social Security trust
fund.
REPRESENT DEPART THE THE TREASUNY
THENT
OF
socialificusity
OFFICE OF THE SECRETARY OF THE TREASURY
moore
WASHINGTON, D.C. 20220
1789
May 11, 1976
Art you wore and
Mr. Ron Davis
Executive Assistant to
for
the Commissioner
Social Security Administration
Altmeyer Building
Baltimore, Md. 21235
Dear Ron:
"Juing Jun
I'm sure you remember the point on which we disagreed at
the meeting with the President on May 6. It is important
to get this resolved, because otherwise the two decoupling options
cannot be correctly understood. Indeed, my point reveals the
invalidity of at least two statements that were made to the
President at the meeting by proponents of Option A:
1. that Option A is "a step forward" relative to
present law even though it isn't enough to get
rid of the long-range deficit
2. that Option A is "simple" decoupling, while
Option B goes "beyond" decoupling.
FORD LIBRARY & GENALD
These statements are invalid on factual grounds alone, what
ever one's philosophy. "I think it is vital the options be fully
understood before the President makes his decision.
Let me therefore restate more fully what I said. The reason-
ing gets us into some technicalities, but that is unavoidable.
If you will read this letter carefully, I don't see how you can
disagree with me.
Statement #1: To say that Option A takes "a step forward"
toward solving the long-range financial problem is only part
of the truth. In fact Option A unnecessarily interferes with a
feature of present law -- namely, the progressivity of the bene-
fit formula -- which helps us financially.
From an actuarial point of view, Option A includes both a step
forward and a step back relative to existing law. The step for-
ward more than eliminates the long-range financial deficiency.
However, the step backward restores the deficiency to something
like half its present size.
2
Let me elaborate. Existing law has two features which we
are talking about changing. First, it contains a superfluous
cost-of-living adjustment which enhances the benefits of each
cohort of retirees relative to the previous year's cohort.
Taken by itself, this feature results in consistently rising
wage replacement ratios for successive cohorts, so long as the
consumer price index continues to rise over time.
Second, existing law stipulates a "progressive" benefit
formula. That is, higher-wage workers do not get as good a
deal as lower-wage workers. The higher one's "lifetime" earn-
ings, the lower one's wage replacement ratio. Taken by itself,
this feature results in steadily declining wage replacement
ratios for successive cohorts, so long as average lifetime
nominal earnings continue to rise over time.
These two features of existing law have opposite effects on
the behavior of replacement ratios over time and the net result
is a competition between the two effects. If the inflation
rate were sufficiently low, the progressivity of the benefit
formula would prevail, and replacement ratios would decline.
Most of us, of course, think it much more likely that the in-
flation rate will be high enough that the reverse will occur.
This is why most of the official projections show average re-
placement ratios which continually increase into the indefinite
future.
Option A makes changes which alter both of these features.
First, it eliminates the superfluous cost-of-living adjustment.
This provision by itself would ultimately make the system much
less expensive in the future. Everyone is in favor of it.
But Option A also "indexes" the benefit formula to wages. In
other words, it provides that the calculation of benefit awards
be conducted not in current dollars as it is now, but in wage-
indexed dollars. This has the effect of removing the effect
over time of the progressivity of the benefit formula.* This
second provision of Option A by itself would make the system
more expensive in the future.
In this way, Option A includes a step back as well as a step
forward. I would further argue that we should refrain from tak-
ing this step back, since under present circumstances we cannot
afford its financial consequences. It is a step which could
Progressivity would be retained with respect to the relative
treatment of people within the same cohort, but repealed with
respect to the relative treatment of different cohorts.
3
not possibly be justified in its own right. It remains under
consideration only because its adverse effect is masked by the
favorable effect of eliminating the superfluous CPI adjustment.
Statement #2: It is also invalid to argue that Option A is
"simple" decoupling, while Option B goes "beyond" decoupling.
Exactly the reverse is true. Consider again the precise mean-
ing of "coupling." Coupling means the double-counting of infla-
tion -- the undesirable characteristic of present law by which
inflation alone changes replacement ratios. It results, as you
know, from the improper cost-of-living escalation provisons
enacted in 1972.
In present law, inflation affects replacement ratios in two
opposite ways:
a) There is the superfluous cost-of-living adjustment
b) There is the fact that the progressive benefit formula
is at present expressed in current dollars.
As inflation proceeds, the superfluous CPI adjustment leads
to higher replacement ratios. But at the same time, inflation
pushes workers into higher earnings brackets, thereby lowering
their replacement ratios. To counteract precisely these un-
called-for effects of inflation implies:
a) eliminating the superfluous CPI adjustment, and
b) computing benefit awards using dollars corrected
for inflation.
If this is done, replacement ratios will be independent of the
future rate of inflation.
The above is a prescription for Option B, not Option A.
Option A goes beyond it by correcting the benefit calculations
not only for inflation, but also for changes in real wages.
This extra step beyond Option B has nothing to do with de-
coupling. It is, in effect, a legislated increase in the future
growth rate of benefits.
Since the issue is so important, I am forwarding copies of
this letter to Secretary Mathews and Jim Lynn.
Dave Yours sincerely,
David Ranson
Consultant to
GERALD FORD LIBRARY
The Secretary
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
file
Helfare-
5.5
THE WHITE HOUSE
WASHINGTON
May 26, 1976
MEMORANDUM FOR:
DICK CHENEY
FROM:
Wall Street Jun Journal editorial on
JIM CANNON
SUBJECT:
Social Security, and quoted references
to Department of Treasury consultants.
The attached editorial appeared in this morning's Wall
Street Journal. It was the anticipated response to the
1976 Social Security Trustee's Report. There are two prob-
lems with it:
(1) First, it does not mention the President's
announced decision to correct the "flaw"
in the system which would eliminate approx-
imately half of the long-range problem.
The editorial asks rhetorically why the
politicians are "so quiet" about the problem.
FORD i LIBRARY GERALD
Citing this potential problem specifically,
we incorporated a reference to the President's
decoupling decision into the President's
California speech to a retirement community.
For some unexplained reason, this reference
was eliminated in the final draft of the
speech, thus exposing the President to this
unfair criticism.
(2) Secondly, and more important, the Journal
editorial cites statements attributed to David
Ranson and Arthur Laffer at the University of
Chicago, who are referred to as "the principal
advisers to Treasury Secretary Simon on the
Social Security problem." Their quoted state-
ments serve to undermine public confidence in
the system in a fashion which distorts reality
(at least in the opinion of many Social
Security observers).
-2-
This would be no problem except that Mr. Ranson is a
former full-time employee of the Treasury Deparment who
still serves one or more days a week in Washington as a
paid consultant to Secretary Simon on Social Security. In
that capacity, he attended the May 6 Presidential decision
meeting on the long-range problem with senior staff and
the heads of OMB, HEW, Labor and CEA.
Given his role as Secretary Simon's official representative,
his access to all related executive documents, and his
active participation in Presidential and senior level delib-
erations, it seems that his recent actions are totally
inappropriate -- and serve to undermine the President's
legitimate and defensible position. I strongly urge you to
take the matter up with Secretary Simon. Ranson, in talking
to the Wall Street Journal (one of the few publications which
understands Social Security), has undercut the President and
should be directed not to do it again.
GERALD R. LIBRARY FORD
$4,000,000,000,000, More or Less
WALL STEET
That's trillion, $4 trillion, more
no, serious. discussion among the
JOURNAL
or less, the amount of the present
Democratic candidates and only ti-
5/26/76
unfunded liability of the Social Se-
mid, unfocused exchanges by the
curity System. The number is our
Republicans. But what are elections
rough calculation, based on last
about, if not to lay problems of this
year's official figure of $2.7 trillion
enormity before the people and
and this week's report of the trus-
compete with political solutions?
tees that the long-run deficit has in-
Presidential hopefuls are outprom-
creased by 50% as a result of new
ising each other on the amount of
actuarial assumptions about pro-
love and truth they will bring to the
ductivity and birth rates.
Oval Office. But what about the $4
The trustees now make "opti-
trillion?
mistic," "intermediate," and
The only lively discussion under-
"pessimistic" assumptions. Their
way in Washington is how to finance
intermediate projection, the best
the immediate deficits, $4.3 billion
guess, is that the deficit in the So-
this year and growing. President
cial Security System now amounts
Ford womts to must the tox reto
Social
THE WHITE HOUSE
Security
WASHINGTON
Camm
May 26, 1976
MEMORANDUM FOR:
DICK CHENEY
FROM:
Wall JIM CANNON Street June Journal editorial Del on
mm
SUBJECT:
Social Security, and quoted references
to Department of Treasury consultants.
The attached editorial appeared in this morning's Wall
Street Journal. It was the anticipated response to the
1976 Social Security Trustee's Report. There are two prob-
lems with it:
(1) First, it does not mention the President's
announced decision to correct the "flaw"
in the system which would eliminate approx-
imately half of the long-range problem.
The editorial asks rhetorically why the
politicians are "so quiet" about the problem.
Citing this potential problem specifically,
we incorporated a reference to the President's
decoupling decision into the President's
California speech to a retirement community.
For some unexplained reason, this reference
was eliminated in the final draft of the
GERALD FORD HIBRARY
speech, thus exposing the President to this
unfair criticism.
(2) Secondly, and more important, the Journal
editorial cites statements attributed to David
Ranson and Arthur Laffer at the University of
Chicago, who are referred to as "the principal
advisers to Treasury Secretary Simon on the
Social Security problem." Their quoted state-
ments serve to undermine public confidence in
the system in a fashion which distorts reality
(at least in the opinion of many Social
Security observers).
-2-
This would be no problem except that Mr. Ranson is a
former full-time employee of the Treasury Deparment who
still serves one or more days a week in Washington as a
paid consultant to Secretary Simon on Social Security. In
that capacity, he attended the May 6 Presidential decision
meeting on the long-range problem with senior staff and
the heads of OMB, HEW, Labor and CEA.
Given his role as Secretary Simon's official representative,
his access to all related executive documents, and his
active participation in Presidential and senior level delib-
erations, it seems that his recent actions are totally
inappropriate -- and serve to undermine the President's
legitimate and defensible position. I strongly urge you to
take the matter up with Secretary Simon. Ranson, in talking
to the Wall Street Journal (one of the few publications which
understands Social Security), has undercut the President and
should be directed not to do it again.
FORD LIBRARY is GERALD
$4,000,000,000,000, More or Less
WALL STEET
That's trillion, $4 trillion, more
no serious discussion among the
JOURNAL
or less, the amount of the present
Democratic candidates and only ti-
5/26/76
unfunded liability of the Social Se-
mid, unfocused exchanges by the
curity System. The number is our
Republicans. But what are elections
rough calculation, based on last
about, if not to lay problems of this
year's official figure of $2.7 trillion
enormity before the people and
and this week's report of the trus-
compete with political solutions?
fees that the long-run deficit has in-
Presidential hopefuls are outprom-
creased by 50% as a result of new
ising each other on the amount of
actuarial assumptions about pro-
love and truth they will bring to the
ductivity and birth rates.
Oval Office. But what about the $4
The trustees now make "opti-
trillion?
mistic," "intermediate," and
The only lively discussion under-
pessimistic" assumptions. Their
way in Washington is how to finance
intermediate projection, the best
the immediate deficits, $4.3 billion
guess, is that the deficit in the So-
this year and growing. President
cial Security System now amounts
Ford wants to put the tax rate up,
to 8% of taxable payroll. Express-
the Democrats want to put the wage
ing the deficit with a single digit
base up or use non-existent general
d
Social
THE WHITE HOUSE
WASHINGTON
Security
June 2, 1976
give we
MEMORANDUM FOR:
FROM:
JIM ALLEN CANNON MOORE M
SUBJECT:
Weekly Status Report
Social Security
the to full
The draft legislation is expected from HEW early next week.
It will then go through the internal staffing process.
Barring any major difficulties with content (which is unlikel
M.
we could be sending up a bill two weeks later. Social Security
Administration is working on a draft message which will
probably incorporate the following:
Cliener
(1) President's budget and legislative proposals
incorporated three items reflecting a commitment
both to insuring a strong, viable system and to
32 million recipients
A. Cost-of-living increases
B. Payroll tax increase
FORD LIBRARY is 9ERALD
C. Decoupling proposal
(2). Respond to Trustee's Report findings on long-range
financing problems
A. Cite problem of estimating
75 years into the future.
B. Point out problem occurs largely
after turn-of-century, thus pro-
viding time for careful analysis
and corrective action.
C. Indicate the decoupling proposal
represents an important first
step to solving the problem
(describe double-indexing flaw
briefly).
(3) Indicate need
to prod a hesitant Colgress to act about
Did Juny you rep lian him said ? Jan
-2-
I
bow
These points were incorporated into a statement I wrote ten
days ago and cleared with OMB and HEW for inclusion in some
California speeches. The point on decoupling was ultimately
"vote
reduced to one paragraph to be inserted in the Orben text
The speech actually given bore only general resemblance to
to
the advance text and the decoupling reference was removed.
tach
When I brought this to your attention last week, you men-
tioned it to Jim Cavanaugh who had me insert the same point
wr
in last Wednesday's speech to the Ohio Governor's Conference
on Aging. Once again, the item was left out of the speech
given. This leaves us in the vulnerable position of having
И
given no recognition of the 1976 Trustee's Report, its find-
Chricey
ings, or the editorial comment accompanying it.
Income Assistance Simplification Act
We are waiting for a response from O'Neill on the modest
changes sent to him yesterday. We do not yet have a trans-
mittal date. Should I be doing anything more about sponsors?
THE WHITE HOUSE
WASHINGTON
June 16, 1976
MEMORANDUM FOR:
JIM CANNON
FROM:
ALLEN MOORE OREAM
SUBJECT:
Briefing memo to the President for
your signature on tomorrow morning's
Social Security session
The attached memo needs your signature.
I have also attached a copy of the "Message on Social Security"
and a "Statement on Social Security."
I plan to accompany you to the session.
2
Attachments
Still working
M clearames.
THE WHITE HOUSE
FACT SHEET
SOCIAL SECURITY BENEFIT INDEXING ACT
The President announced that he is today proposing the
Social Security Benefit Indexing Act to eliminate a flaw in
the current system which, I by unintentionally overadjusting for
inflation, serves to undermine the underlying principles of
the program and is expected to produce intolerable costs to
the system over the next seventy-five years.
In a Message to the Congress on February 9, 1976, the
President described this proposal:
...
to avoid serious future financing
problems I will submit later this year a
change in the Social Security laws to
correct a serious flaw in the current
system. The current formula which de-
termines benefits for workers who retire
in the future does not properly reflect
wage and price fluctuations. This is an
[inadvertence] which could lead to
unnecessarily inflated benefits.
I. Current Social Security Benefit Formula
Social security benefits are calculated by applying a
formula to an individual's average monthly wage (AMW) while
covered by Social Security. The formula:
137.77% of first $110 of AMW;
50.11% of next $290 of AMW;
46.83% of next $150 of AMW;
55.04% of next $100 of AMW;
30.61% of next $100 of AMW;
25.51% of next $250 of AMW;
22.98% of next $175 of AMW; and
21.28% of next $100 of AMW.
-2-
The computation period for determining the AMW for most
people retiring is 19 years, and will extend to 35 years for all
retirees by 1994.
AIt should be noted that the formula is weighted in favor of
the lower paid employee, i.e. the lower an individual's AMW,
the higher the proportion of AMW replaced with benefits.
II. The "Flaw" in the 1972 Social Security Amendments
Prior to 1972, all increases in Social Security
benefits required Congressional action.
The 1972 Social
Security Amendments
built into the law
automatic cost-of-living escalators. For those already re-
ceiving benefits, these provisions guarantee that their
benefits would keep pace with growth in the Consumer Price
Index. The provisions also aid those still working by
increasing the percentages in the benefit formula by CPI
increases.
It was not until later that the full implications
of this latter "automatic cost-of-living escalator" came to
be understood. Inflation not only automatically increases
the formula for calculating initial benefits of new retir-
ees, but also it is accompanied by inflationary increases in
wages. Rising wages result in higher average earnings, which
result in a higher AMW, which in turn bring about higher initial
Social Security benefits. Therefore, persons still working bene-
fit from an overadjustment for inflation -- an automatic
increase in the benefit calculation formula and inflation-
induced wage increases.
-3-
The impact of this flaw depends upon the behavior of
prices and wages in the future. Different assumptions about
wage and price growth produce radically different long-range
benefits and costs, thus making the system unstable. Recent
projections of the Social Security system's future (based on
inflation in 1974 and 1975) indicate a wholly unintended and
dangerous trend: initial benefits would grow over time to the
point where a great many new retirees would receive benefits
in excess of the highest wages they ever earned (See Table 1)
These inflated benefits also would place severe long-term
financial pressures on Social Security. Adding to the long-
range cost problem is the fact that
low
U.S.
fertility rates are expected to result in a declining ratio
of workers (Social Security contributors) to retirees (Social
Security beneficiaries)
The 1976 Social Security Trustees Report estimates
that the long-range costs of the current system would exceed
projected revenues by an average annual amount of 8% of cov-
ered payroll (See Tables 2 and 3)
has
A broad consensusMemerged that these unintentional in-
creases in benefits and their associated costs must be
eliminated, and the system stabilized.
-4-
III. The Administration Proposal
The Administration proposal would correct the defect
in the current system by modifying the formula to ensure
that future initial retirement benefits are a constant share
of
preretirement earnings. This would elim-
inate half of the estimated long-range financial deficit,
and yet continue the system's commitment to increase benefits
in accord with inflation.
A. The proposed benefit formula
The proposed method of calculating initial bene-
fits is far more sophisticated and much fairer,
than the current formula. Instead of merely adding
up prior years' earnings (as with the current for-
mula), an individual's earnings would be adjusted
("indexed") to take account of increases in average
wages during a person's working years. From these
calculations an average indexed monthly wage (AIME)
would be derived. This number would be quite different
from the
average monthly wage (AMW)
calculated currently (AIME's will always be much
larger than AMW's). Therefore, a new formula would
be applied to the AIME to determine a retiree's
initial benefits. The formula is designed to ap-
proximate as closely as possible the benefit
amounts payable under present law in January, 1978
(the month the revised formula is expected to go
-5-
into effect). The formula:
91% of the first $175 of AIME;
33% of next $875 of AIME; and
17% of remaining AIME.
In the future, the dollar amounts in the formula
would be adjusted automatically each year as average
covered wages increase.
In effect, future initial
benefits will continue to increase with inflation and
wage grow th, but the current overadjustment will be
eliminated. As under present law, all beneficiaries
would receive automatic annual cost-of-living increases
in their benefits.
B. Replacement rates
Replacement rates (i.e. benefits as a percent of
preretirement earnings) will remain constant through
time at approximately the levels that prevail when
the new system becomes effective. Table 1 projects
replacement rates under the current and proposed
formulas for workers with low, average, and maximum
wages.
C. Transition period
To ensure fairness, the proposal would incorporate
a ten-year transition period during which those per-
sons retiring would be assured that their benefits
are no lower under the new formula than they would
have been under the old formula at the beginning of
the phase-in period.
-6-
D. Impact on Long-range Costs
Tables 2 and 3 indicate that the proposed law
is estimated to reduce the projected long-range
average annual deficit (measured as a percent of
taxable payroll) from 8% to 4%.
E. The Remaining Long-range Financial Pressure
Seventy-five year estimates are inherently
speculative and quite complex -- dependent upon
assumptions of inflation, economic growth, the
size and makeup of families, etc. Nevertheless,
current projections show a sizeable financing
problem after the turn of the century even with the
Administration proposal. The Administration pro-
posal would help stabilize the system against vari-
ations in the economy, thus providing sufficient
time over the next several years to analyze and
correct for the remaining financial pressures on
the system's future.
DRAFT MESSAGE ON SOCIAL SECURITY
I am today submitting to Congress a legislative
proposal that will correct a serious flaw in the Social
Security system. It is the last of three components of my
1977 budget and legislative program which stem directly from
my strong personal commitment to insure a secure and viable
Social Security system. This commitment embraces both my
concern for the 32 million persons who currently depend on
Social Security benefits for income, and my desire to pro-
tect the financial integrity of the system for the millions
of workers who will depend on it in the future.
My program to insure the integrity of the Social
Security system, as outlined in January of this year, in-
cludes:
First, a full cost-of-living increase for
all beneficiaries, scheduled to take effect in
checks sent out in July of this year.
Second, an increase in Social Security
payroll contributions by three-tenths of
one percent for both employees and employers.
This increase would remedy the immediate,
short-term financing problem facing Social
Security. The drain on the trust funds --
which now pay out about $4 billion more in
benefits each year than they take in -- would
be stopped. This correction would cost no
-2-
employee more than $1 per week in additional
contributions.
Third, legislation to correct a potentially
serious flaw in the Social Security benefit
structure which helps to create severe long-
range financial pressures on the system. My
proposal would eliminate this flaw and be a major
step towards resolving the long-range financial
problem. It would help stabilize the system and
permit sufficient time for careful and thorough
analysis of the remaining future financial
pressures.
What is the status of these items?
First of all, the full cost-of-living increase will be
included in July Social Security checks, but, unfortunately,
the Congress has so far avoided its responsibility to provide a
means of paying for the full cost of the system. I view
this as a very
unfortunate response to a mat-
ter touching directly on the financial integrity of the
Social Security system.
It is of the utmost importance that the proposal I am
sending up today receives more responsible Congressional
attention.
In brief, the flaw we are seeking to eliminate was
incorporated into the system in the 1972 Amendments to the
Social Security Act. Changes in the program made at that
time could cause future benefits for persons currently work-
ing to increase faster than the growth of wages and inflation.
-3-
The effect of this flaw, over time, could be to give to many
new retirees Social Security benefits in excess of the high-
est earnings they ever received. Such a result was never
intended and is clearly undesirable, both from the stand-
point of the individual and because of excessive costs to
the system.
My proposal would correct this defect by insuring
that future retirement benefits are a constant share of an
individual's preretirement earnings. This produces three
important improvements:
0 It eliminates the long-term financial
deficiency associated with the flaw
(about half the projected long-range
deficit), and moves more closely to the
system which Congress intended to create
in 1972;
O
It helps to stabilize the system despite
variations in the economy --- a factor
which facilitates future policymaking; and
O
It makes individual benefits more predict-
able than under the current system, thus
aiding individuals in their planning for
retirement.
To insure fairness to those approaching retirement as
these proposals are implemented, I am suggesting a ten-year
-4-
phase-in period during which those persons retiring will be
assured that their benefits are no lower under the new for-
mula than they would have been under the old formula at the
beginning of the phase-in period.
The correction of the flaw will be a major step
toward bringing the system back into financial balance over
the long-term. But it is not the complete solution and we
should not pretend that it is. The Social Security Trustees
estimate that even with this legislation, sizeable long-term
financial pressures remain.
I should add that this estimation process is inher-
ently speculative and quite complex. Throughout the past
few months of careful study, that fact has repeatedly been
made more obvious. Projecting such things as inflation,
economic growth, and the size and makeup of families far into
the future is a difficult task at best. Nevertheless,
according to our current projections, we will have a sizeable
financing problem after the turn of the century.
There is sufficient time, however, to analyze this
situation and to correct it. If action is taken promptly on my
proposals the system will not be in jeopardy. But this should not
be viewed as reason to delay in our efforts to identify the further
steps needed to protect fully the system's future financial
integrity. Over the next few years I intend
to work
with the Congress in resolving these problems.
But the time to begin is now. We should act immedi-
ately to solve a considerable portion of the short and long-
-5-
range problems. Two steps must be taken towards this end.
First, the corrected benefit formula that I am submitting
today would eliminate more than half of the estimated
long-range financial problem. Second, the .3% increase in
employee and employer contributions which I proposed earlier
this year would bring the system into current balance. Therefore, I
strongly urge the Congress to move immediately to enact these
two
vital proposals into law.
We must act now to protect both those who currently
receive benefits, and those who are contributing to the
system toward their future retirement.
DRAFT STATEMENT ON SOCIAL SECURITY
I am today submitting to Congress a legislative
proposal that will correct a serious flaw in the Social Secur-
ity system. This proposal is the last of three components of
my 1977 budget and legislative program intended to insure a
secure and viable Social Security system. My strong personal
commitment to Social Security embraces both a genuine concern
for the 32 million persons who currently depend on Social Se-
curity benefits for income, and an unyielding dedication to
protect the financial integrity of the system for the millions
of workers who will depend on it in the future.
My program to insure the integrity of the Social
Security system, as outlined in January of this year, includes:
First, a full cost-of-living increase for
all beneficiaries, scheduled to take
effect in checks sent out in July of this
year.
Second, an increase in Social Security
payroll contributions by three-tenths of
one percent for both employees and
employers. This increase would remedy the
immediate, short-term financing problem
facing Social Security. It would stop the
drain on the trust funds -- which are now
expected to pay out about $4 billion more
-2-
in benefits each year than they take in.
This correction would cost no employee
more than $1 per week in additional
contributions.
Third, the legislation I am transmitting
today to correct a potentially serious
flaw in the Social Security benefit struc-
ture which, if left unchanged, is now ex-
pected to undermine the underlying princi-
ples of Social Security and to help create
severe long-range financial pressures on
the system. My proposal would eliminate
this flaw and be a major step towards
resolving the long-range financial problem.
It would help stabilize the system and per-
mit sufficient time for careful and thorough
analysis of the remaining future financial
pressures.
What is the status of these items?
First of all, the full cost-of-living increase will be
included in July Social Security checks, but, unfortunately,
the Congress has so far avoided its responsibility to provide
a means of paying for the full cost of the system. I view
this as a very unfortunate response to a matter touching
directly on the financial integrity of the Social Security system.
-3-
If we are successfully to preserve the system's
financial integrity, we need prompt action on both of my
proposals -- the increase in payroll contributions, and the
flaw-correcting proposal I am transmitting today.
I strongly urge the Congress to move immediately to
enact these vital proposals into law.
file
Welfare - S.S.
THE WHITE HOUSE
WASHINGTON
SIGNING CEREMONY
MESSAGE TO THE CONGRESS ON
SOCIAL SECURITY (DECOUPLING) LEGISLATION
Thursday, June 17, 1976
10:15 a.m. (10 minutes)
The Oval Office
From: Jim Cannon Juni
I. PURPOSE
FORDO i LIBRARY GERALD
To sign your "Message on Social Security" in connection
with Legislation. HEW transmittal of Social Security Decoupling
II. BACKGROUND, PARTICIPANTS & PRESS PLAN
A. Background: This legislation incorporates your
decision to "decouple" the Social Security system.
Congressman Burke's Ways and Means Subcommittee
on Social Security has scheduled hearings for
Friday, June 18, on this issue.
B. Participants: Secretary David Mathews
J. Bruce Cardwell, Commissioner,
Social Security Administration
C. Press Plan: To be announced. Press and photo
opportunity.
III. TALKING POINTS
To be provided by Robert T. Hartmann
Soc See
FOR IMMEDIATE RELEASE
JUNE 17, 1976
Office of the White House Press Secretary
THE WHITE HOUSE
STATEMENT BY THE PRESIDENT
I am today submitting to the Congress a proposal which will correct a serious
flaw in the Social Security system's formula for determining benefits. The new
benefit formula contained in my proposal will prevent Social Security payment
levels from being distorted by unusually high periods of inflation while helping
to protect the financial integrity of the system itself.
This proposal is the last of three components of my 1977 budget and legislative
programs intended to insure a secure and viable Social Security system. My
program calls for a full cost-of-living increase for all beneficiaries, scheduled
to take effect in checks sent out in July of this year.
It calls for an increase in Social Security payroll contributions by three-tenths of
one percent for both employees and employers. This increase would remedy the
immediate, short-term financing problem facing Social Security. It would stop
the drain on the trust funds--which are now expected to pay out about four billion
dollars more in benefits each year than they take in. This correction would cost
no employee more than one dollar per week in additional contributions.
The third component of my program is the legislation I am transmitting today
to correct a serious flaw in the Social Security benefit structure. If left
unchanged, this flaw could damage the underlying principles of Social
Security and help create severe long-range financial pressures on the system.
My proposal would eliminate this flaw and be a major step towards resolving
the long-range financial problem. It would help stabilize the system and permit
sufficient time for careful and thorough analysis of the remaining future
financial pressures.
Both of these proposals are vital. While I am happy that a full cost-of-living
increase will be included in July Social Security checks, I regret to say that
the Congress has avoided its responsibility to provide a means of paying for the
full cost of the system.
If we are successfully to preserve the financial integrity of the Social Security
system, we need prompt action on both of my proposals. I strongly urge the
Congress to move immediately and without further delay to enact them into law.
# # #
FORD LIBRARY & SERALD
Soc See.
EMBARGOED FOR RELEASE UNTIL
JUNE 17, 1976
12.00 NOON (EDT)
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
SOCIAL SECURITY BENEFIT INDEXING ACT
The President announced today that he is proposing the Social
Security Benefit Indexing Act to correct a flaw which has
existed in the Social Security system since 1972. While
eliminating half of the estimated long-range financial defi-
cit facing the system, his proposal would continue to increase
benefits in accord with inflation.
If his proposal is not enacted, the flaw, an unintended over-
adjustment for inflation, will undermine the sound principles
upon which Social Security has been built. This will produce
intolerable costs over the next seventy-five years and threaten
the ability of the system to pay retirees the benefits they
have earned.
In a Message to the Congress on February 9, 1976, the President
described this proposal:
.
to avoid serious future financing problems I
will submit later this year a change in the Social
Security laws to correct a serious flaw in the cur-
rent system. The current formula which determines
benefits for workers who retire in the future does
not properly reflect wage and price fluctuations.
This is an [inadvertence] which could lead to
GERALD FORD LIBRARY
unnecessarily inflated benefits.
I.
The "Flaw" in the Current System
Prior to 1972, all increases in Social Security benefits required
Congressional action. The 1972 Social Security Amendments
built into the law automatic cost-of-living escalators. For
those already receiving benefits, these provisions guarantee
that their benefits will keep pace with growth in the Consumer
Price Index.
The provisions were also intended to protect current workers
against inflation through annual modifications in the formula
used to compute initial benefits. Only recently have the full
implications of these modifications been recognized. They
result in a significant overadjustment for inflation, causing
initial benefits to grow over time to the point where a great
many new retirees would receive benefits in excess of the
highest wages they ever earned.
These inflated benefits would place severe long-term financial
pressures on Social Security. Adding to the long-range cost
problem is the fact that, as currently estimated, U.S. fer-
tility rates are expected to result in a declining ratio of
workers (Social Security contributors) to retirees (Social
Security beneficiaries).
more
2
The 1976 Social Security Trustees Report estimates that the
long-range costs of the current system would exceed projected
revenues by an average annual amount of 8% of covered payroll.
II. The Administration Proposal
The Administration proposal would eliminate half of the esti-
mated long-range financial deficit, and yet continue the
system's commitment to increase benefits in accord with in-
flation. The formula is designed to approximate as closely
as possible the benefit amounts payable under present law in
January, 1978 (the month the revised formula is expected to
go into effect).
A. Benefits
A useful tool for comparing the proposed formula with
current law is "replacement rates" (1.e., initial
benefits as a percent of preretirement earnings).
Table 1 illustrates how the proposed law stabilizes
replacement rates at current levels, and prevents
the unnecessary escalation caused by the flaw in
existing law. For example, a low wage earner would
continue through time to receive benefits replacing
approximately 62% of preretirement earnings. This
compares to benefits under current law which would,
if unchecked, grow to 100% of preretirement earnings
by 2020 and to 119% by 2050. (See Table 1 for
additional comparisons of persons with average and
maximum wages).
B. Long-Range Costs
The proposed law would eliminate approximately half
of the estimated long-range deficit projected for
the system under current law. Tables 2 and 3 illus-
trate how this occurs over the next seventy-five
years.
C. Annual Cost-of-Living Increases
As under present law, all beneficiaries would receive
automatic cost-of-living increases in their benefits.
D. Remaining Long-Range Financial Pressures
Seventy-five year estimates are inherently speculative
and quite complex --- dependent upon assumptions of in-
flation, economic growth, the size and makeup of
families, etc. Nevertheless, current projections show
a sizeable financing problem after the turn of the
century even with the Administration proposal (See
Tables 2 and 3). The Administration proposal would
help stabilize the system against variations in the
economy, thus providing sufficient time over the next
several years to analyze and correct for the remaining
financial pressures on the system's future.
more
3
TABLE 1
Projected Replacement Rates
for Illustrative Cases of Regular Workers with Earnings
at Low, Average, and Maximum Levels
Initial Benefits as a Percent of Final Year Earnings
Low Earnings
Average Earnings
Maximum Earnings
Year of
Entitlement
Present
Present
Present
at Age 65
Law
Proposal
Law
Proposal
Law
Proposal
1976
63%
63%
44%
44%
33%
33%
1980
62
61
44
43
34
33
1990
66
62
47
44
34
33
2000
78
62
51
44
37
34
2010
92
62
55
44
40
35
2020
100
62
59
44
43
36
2030
108
62
62
44
44
36
2040
114
62
64
44
46
36
2050
119
62
66
44
47
36
The 1975 earnings levels of $3,400 for low earners,
$8,600 for average earners, and $14,100 for maximum
earners are adjusted annually according to the in-
termediate set of assumptions used in the 1976 Annual
Report of the Board of Trustees of the Federal OASDI
Trust Funds.
more
4
TABLE 2
Comparison of OASDI Long-Range Cost
Present Law and Administration Bill
(in Percent)
Expenditures as Percent of Taxable Payroll 1/
Year
Present Law
Bill
Difference
1980
10.68
10.70
--.02
1990
12.06
11.82
.24
2000
13.41
12.38
1.03
2010
15.99
13.41
2.58
2020
21.29
16.46
4.83
2030
26.03
18.92
7.11
2040
27.45
18.87
8.58
2050
28.59
18.77
9.82
25-year average:
1976-2000
11.81
11.53
.28
2001-2025
17.95
14.60
3.35
2026-2050
27.04
18.82
8.22
75-year average:
1976-2050
18.93
14.98
3.95
Based on the assumptions of alternative II in the
1976 OASDI Trustees Report.
more
FORD LIBRARY is GERALD
5
TABLE 3
Comparison of OASDI Actuarial Balance
Present Law and Administration Bill
(in Percent of Taxable Payroll)
Average for Period 1/
Present
Item
Law
Bill
Difference
1st 25-year period (1976-2000)
Expenditures
11.81
11.53
.28
Tax Rate
9.90
9.90
----
Difference
-1.91
-1.63
.28
2nd 25-year period (2001-2025)
Expenditures
17.95
14.60
3.35
Tax Rate
11.10
11.10
-
Difference
-6.85
-3.50
3.35
3rd 25-year period (2026-2050)
Expenditures
27.04
18.82
8.22
Tax Rate
11.90
11.90
-
Difference
-15.14
-6.92
8.22
Total 75-year period (1976-2050)
Expenditures
18.93
14.98
3.95
Tax Rate
10.97
10.97
--
Difference
--7.96
-4.01
3.95
Based on the assumptions of alternative II in the
1976 OASDI Trustees Report.
#
it
#
FORD LIBRARY
THE WHITE HOUSE
WASHINGTON
SIGNING CEREMONY
MESSAGE TO THE CONGRESS ON
SOCIAL SECURITY (DECOUPLING) LEGISLATION
Thursday, June 17, 1976
10:15 a.m. (10 minutes)
The Oval Office
From: Jim Cannon Juni
I. PURPOSE
To sign your "Message on Social Security" in connection
with HEW transmittal of Social Security Decoupling
Legislation.
II. BACKGROUND, PARTICIPANTS & PRESS PLAN
A. Background: This legislation incorporates your
decision to "decouple" the Social Security system.
Congressman Burke's Ways and Means Subcommittee
on Social Security has scheduled hearings for
Friday, June 18, on this issue.
B. Participants: Secretary David Mathews
J. Bruce Cardwell, Commissioner,
Social Security Administration
C. Press Plan: To be announced. Press and photo
opportunity.
III. TALKING POINTS
To be provided by Robert T. Hartmann
GERALD R. FORD
[6/17/76]
TO THE CONGRESS OF THE UNITED STATES:
I am today submitting to the Congress a legislative
proposal that will correct a serious flaw in the Social
Security system. This proposal is one of three components
of my 1977 budget and legislative program intended to
insure a secure and viable Social Security system. My
strong personal commitment to Social Security embraces
both a genuine concern for the 32 million persons who
currently depend on Social Security benefits for income,
and an unyielding dedication to protect the financial
integrity of the system for the millions of workers who
will depend on it in the future.
My program to insure the integrity of the Social
Security system, as outlined in January of this year,
includes:
First, a full cost-of-living increase
for all beneficiaries, scheduled to take effect
in checks sent out in July of this year.
Second, an increase in Social Security
payroll contributions by three-tenths of one
percent for both employees and employers.
This increase would remedy the immediate,
FORD & LIBRARY GERALD
short-term financing problem facing Social
Security. It would stop the drain on the trust
funds --- which are now expected to pay out
about $4 billion more in benefits each year
than they take in. This correction would cost
no employee more than $1 per week in additional
contributions.
Third, legislation to correct a serious
flaw in the Social Security benefit structure
which, if left unchanged, would undermine the
principles of Social Security and create severe
long-range financial pressures on the system.
2
My proposal would eliminate this flaw and
be a major step towards resolving the
long-range financial problem. It would
help stabilize the system and permit
sufficient time for careful and thorough
analysis of the remaining future financial
pressures.
What is the status of these items?
I am happy to report that the full cost-of-living
increase will be included in July Social Security checks.
Unfortunately, the Congress has so far avoided its
responsibility to provide a means of paying for the full
cost of the system.
The proposal I am submitting today corrects an in-
adequate method of adjusting benefit payments which, over
time, could mean that many new retirees would receive Social
Security benefits in excess of the highest earnings they ever
received. Such a result was never intended and is clearly
undesirable, both from the standpoint of the individual and
the excessive costs to the system.
My proposal would correct this defect by ensuring
that future retirement benefits are a constant share of
preretirement earnings. This produces three important
improvements:
-- It eliminates the long-term financial
deficiency associated with the flaw (about
half the projected long-range deficit), and
moves more closely to the system which Congress
intended to create in 1972,
--- It helps to stabilize the system despite
variations in the economy; and
--- It makes individual benefits more predict-
able than under the current system.
3
To insure fairness to those approaching retirement as
these proposals are implemented, I am suggesting a ten-year
phase-in period during which those persons retiring will be
assured that their benefits are no lower under the new
formula than they would have been under the old formula
at the time the law goes into effect.
The correction of the flaw will be a major step toward
bringing the system back into financial balance over the
long-term. But it is not the complete solution and we
should not pretend that it is. The Social Security Trustees
estimate that even with this legislation, sizeable long-term
financial pressures remain.
There is sufficient time, however, to analyze this
situation and to correct it. If action is taken promptly
on my proposals the system will not be in jeopardy. But
this should not delay our efforts to identify the further
steps needed to protect the system's permanent financial
integrity.
Over the next few years I intend to work with the
Congress in resolving these problems. But the time to
begin is now. We must begin immediately to solve both
the short and long-range problems. The corrected benefit
formula that I am submitting today would eliminate more than
half of the estimated long-range financial problem. The
.3% increase in employee and employer contributions which
I proposed earlier this year would bring the system into
current balance.
In order to protect both those who currently receive
benefits and those who are contributing to the system towards
their future retirement, I urge the Congress to move
immediately to enact these two vital proposals into law.
THE WHITE HOUSE,
V'ress
STATEMENT ON SOCIAL SECURITY
THURSDAY, JUNE 17, 1976
GERALD LIBRARY ? FORD
-1-
I AM TODAY SUBMITTING TO THE CONGRESS A PROPOSAL
WHICH WILL CORRECT A SERIOUS FLAW IN THE SOCIAL SECURITY
SYSTEM'S FORMULA FOR DETERMINING BENEFITS
THE NEW
BENEFIT FORMULA CONTAINED IN MY PROPOSAL WILL PREVENT
SOCIAL SECURITY PAYMENT LEVELS FROM BEING DISTORTED BY
UNUSUALLY HIGH PERIODS OF INFLATION WHILE HELPING TO PROTECT
THE FINANCIAL INTEGRITY OF THE SYSTEM ITSELF®
THIS PROPOSAL IS THE LAST OF THREE COMPONENTS OF
MY 1977 BUDGET AND LEGISLATIVE PROGRAMS INTENDED TO INSURE
A SECURE AND VIABLE SOCIAL SECURITY SYSTEM®
-2-
MY PROGRAM CALLS FOR A FULL COST-OF-LIVING INCREASE
FOR ALL BENEFICIARIES, SCHEDULED TO TAKE EFFECT IN CHECKS
SENT OUT IN JULY OF THIS YEAR
IT CALLS FOR AN INCREASE IN SOCIAL SECURITY PAYROLL
CONTRIBUTIONS BY THREE-TENTHS OF ONE PERCENT FOR BOTH
EMPLOYEES AND EMPLOYERS
THIS INCREASE WOULD REMEDY
THE IMMEDIATE, SHORT-TERM FINANCING PROBLEM FACING
SOCIAL SECURITY.
IT WOULD STOP THE DRAIN ON THE TRUST
FUNDS -- WHICH ARE NOW EXPECTED TO PAY OUT ABOUT
FOUR BILLION DOLLARS MORE IN BENEFITS EACH YEAR THAN THEY
TAKE INo
THIS CORRECTION WOULD COST NO EMPLOYEE MORE
THAN ONE DOLLAR PER WEEK IN ADDITIONAL CONTRIBUTIONS.
-3-
THE THIRD COMPONENT OF MY PROGRAM IS THE LEGISLATIC
I AM TRANSMITTING TODAY TO CORRECT A SERIOUS FLAW IN THE
SOCIAL SECURITY BENEFIT STRUCTURE
IF LEFT UNCHANGED
THIS FLAW COULD DAMAGE THE UNDERLYING PRINCIPLES OF
SOCIAL SECURITY AND HELP CREATE SEVERE LONG-RANGE FINANCIAL
PRESSURES ON THE SYSTEM
MY PROPOSAL WOULD ELIMINATE
THIS FLAW AND BE A MAJOR STEP TOWARDS RESOLVING THE
LONG-RANGE FINANCIAL PROBLEM
IT WOULD HELP STABILIZE
THE SYSTEM AND PERMIT SUFFICIENT TIME FOR CAREFUL AND
THOROUGH ANALYSIS OF THE REMAINING FUTURE FINANCIAL
PRESSURES
-4-
BOTH OF THESE PROPOSALS ARE VITAL
WHILE I AM
HAPPY THAT A FULL COST-OF-LIVING INCREASE WILL BE INCLUDED
IN JULY SOCIAL SECURITY CHECKS
I REGRET TO SAY THAT
THE CONGRESS HAS AVOIDED ITS RESPONSIBILITY TO PROVIDE
A MEANS OF PAYING FOR THE FULL COST OF THE SYSTEM
IF WE ARE SUCCESSFULLY TO PRESERVE THE FINANCIAL
INTEGRITY OF THE SOCIAL SECURITY SYSTEM, WE NEED PROMPT ACTIC
ON BOTH OF MY PROPOSALS.
I STRONGLY URGE THE CONGRESS TO MOVE IMMEDIATELY
AND WITHOUT FURTHER DELAY TO ENACT THEM INTO LAW
END OF TEXT
Jem
I our going over to
the West Wing looby to
meet Matheur and Cardenell.
W here should we meet you ?
ontice Doal
office
[6/17/76]
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
SOCIAL SECURITY BENEFIT INDEXING ACT
The President announced today that he is proposing the Social
Security Benefit Indexing Act to correct a flaw which has
existed in the Social Security system since 1972. While
eliminating half of the estimated long-range financial defi-
cit facing the system, his proposal would continue to increase
benefits in accord with inflation.
If his proposal is not enacted, the flaw, an unintended over-
adjustment for inflation, will undermine the sound principles
upon which Social Security has been built. This will produce
intolerable costs over the next seventy-five years and threaten
the ability of the system to pay retirees the benefits they
have earned.
In a Message to the Congress on February 9, 1976, the President
described this proposal:
.
to avoid serious future financing problems I
will submit later this year a change in the Social
Security laws to correct a serious flaw in the cur-
rent system. The current formula which determines
FORD
benefits for workers who retire in the future does
not properly reflect wage and price fluctuations.
This is an [inadvertence] which could lead to
LIBRARY
unnecessarily inflated benefits.
I.
The "Flaw" in the Current System
Prior to 1972, all increases in Social Security benefits required
Congressional action. The 1972 Social Security Amendments
built into the law automatic cost-of-living escalators. For
those already receiving benefits, these provisions guarantee
that their benefits will keep pace with growth in the Consumer
Price Index.
The provisions were also intended to protect current workers
against inflation through annual modifications in the formula
used to compute initial benefits. Only recently have the full
implications of these modifications been recognized. They
result in a significant overadjustment for inflation, causing
initial benefits to grow over time to the point where a great
many new retirees would receive benefits in excess of the
highest wages they ever earned.
These inflated benefits would place severe long-term financial
pressures on Social Security. Adding to the long-range cost
problem 1s the fact that, as currently estimated, U.S. fer-
tility rates are expected to result in a declining ratio of
workers (Social Security contributors) to retirees (Social
Security beneficiaries).
more
(OVER)
2
The 1976 Social Security Trustees Report estimates that the
long-range costs of the current system would exceed projected
revenues by an average annual amount of 8% of covered payroll.
II. The Administration Proposal
The Administration proposal would eliminate half of the esti-
mated long-range financial deficit, and yet continue the
system's commitment to increase benefits in accord with in-
flation. The formula is designed to approximate as closely
as possible the benefit amounts payable under present law in
January, 1978 (the month the revised formula 13 expected to
go into effect).
A. Benefits
A useful tool for comparing the proposed formula with
current law is "replacement rates" (1.e., initial
benefits as a percent of preretirement earnings).
Table 1 illustrates how the proposed law stabilizes
replacement rates at current levels, and prevents
the unnecessary escalation caused by the flaw in
existing law. For example, a low wage earner would
continue through time to receive benefits replacing
approximately 62% of preretirement earnings. This
compares to benefits under current law which would,
if unchecked, grow to 100% of preretirement earnings
by 2020 and to 119% by 2050. (See Table 1 for
additional comparisons of persons with average and
maximum wages).
B. Long-Range Costs
The proposed law would eliminate approximately half
of the estimated long-range deficit projected for
the system under current law. Tables 2 and 3 illus-
trate how this occurs over the next seventy-five
years.
C. Annual Cost-of-Living Increases
A3 under present law, all beneficiaries would receive
automatic cost-of-living increases in their benefits.
D. Remaining Long-Range Financial Pressures
Seventy-five year estimates are inherently speculative
and quite complex --- dependent upon assumptions of in-
flation, economic growth, the size and makeup of
families, etc. Nevertheless, current projections show
a sizeable financing problem after the turn of the
century even with the Administration proposal (See
Tables 2 and 3). The Administration proposal would
help stabilize the system against variations in the
economy, thus providing sufficient time over the next
several years to analyze and correct for the remaining
financial pressures on the system's future.
more
3
TABLE 1
Projected Replacement Rates
for Illustrative Cases of Regular Workers with Earnings
at Low, Average, and Haximum Levels
Initial Benefits as a Percent of Final Year Earnings
Low Earnings Average Earnings Maximum Earnings
Year of
Entitlement
Present
Present
Present
at Age 65
Law
Proposal
Law
Proposal
Law
Proposal
1976
63%
63%
44%
44%
33%
33%
1980
62
61
44
43
34
33
1990
66
62
47
44
34
33
2000
78
62
51
44
37
34
2010
92
62
55
44
40
35
2020
100
62
59
44
43
35
2030
108
62
62
44
44
36
2040
114
62
64
44
46
36
2050
119
62
66
44
47
36
The 1975 earnings levels of $3,400 for low earners,
$8,600 for average earners, and $14,100 for maximum
earners are adjusted annually according to the in-
termediate set of assumptions used in the 1976 Annual
Report of the Board of Trustees of the Federal OASDI
Trust Funds.
more
DEEALD FORD LIBRARY
4
TABLE 2
Comparison of OASDI Long-Hange Cost
Present Law and Administration Bill
(in Percent)
Expenditures as Percent of Taxable Payroll 1/
Year
Present Law
Bill
Difference
1980
10.68
10.70
-.02
1990
12.06
11.82
.24
2000
13.41
12.38
1.03
2010
15.99
13.41
2.58
2020
21.29
16.46
4.83
2030
26.03
18.92
7.11
2040
27.45
18.87
8.58
2050
23.59
18.77
9.82
25-year average:
1976-2000
11.81
11.53
.28
2001-2025
17.95
14.60
3.35
2026-2050
27.04
18.82
8.22
75-year average:
1976-2050
18.93
14.98
3.95
Based on the assumptions of alternative II in the
1976 OASDI Trustees Report.
more
5
TABLE 3
Comparison of OASDI Actuarial Balance
Present Law and Administration Bill
(in Percent of Taxable Payroll)
Average for Period 1/
Present
Item
Lew
Bill
Difference
1st 25-year period (1976-2000)
Expenditures
11.81
11.53
.28
Tax Rate
9.90
9.90
--
Difference
-1.91
-1.63
.28
2nd 25-year period (2001-2025)
Expenditures
17.95
14.60
3.35
Tax Rate
11.10
11.10
-
Difference
-6.85
-3.50
3.35
3rd 25-year period (2026-2050)
Expenditures
27.04
18.82
8.22
Tax Rate
11.90
11.90
-
Difference
-15.14
-6.92
8.22
Total 75-year period (1976-2050)
Expenditures
18.93
14.98
3.95
Tax Rate
10.97
10.97
--
Difference
-7.95
-4.01
3.95
Based on the assumptions of alternative II in the
1976 OASDI Trustees Report.
#
#
#
WASHINGTON
file
SSI
REPORT
ON
Children's
aller,
Services
CWA
Published by the Child Welfare League of America
21
67 Irving Place, New York, N. Y. 10003
Volume 1, Number 7 - October 1976
SSI AND CHILDREN'S SERVICES: PART I
Just prior to its adjournment, the 94th Congress passed four child-related amend-
ments to the Supplemental Security Income (SSI) Act (Title XVI of the Social Security
Act). Two of these amendments attempt to resolve the problems facing SSI blind and
disabled children: the Mikva-Hathaway amendment and the Keys amendment; the other two
include technical improvements in the SSI program.
Many observers feel that these amendments are inadequate. Specifically, there is
concern that the Mikva-Hathaway amendment does not deal adequately with the SSI program
as it affects blind and disabled children.
Despite the improvements voted this year in the SSI program, many observers are
FORD
convinced children's needs will be met only when Congress undertakes a comprehensive
review of the SSI program as it affects eligible children.
GERAL
LIBRARY
WHAT IS SSI?
The SSI program was enacted as Title XVI of the Social Security Act (PL 92-603) in
1972 to replace existing State operated grant-in-aid public assistance programs for
needy aged, blind, and disabled adults and children. Under the former State programs,
Federal matching funds were available to the States according to formulas specified in
the law and administered by the State, and benefit levels varied widely from State to
State.
The SSI program is administered by the Social Security Administration and Federally
financed with uniform eligibility and benefit payments. It is geared to assist indivi-
duals who cannot be self-sufficient and are unable to engage in "substantial gainful"
activities.
The SSI benefit is not intended to meet all the financial needs of blind and dis-
abled children; Medicaid is available for medical care. In some cases, however, a
The potential impact of the SSI program on children is so large in terms of expanded
services and funding that two issues of Washington Report on Children's Services are
being devoted to the SSI legislation. Part II, concluding the discussion of the SSI
program, will be published and mailed early in November so subscribers will have the
full discussion as soon as possible.
The Editors.
Page 26
Page 27
child's eligibility for other benefits, such as Medicaid, may depend on being eligible
for SSI.
MIKVA-HATHAWAY AMENDMENT
Title XVI of the Social Security Act reflects the adult welfare origin of the
legislation. Disability criteria is based primarily on the ability to work. An eligible
This amendment attempts to resolve three basic problems in the SSI program adversely
individual is (emphasis added):
affecting SSI children:
considered to be disabled for purposes of this title if he is unable
1. The lack of mechanisms permitting SSI eligible children to receive benefits;
to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
2. The referral of disabled children under age 13 to State vocational rehabilitation
expected to result in death or which has lasted or can be expected
agencies which often do not offer services helpful to these children;
to last for a continuous period of not less than twelve months
(or, in the case of a child under the age of 18, if he suffers from
3. The lack of requirements that mandate referral of these children to the appropriate
any medically determinable physical or mental impairment of compar-
services they need.
able severity).
The Mikva-Hathaway amendment requires HEW to implement provisions of the original
an individual shall be determined to be under a disability only
SSI law that have essentially gone unnoticed since the law went into effect in January,
if his physical or mental impairment or impairments are of such
1974. Within four months HEW is required to develop child-related criteria to determine
severity that he is not only unable to do his previous work but can-
SSI eligibility on the basis of disability. This part of the amendment is intended to
not, considering his age, education, and work experience, engage in
resolve the problems plaguing eligibility determination of disabled children for SSI
any other kind of substantial gainful work which exists in the imme-
payments and benefits.
diate area in which he lives, or whether a specific vacancy exists
for him, or whether he would be hired if he applied for work. For
In addition, the Mikva-Hathaway amendment requires that disabled children under 16
purposes of the preceding sentence (with respect to any individual),
be referred to the State agency administering Crippled Children's Services under Title V
"work which exists in the national economy" means work which exists
of the Social Security Act, or to an equivalent State agency. These agencies are
in significant numbers either in the region where such individual
required to establish individual service plans for each child and to refer each child to
lives or in several regions of the country.
appropriate medical, educational, and social services. The State service plan must
include a description of how it will coordinate with other appropriate State agencies.
NEW CHILD-RELATED SSI AMENDMENTS
This section of the amendment will be implemented by the authorization of $30 million
annually through Fiscal Year 1979.
The 94th Congress attached four child-related SSI amendments to three separate and
unrelated pieces of legislation. Originally, the substance of these amendments has been
Nina Solarz, Project Director of an SSI study being conducted for HEW by the
included in HR 8911, a House-passed measure which would have made over 20 changes in the
National Council of Organizations for Children and Youth (NCOCY), raised some questions
current SSI program but the Senate never considered HR 8911 as a whole.
concerning the efficacy of this section of the Mikva-Hathaway amendment. The HEW-funded
study examines the reasons why the number of SSI children nationwide is so small. Only
Two of the four amendments were added to the Unemployment Compensation Amendments
141,000 children are currently receiving SSI benefits although there are over 500,000
of 1976 (HR 10210) which President Ford signed on Oct. 20:
eligible children.
1. Rep. Abner Mikva (D-Ill.) introduced an amendment which would have provided full
Solarz expects that the bulk of the $30 million will be spent on the cost of devel-
Federal reimbursement for the referral of blind and disabled children under age six
oping the State service plan rather than on referral or provision of services to disabled
receiving SSI benefits for appropriate rehabilitation services. This section of
children. Both Solarz and Amy Hirschhorn, her assistant on the project, expressed con-
Mikva's bill was amended by Sen. William Hathaway (D-Me.) to provide $30 million
cern that the money authorized under the Mikva-Hathaway amendment will benefit the
annually through Fiscal Year 1979 for the referral and provision of services to
Crippled Children's Agency or its equivalent rather than disabled children.
preschool children under age seven. In addition, the Mikva-Hathaway amendment, as
passed by the Senate, requires HEW to promulgate child-related disability criteria
within 120 days of enactment;
2. An amendment sponsored by Rep. Martha Keys (D-Kan.) now allows SSI payments to
(Member agencies and affiliates of
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A third amendment extending presumptive eligibility to the blind was attached to
to
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HR 7228 which was also signed by President Ford on Oct. 20.
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The fourth SSI amendment affecting children was attached to HR 13500 and signed
Suite 310, 1346 Connecticut Ave., N.W.
City
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into law Oct. 21. This amendment mandates that States supplementing the basic SSI
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payment pass through all Federal cost-of-living increases.
Page 28
Solarz said, when questioned about the use made of her study findings, that the
impact was yet to be felt. There were no attempts to utilize the unpublished study
findings in developing the Mikva-Hathaway amendment, Solarz said. Those findings will
be released at a symposium in Washington, D.C., Nov. 18-20. Solarz ackowledged having
reservations about the Mikva-Hathaway amendment.
Allen Jensen, staff director of the House Ways and Means Subcommittee on Public
Assistance, sees the problem of amendments related to SSI and services to disabled
children as part of "an absence of public policy concerning who and for what purposes
you are providing cash benefits to kids through SSI." Jensen also said many shared
Solarz' concern that Congress had enacted the amendment without sufficient supporting
data. Many believed there was no data as yet to support limiting the amendment to child-
ren six and under, Jensen reported. In addition, he said some questioned the wisdom of
using the Crippled Children's agency given the fact that "a significant number of these
agencies have not concentrated on anything other than orthopedic disabilities."
Susan Weiss of the National Association for Retarded Citizens described the Mikva-
Hathaway amendment as a "pot of money for vaguely defined program services and a depar-
ture from the general revenue perspective" which the SSI program reflects. She echoed
the concern of Solarz stating that she was unsure whether the funds were for the agencies
dispensing the services or for the children receiving them.
Liz Robbins, Director of Governmental Affairs, Agency for Child Development, Human
Resources Administration (New York City), said she expects that the number of preschool
children assisted by the SSI program will increase greatly through the availability of
Federal financing of rehabilitative, developmental, and medical services.
(To be concluded in the next issue)
- Judith Paris
WASHINGTON REPORT ON CHILDREN"S SERVICES, a non-partisan newsletter supported by subscrip-
tions. Published monthly by the Child Welfare League of America, 67 Irving Place, New
York, N.Y. 10003 for the CWLA Center For Governmental Affairs. William L. Pierce, Editor;
Marjorie A. Kopp, the Managing Editor. Subscriptions: one year $30; single copies $3.
Address all correspondence to the Editorial Office, Suite 310, 1346 Connecticut Avenue,
N.W., Washington, D.C. 20036. (202) 833-2850.
Application to mail at second class postage rates pending at New York, N.Y. and
additional mailing offices.
WASHINGTON
REPORT
ON
Children's
Services
CWA
Suite 310, 1346 Connecticut Avenue N.W.
Washington, D.C. 20036
Sarah Massengale, Assistant Director
The Domestic Council, The White Hous
1600 Penna. Ave., NW
C
Washington, DC 20500
POSTMASTER: Please send forms 3579 to 1346 Connecticut Ave. ,N.W., Washington, D.C. 20036
INFORMATION
DOMESTIC COUNCIL
FROM: DAVID MATHEWS
(thru Bob Linder)
SUBJECT:
Memo to the President informing him
of increase in Social Security wage
base.
Date: 10/7/76
COMMENTS:
The level of wages which are subject to Social
Security "taxation" will rise in 1977 to
$16,500 from $15,300. This increase, deter-
mined by law, must be announced on or before
November 1. Mathews memo indicates this fact.
Mathews and O'Neill had discussed the matter
independently this week, and O'Neill (with
Cavanaugh concurrence) decided the announce-
ment of the increase should be made immedi-
ately. This was done on Wednesday, October 6,
and was covered in Thursday's papers. There-
fore, I see no reason to send the Mathews
letter on to the President.
A.M.
from
LIBRARY &
ACTION:
Date:
ACTION
DOMESTIC COUNCIL
FROM:
Secretary Mathews
SUBJECT:
Increase in Social Security Taxable
Wage Base
Date: 10/12
COMMENTS:
I prepared this cover memo to the
President per your request.
X
ACTION:
Date:
An An
THE WHITE HOUSE
WASHINGTON
October 12, 1976
MEMORANDUM FOR THE PRESIDENT
FROM:
JIM CANNON Jui
SUBJECT:
Increase in Social Security Wage Base
The attached memorandum from Secretary Mathews informs
you of a scheduled increase in the Social Security wage
base (i.e. the level of earnings against which Social
Security taxes are assessed). The wage base will in-
crease from $15,300 to $16,500 in 1977. For persons
earning $16,500 or more, the change will result in in-
creased contributions of $70.20.
Secretary Mathews also points out that the amount of
earnings a Social Security beneficiary may receive with
no reduction in benefits increases from $2,760 to
$3,000.
These changes are calculated from legislated formulas
and were announced on Wednesday, October 6. (The law
requires that these changes be announced by November 1
of each year.)
FORD LIBRARY & GERALD
DEPARTMENT EDUCATION APPLICA
HEALTH.
THE SECRETARY OF HEALTH, EDUCATION, AND WELFARE
WASHINGTON, D.C. 20201
USA
OCT 7 1976
MEMORANDUM FOR THE PRESIDENT
This is to inform you that on or before November 1, I am required by low
to have published in the Federal Register the following changes that will
be applicable during calendar year 1977 under the automatic provisions of
the social security program.
1. The contribution and benefit base will increase from $15,300 in 1976
to $16,500 in 1977.
2. The monthly exempt amount under the retirement test will increase
from $230 in 1976 to $250 in 1977. The corresponding annual exempt
amount will increase from $2,760 in 1976 to $3,000 in 1977.
The contribution and benefit base is the maximum annual amount of earnings
on which an employee or a self-employed person must pay social security tax
contributions. It is also the maximum annual amount which may be credited
toward benefits payable under the social security program.
The retirement test monthly exempt amount is the maximum amount that a
social security beneficiary who is subject to the retirement test may
earn in a month and still receive the entire amount of his benefit for
the month. The corresponding annual exempt amount, equal to 12 times
the monthly amount, is the maximum amount a beneficiary may earn in a
year and still receive all of his benefits for the year.
Each of the 1977 amounts is determined on the basis of a formula, spec-
ified in the law, which automatically produces a mathematical result
based upon reported statistics. The formula is designed to keep both the
contribution and benefit base and the retirement test exempt amount up to
date as average wage levels increase. The formula requires that to obtain
each of the 1977 amounts the corresponding 1976 amount be multiplied by the
ratio of the average amount, per employee, of the taxable wages of all em-
ployees reported under the program for the first calendar quarter of 1975
to the average amount of such wages reported for the first calendar quarter
2
of 1974. Based on tabulated data derived from 100 percent of the processed
reports of taxable wages for each of the two quarters, the required ratio
is 1.074733.
Multiplying the 1976 contribution and benefit base of $15,300 by the
above ratio produces the amount of $16,443.41. The law requires that
this result must be rounded to the nearest multiple of $300, thus making
the 1977 amount $16,500.
Multiplying the 1976 retirement test monthly exempt amount of $230 by
the above ratio produces the amount of $247.19. The law requires that
this result must be rounded to the nearest multiple of $10, thus making
the 1977 amount $250.
Automatic increases in the contribution and benefit base play an important
part in financing automatic cost-of-living increases in social security
benefits. The increase in the base from $15,300 to $16,500 will result in
an estimated increase of $2.3 billion in the social security tax liability
on calendar year 1977 earnings, over and above the tax liability on calendar
year 1977 earnings that would result if the contribution and benefit base in
1977 were to remain at the 1976 level of $15,300. The increase in taxes pay-
able on 1977 earnings by the estimated 19 million workers with earnings of
more than $15,300 will range up to a maximum of $70.20, each, for a wage
earner and his employer or $94.80 for a self-employed person. In return,
these higher paid workers will have greater benefit protection resulting from
the increase in the maximum annual amount of earnings that are creditable
toward benefits.
About 1.3 million beneficiaries will receive additional benefits as a
result of the increase in the retirement test exempt amount in 1977.
Additional benefit payments for months in calendar year 1977 will amount
to an estimated $150 million, over and above the amount of benefits that
would be paid for months in calendar year 1977 if the retirement test
exempt amount for 1977 were to remain at $2,760.
Since these increases under the automatic provisions have been anticipated
for some time, the resulting additional tax revenues and additional benefit
payments have already been reflected in the planning of the Federal budget.
/s/David Mathews
Secretary
HEALTH.
EDUCATION APPLICA
THE SECRETARY OF HEALTH, EDUCATION, AND WELFARE
WASHINGTON, D.C. 20201
USA
OCT 7 1976
MEMORANDUM FOR THE PRESIDENT
This is to inform you that on or before November 1, I am required by law
to have published in the Federal Register the following changes that will
be applicable during calender year 1977 under the automatic provisions of
the social security program.
1. The contribution and benefit base will increase from $15,300 in 1976
to $16,500 in 1977.
2. The monthly exempt amount under the retirement test will increase
from $230 in 1976 to $250 in 1977. The corresponding annual exempt
amount will increase from $2,760 in 1976 to $3,000 in 1977.
The contribution and benefit base is the maximum annual amount of earnings
on which an employee or a self-employed person must pay social security tax
contributions. It is also the maximum annual amount which may be credited
toward benefits payable under the social security program.
The retirement test monthly exempt amount is the maximum amount that a
social security beneficiary who is subject to the retirement test may
earn in a month and still receive the entire amount of his benefit for
the month. The corresponding annual exempt amount, equal to 12 times
the monthly amount, is the maximum amount a beneficiary may earn in a
year and still receive all of his benefits for the year.
Each of the 1977 amounts is determined on the basis of a formula, spec-
ified in the law, which automatically produces a mathematical result
based upon reported statistics. The formula is designed to keep both the
contribution and benefit base and the retirement test exempt amount up to
date as average wage levels increase. The formula requires that to obtain
each of the 1977 amounts the corresponding 1976 amount be multiplied by the
ratio of the average amount, per employee, of the taxable wages of all em-
ployees reported under the program for the first calendar quarter of 1975
to the average amount of such wages reported for the first calendar quarter
GERATE FORD LIBRANT
2
of 1974. Based on tabulated data derived from 100 percent of the processed
reports of taxable wages for each of the two quarters, the required ratio
is 1.074733.
Multiplying the 1976 contribution and benefit base of $15,300 by the
above ratio produces the amount of $16,443.41. The law requires that
this result must be rounded to the nearest multiple of $300, thus making
the 1977 amount $16,500.
Multiplying the 1976 retirement test monthly exempt amount of $230 by
the above ratio produces the amount of $247.19. The law requires that
this result must be rounded to the nearest multiple of $10, thus making
the 1977 amount $250.
Automatic increases in the contribution and benefit base play an important
part in financing automatic cost-of-living increases in social security
benefits. The increase in the base from $15,300 to $16,500 will result in
an estimated increase of $2.3 billion in the social security tax liability
on calendar year 1977 earnings, over and above the tax liability on calendar
year 1977 earnings that would result if the contribution and benefit base in
1977 were to remain at the 1976 level of $15,300. The increase in taxes pay-
able on 1977 earnings by the estimated 19 million workers with earnings of
more than $15,300 will range up to a maximum of $70.20, each, for a wage
earner and his employer or $94.80 for a self-employed person. In return,
these higher paid workers will have greater benefit protection resulting from
the increase in the maximum annual amount of earnings that are creditable
toward benefits.
About 1.3 million beneficiaries will receive additional benefits as a
result of the increase in the retirement test exempt amount in 1977.
Additional benefit payments for months in calendar year 1977 will amount
to an estimated $150 million, over and above the amount of benefits that
would be paid for months in calendar year 1977 if the retirement test
exempt amount for 1977 were to remain at $2,760.
Since these increases under the automatic provisions have been anticipated
for some time, the resulting additional tax revenues and additional benefit
payments have already been reflected in the planning of the Federal budget.
/s/David Mathews
Secretary
Social Security
file
THE WHITE HOUSE
washington
August 9, 1976
MEMORANDUM TO:
DICK CHENEY
FROM:
SUBJECT:
Proposal of Social Security
Reform
JIM CANNON Jun
You asked for a comment on a proposal by Arthur
Laffer and David Ranson for reforming Social
Security.
Their most important proposal was discussed in
a Cabinet Room meeting on May 6, 1976, at which
Ranson participated as a representative of Secre-
tary Simon. During the meeting Ranson advocated
his ideas to the President, but the President
chose another course of action.
FORD i LIBRARY 07V839
Subsequently, and unfortunately, Laffer and Ranson
were quoted in a Wall Street Journal editorial
which seemed to undercut the President's position.
I have no way of knowing whether they sought out
the press, but it is my impression that Laffer and
Ranson are ardent advocates for a particular point
of view and will continue to push their case.
Attached is a summary of the merits of their proposals.
THE WHITE HOUSE
washington
July 20, 1976
MEMORANDUM FOR:
JIM CANNON
FROM:
ALLEN MOORE M
SUBJECT:
Proposal for Social Security Reform
The proposals advanced in the paper by Messrs. Art Laffer and
Dave Ranson touch on several of the major issues which cur-
rently confront the Social Security system. The proposals
did not originate with Laffer/Ranson and are fairly well
known by most Social Security "watchers." They were, when
relevant, incorporated in the materials used in the Presi-
dent's deliberation (and decision) in May on how to "decou-
ple" Social Security's benefit formula.
The proposals are not without merit, but the discussion of
them strikes me as somewhat strident in tone and leaves out a
number of important factors which should not be ignored in a
pragmatic consideration of alternatives. The arguments
advanced tend to be based purely on economic rationale, and
very little attention is given to important questions of
political feasibility, public perception, and subjective
value judgments about the purposes and goals of Social
Security.
The five proposals will be examined in turn:
1. "Decouple" the Social Security benefit formula and
replace it with a price-indexed system.
In the extensive debate which led to the President's
May decision on decoupling, this proposal was one of
two principal alternatives considered. You will
recall that its merits were thoroughly presented and
discussed at that time, but the President decided on
a different course of action. (Incidentally, the
editorial response to the President's position has
been quite good -- giving him credit for taking the
initiative.)
-2-
2. Eliminate the Retirement Test.
This proposal would strike the current provisions in
law that limit the amounts an individual can earn
between the ages of 65 and 72 without experiencing a
reduction in benefits. This proposal has appeared
many times through the years and has strong surface
appeal for both economics and equity reasons, i.e. it
would eliminate a disincentive to work and would
treat earned and unearned income in like fashion for
the purposes of calculating benefits.
The problems with this proposal are:
It would probably cost between $4 and $7 billion
depending on how it was implemented. At a time
of fiscal strain on the system, this makes lit-
tle sense given our lack of knowledge on the
behavioral impact of the retirement test. Even
if an increase in outflow of this magnitude were
going to be considered, it would be prudent to
examine alternative uses for such funds,
economics notwithstanding.
It would conflict with the "earnings replace-
ment" rationale which underlies the system.
It would reward an additional class of persons
with benefits which are, to some degree,
unearned and untaxed. (If the Laffer/Ranson
proposals to tax benefits and to convert Social
Security to a pure "insurance purchase" plan
were instituted, then the elimination of the
retirement test would be a necessity. However,
it is more likely that the retirement test pro-
modifications.) posal would be accepted without such compensating
The discussion of the "retirement test" fails to
mention another course of action which could improve
the equity and economic efficiency of current law --
modification of the current "test." Such changes as a
higher cut-off point for exempted earnings, a lower
"tax rate" on excess earnings, higher benefits for
those who make Social Security contributions beyond
age 65, etc., are alternatives to the Laffer/Ranson
proposals which have similar objectives at lower cost
to the system.
3. Tax one-half of Social Security benefits.
This proposal has been advanced many times and receives
-3-
fairly broad support from pension experts and
economists. The logic is appealing - Social Secur-
ity benefits should be treated like other retirement
income. Therefore, since no one pays taxes on one-
half of all Social Security contributions (i.e. that
portion paid by the employer), the beneficiary should
be subject to income taxation on the portion of bene-
fits attributable to the untaxed contributions. This
is the way most individual and corporate pension and
profit sharing plans work.
The principal problem with this proposal is
political. The thing to be gained --- greater econom-
ic efficiency and equity through consistent tax
treatment of retirement income --- comes at a cost of
reduced disposable income for millions of Social
Security beneficiaries. Logical as the proposal may
be, it would be politically disastrous.
4. Increase the Social Security retirement age for
persons below age 55 who are now in the work force.
This proposal receives fairly broad support in the
Social Security and economic community, but not for
the reasons cited by Laffer/Ranson. Whereas these
two cite the need for eliminating projected future
deficits which will result in "reneged upon" prom-
ises, others cite the desirability of providing addi-
tional work incentives to an increasingly "healthy"
aging population which does not want forced
retirement at 65.
The Laffer/Ranson "phase-in" approach seems sensible.
Once again, the problem becomes a political one of
"taking away" something that people feel they are
entitled to.
5. Convert Social Security to an individual insurance
program contributions. where benefits are based solely on
This proposal is not new, but receives support from
very few experts. It suffers from a fundamental
conflict with Social Security's dual goals of social
adequacy and social insurance.
The Laffer/Ranson proposal would eliminate the social
adequacy role of Social Security (i.e. the provision
-4-
of benefits to most beneficiaries which reflect both
contributions paid into the system and a minimum
"adequate" payment standard). These dual goals give
rise to a benefit structure skewed in favor of per-
sons who have contributed least to the system
(generally those with lower incomes).
Presumably, Laffer and Ranson would replace these
unfunded benefits (i.e. the extent to which benefits
paid out exceed the actuarial value of benefits paid
in) with an expanded cash assistance program for the
poor. Higher earners who benefit under current law
(Federal civil servants, for example) would lose
their current windfall. Although some net savings
would result (at the expense of very vocal middle
and upper wage earners), this proposal would force
the replacement of the "welfare" component of the
system with cash assistance paid from general
revenues.
Similar logic is often used as an argument for
introducing general revenues directly into the fi-
nancing of the Social Security system. Without
regard to the merits of this idea, it is somewhat
ironic that the Laffer/Ranson proposal would indi-
rectly re-finance the system with general revenues.
The overall direction of the Laffer/Ranson proposals is
clear -- and is discussed in the concluding section of their
paper. They believe that at some future point "it might
well be worthwhile to make voluntary some aspects of Social
Security participation." They also cite their preference
for soliciting bids from outside the government for managing
trust fund portfolios as assets accumulate.
Once again, in a political vacuum these ideas have some
(though not necessarily persuasive) merit. However, past
experience tells us that voluntary Social Security partici-
pation and the investment of Trust Funds in non-Federal debt
instruments are politically volatile issues.
I still believe that the President's current position is the
best one. He has advanced two specific proposals for deal-
ing with the short and long-range financing problems of the
Social Security system, and has received credit for facing
up to those issues. In his Social Security message, he said
that these proposals did not solve all of Social Security's
problems, but would provide a degree of stability and
GERALD LIBRARY FORD
-5-
predictability which permitted careful analysis of how best
to eliminate remaining problems in the system. The issues
and recommendations in the Laffer/Ranson paper will be part
of that analysis, which we are currently seeking to struc-
and CEA.
ture with the participation of OMB, Treasury, HEW, Labor,
INFORMATION
DOMESTIC COUNCIL
S.S.
FROM:
Marsh
SUBJECT:
Reply to query about closing of Social
Security's DC office of Public Inquiries
Date: 11/30/76
COMMENTS:
Marsh requests. handling by our staff.
Sent to Spence J. for appropriate handling.
A.
N
R
LIBRARY 'y OFRALO
ACTION:
Date:
CC: Johnson
THE WHITE HOUSE
WASHINGTON
976 NOV I PM 12 24
November 30, 1976
MEMORANDUM FOR:
JIM CANNON
FROM:
JACK
I would greatly appreciate your have the
July MARSI arranging to
attached letter handled by your office.
Many thanks.
FORD LIBRARY is GERALD
120283
THE WHITE HOUSE
WASHINGTON
November 30, 1976
Dear Mr. Lewis:
Many thanks for your recent letter
concerning the proposed closing of
the Office of Public Inquiries and
transferring the functions of this
office to the Social Security Adminis-
tration Headquarters office in Balti-
more, Maryland.
I have forwarded your letter to the
office here at the White House under
whose jurisdiction this agency comes.
I am sure your letter will receive
careful consideration and you should
be hearing further from the White
House shortly.
Sincerely,
Jank Counsellor to the President
John 0. Marsh, Narch Jr.
Mr. Lawrence Lewis
343 O Street, Northwest
Washington, D. C. 20024
FORD is LIBRARY 070839
NOV 22 1976
343 O St. S.W.
Washington, D.C. 20024
Nov. 19, 1976
Mr. John O. Marsh, Jr.
Counsellor to the President
The White House Office
Washington, D.C. 20500
Dear Mr. Marsh:
I am making a highly presumptuous request for your assistance
in a matter of little importance except to my co-worker and myself. I
have nothing more substantial to justify this contact other than the fact
that I spoke with you several times while I was employed in the Social
Security District Office in Winchester, Va. many years ago.
I am still employed by the Social Security Administration, now
with the Washington Inquiries Section of the Office of Public Inquiries.
This office is now located in the HEW Building at 330 Independence Ave.
S.W., Washington, D.C. and has been operating at this location for the past
20 years. I have been notified that this office is to be closed in the near
future and our functions transferred to the Social Security Headquarters
in Baltimore, Md.
Entirely apart from personal considerations, I do not believe this
decision is justified as it will not increase the economy or efficiency of
our present work. The chief functionnof this office is to provide non-routine
infirmation by telephone regarding all aspects of the Social Security programs
primarily to Congressional offices, national organizations, and other
government agencies. We also have a great deal of background historical
materials available for prompt personal reference. We provide, I believe,
an essential presence here in Washington of the Social Security Administration's
national headquarters which, as you know, is located in Baltimore, Md.
Further, the Washington location of our office enables us to expedite handling
of many types of priority requests received from Congressional as well as
other offices.
I would appreciate any assistance you may care to make in this
situation. If your present respondsibilities preclude any efforts in this
matter, I will fully understand. My office phone number is 245-7075; home
phone number is 554-4136 should you need further information Best wishes.
Sincerely yours,
Lawrence Sewis
Lawrence Lewis
GERALD R. LISEARY FORD
Lawrence Lewis
343 O St. S.W.
PLEASE MA
Washington, D.C. 20024
PM DC200 200
EARLY FOR
19 NOV
CHRISTMAS
ited States 13c
1976
Mr. John O. Marsh, Jr.
Counsellor to the President
The White House Office
1600 Pennsylvania Ave. N.W.
Washington, D.C. 20500
79