Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
7344570
label
Press Conference of James B. Cardwell, Commissioner, Social Security Administration
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
7344570
sourceUrl
contentType
document
title
Press Conference of James B. Cardwell, Commissioner, Social Security Administration
citationUrl
collections
White House Press Releases (Ford Administration)
Press Releases
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
7344570
levelOfDescription
item
productionDates
day
17
logicalDate
1976-06-17
month
6
year
1976
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
bb7ee5858ab34893
ocrText
Digitized from Box 27 of the White House Press Releases at the Gerald R. Ford Presidential Library
FOR IMMEDIATE RELEASE
JUNE 17, 1976
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
JAMES B. CARDWELL, COMMISSIONER,
SOCIAL SECURITY ADMINISTRATION
THE BRIEFING ROOM
12:25 P.M. EDT
MR. CARDWELL: I am Bruce Cardwell, the Commissioner
of Social Security, for what that may be worth.
The President has made in effect since January of
this year a number of proposals on Social Security, the two
most significant of which were enunciated in his Budget
Message in January. He indicated he would send to the Congress
a proposal for a tax rate increase designed to relieve the
current short-term deficit that the System is experiencing.
This year it will fall short of income by about
$4 billion. In the winter the President sent a specific
proposal to Congress to raise the tax rate for both employers
and employees three-tenths of one percent each and that was
designed to bring the System into balance beginning in 1977 and
holding it in balance into the 1980s.
He also indicated to Congress that he would present
them at a later time a proposal to correct a flaw that came
into the System in 1972. In 1972, the Congress changed the
Social Security Act to provide automatic cost of living benefit
increases for persons who were retired, persons who were on
the retirement rolls. Every time the cost of living goes up
by 3 percent or more, the law automatically requires the
Commissioner of Social Security to increase the benefit
amounts for persons who are retired.
The language of that particular provision, however,
produced an unintended effect because it required the
Commissioner to recompute the benefit formula for persons who
would retire in the future -- is now seen in the face of long-
term predictions that suggest that we are going to continue
to have rises in both wages and prices on into the long-term
future.
It suggests, and quite clearly, this has been
known now for several years, that the System would increase
in cost as a result of this formula. The reason it would
increase in cost is that it would increase the benefit
amounts for future retirees, persons who are now working but
who would retire later every time the cost of living increase
is invoked for current retirees.
MORE
- 2 -
This is called double indexing, and one way to
illustrate it is to look at what happens in the future, when
a person retires, reaches, say, age 65 and elects to draw
Social Security. Today if he is in the lower income bracket,
he could expect that his earnings at the time of retirement
would be replaced by Social Security to an extent of about
63 percent of his last earnings.
In other words, he would get 63 cents on every
dollar earned he would receive in a Social Security benefit.
Well, this particular flaw in the formula would, around the
turn of the century and thereafter, result in that same
employee drawing over 100 percent of what he was earning
at the time of retirement.
Q
Are you talking about the 100 percent of the
total salary?
MR. CARDWELL: 100 percent of his gross salary.
Q
Does that include inflation or not?
MR. CARDWELL: Well, the reason it happens is that
salaries automatically correct themselves for inflation
without any action on the part of the Social Security System.
Q
But if I could understand this, if the person
retires at, say, $5,000 a year and he would be getting
63 percent of that on retirement, years hence might not 101
percent of that former amount be worth in real dollars
63 percent?
MR. CARDWELL: We are talking about corrected for
inflation in effect.
Q
You are talking about real dollars?
MR. CARDWELL: In other words, the System would
run away with itself. It would start paying higher and
higher benefits to more and more people without ever having
intended to do SO.
Q
Are you talking about the total salary or the
salary for tax purposes in Social Security?
MR. CARDWELL: No, it is the gross salary, the
earnings of the employed, not those that are taxed or not
taxed by Social Security.
Q
To go back to Mort's thing a minute on the
63 percent, you are saying it will be the corrected for
inflation figure of over 100 percent?
MR. CARDWELL: Yes. Look, if I am making $5,000
today and I retire, I would expect to draw about $3,300 in
Social Security benefits.
MORE
- 3 -
Q Right.
MR. CARDWELL: If I happen to be making $5,000 in
the year 2000, I could expect to draw about $6,000 in
Social Security benefits. It is that simple.
Q
I see what you mean.
Q
Wait.
MR. CARDWELL: Now if inflation during that period
would cause a man making $5,000 today to be earning $10,000
in the year 2000, he would be drawing $12,000 in benefits.
Q
What you are saying when you are talking about
the turn of the century figure, you are talking about a
current worker.
MR. CARDWELL: Current worker, turn of the century.
Q
Not a man who retires now.
MR. CARDWELL: No. This affects future workers.
It is a flaw in the System, it has nothing to do with people
who are already retired. It was an unintended effect of the
law.
Q
Future workers can in effect, then, under the
present System, retire at a higher rate?
MR. CARDWELL: Than their brethren who retire
today.
Q
When will that begin to take hold?
MR. CARDWELL: It begins to take hold around the
turn of the century. It shows up in a gradual way in the
late '90s.
Q
What happens under your proposal to the man
who retires now at $5,000 a year and gets --
MR. CARDWELL: Very simply stated, the President's
proposal is intended to stabilize these replacement rates
under a Social Security System that is indexed, as the
present one is, for the cost of living for retired persons.
In other words, you continue in effect the idea of
an automatic cost of living index for persons who have retired.
Once they are retired their benefits would be kept up to date
with the cost of living but it stabilizes the retirement
rights for future workers, it fixes them essentially as they
are today.
MORE
- 4 -
Now it permits those retirements rights, though, to
improve if the standard of living improves. The present
law does the same thing.
The worker who is making $5,000 today -- $5,000
may be worth $10,000 at the turn of the century. The System
would take that into account but its primary objective is
to stabilize replacement rates.
Q
Are you saying these cost of living increases
will not be computed for people who are not in the System
yet? Is that what you mean?
MR. CARDWELL: Yes, that is right. That is one way
of saying it.
Q
If I understand this, to put it another way,
if the cost of living increases affect only those who are
already retired --
MR. CARDWELL: Already retired?
Q
-- the flaw in the System now is, according
to the language, that even people that are years from
retirement --
MR. CARDWELL: As you sit there, your retirement
rights are improving under the present law.
Q
If the law is changed the way the President
wants, the people who are working now would enter the System
at whatever --
MR. CARDWELL: At a par.
Q
Okay. Then they start to get automatic cost
of living increases.
MR. CARDWELL: Yes.
Q
Commissioner, it looks like, according to the
tally on Page 3 of the fact sheet, that the only people who
would really wind up with more than 100 percent --
MR. CARDWELL: Are the low wage earners.
Q
Yes, the lower income people.
MR. CARDWELL: If you take a single worker, that
is essentially true, but if you take a middle income worker
with a family, because benefits automatically increase if
you have a family, and you take the gross earnings of the
Social Security covered employee, the family income could also
get close to 100 percent. It would rise dramatically and in
some cases could exceed 100 percent for the family unit.
MORE
- 5 -
Q
One other thing. In the President's message,
he reiterated his proposal for the three-tenths hike for
employers and employees which he put forth in the State of
the Union.
MR. CARDWELL: Yes.
Q
It seems evident that the Congress is not going
to adopt that this year because the Senate Finance Committee
and House Ways and Means have already rejected it. Why is he
still sticking by that even though --
MR. CARDWELL: I think he is attempting to call
to the attention of the public and the Congress the fact
that we are just sitting here doing nothing while the System
experiences deficits, and I agree with him, I think that it
is appropriate to continue to call their attention to the
fact.
MORE
- 6 -
Q
You don't have any expectation of that being
passed this year?
MR. CARDWELL: You will have to make your own
judgment about that. I don't predict what Congress will or
will not do. Most people agree with you.
Q
Commissioner, is that not the alternative of
raising the base?
MR. CARDWELL: All right. I think that is a
good question.
In effect, we looked at the wage base and the
tax rate and tried to kind of pull the two along together.
I think the thing that most people do not realize or
appreciate is the fact that the wage base is increasing
under existing law literally every year and that also stems
from the 1972 amendments which requires the wage base to be
increased every time the cost of living rises enough to trigger
an increase in benefits.
For example, in 1977, the first year in which
the President's tax proposal would be effective, the wage
base will increase from the 1976 level of $15,300 to $16,500.
Now for a worker at the $15,300 level this year -- or, let's
say, at the $16,500 level this year -- that would cost him
$70 automatically in 1977. It is a hidden tax increase that
is already sitting there waiting for him.
So in effect we said we recognize that that increase
was already occurring and the three-tenths of one percent
would apply to him and all workers. The three-tenths means
for that particular worker, the person at the top of the rung,
that he would have to pay about another $49 for the three-
tenths of one percent. His gross increase in Social Security
taxation in 1977 would be about $119, so we have already
taken that into account. In other words, we recognize that
he is going to pay $70 under existing law.
Q
But if you raised the base more than somebody
making $35,000 a year, he would pay more on this $65,000 --
MR. CARDWELL: And something else happens. We are
trying to rethink and set the stage for a reconsideration
of the long-term functioning of the system. We know that if
you increase the wage base dramatically-- as a jump to, say,
$25,000 or $35,000 would do--not only would it have, we think,
the undesirable effect of impacting too abruptly on the middle
wage earner but it would also increase in his benefit rights
in the long term and increase the long-term cost of the
system, because your benefit rights are determined by how
much you paid in; and if you pay in more because we raised
the wage base, you can also be entitled to draw out more.
Q
If you write the law that way.
MORE
- 7 -
MR. CARDWELL: That is the way the law is written.
Q
On the cost of living, does that go in at
over 3 percent?
MR. CARDWELL: Three percent is the threshold. It
is triggered. If the CPI gões up by more than 3 percent in
the period specified in the law, then we sit and calculate
what it actually was. It will be 6.4 percent for this July.
Q Are you going to match the CPI increase
over 3 percent?
MR. CARDWELL: No. You will actually increase
the benefit by whatever the CPI was providing the CPI for a
given year exceeding 3 percent.
Q
In other words, if the CPI goes up 6 percent --
MR. CARDWELL: It is 6 percent. But, if it is up
2 percent, it is zero.
Q
Oh, I see. Over 3 you get --
MR. CARDWELL: Three is the trigger, the threshold.
Q
But you don't wait until the end of the year.
When it goes up 3 percent, you increase it, right?
MR. CARDWELL: No, it is calculated once a year
under the law and the next one would be effective this coming
July.
Q
So, these are annual adjustments?
MR. CARDWELL: Right, annual adjustments.
Q
In years when the cost of living exceeds the
price index?
MR. CARDWELL: Would you let me summarize the
proposal the President sent up today?
Q Yes.
MR. CARDWELL: Maybe that would help. I will do
it in very brief and general terms.
The first corrects the flaw and essentially places
the benefit structure where it would have been had the flaw
not occurred in 1972 in the first place. It just says we
will take the system and keep it in place and just make this
one change. We will set the stage for reconsideration of
such things as to whether the wage base is adequate, whether
the long-term financing generally is adequate, where the
benefits for men and women are adequate.
MORE
- 3 -
This device deliberately avoids those issues. It
says they are major issues that deserve careful consideration
over time, but meanwhile we have got to know what the long-
term financial picture is going to be.
Next, and most important, this provision would cut
the long-term 75-year deficit in half. So it has a significant
cost effect.
Q
What is the amount of the 75-year deficit?
MR. CARDWELL: The 1976 Trustees Report was issued
to the Congress in May and it said that over 75 years the
system will have a long-term 75-year average deficit of 7.96
percent. This would cut that by 3.95 percent. Say, it would
leave a deficit of about 4 percent.
Q
7.9 percent of what?
MR. CARDWELL: Of the payroll that is taxable under
the law, the total national payroll that is taxable under
the law.
Q
Do you have a dollar figure for that?
MR. CARDWELL: If you read the Wall Street Journal,
they say it is $4 trillion. No one has ever stopped to
calculate it. If you look at it, there is a better way to
measure it. There is a gross payroll subject to the wage
base in the tax. That is the source of revenue to finance
the system. You measure your financing capacity in terms of
whether that tax rate and that wage base, when applied, will
produce enough money to cover costs. And we fall short.
In other words, look at yourselves. You are paying
today 5.85 percent for Social Security. If the actuaries
and the trustees are right, in the year 2030, averaged over
that period between now and then, you would have had to have
paid in roughly 13 or 14 percent, so that is the difference.
It says the tax rate falls short by that much in taxes and
this would cut that difference roughly in half.
MORE
- 9 -
Q
Is the remainder of the deficit due to
demographic changes?
MR. CARDWELL: There are really three causes for
the deficit. Two have to do with inflation. Both prices and
wages on the near term have risen much more sharply than anyone
ever anticipated for this period. That kicks the cost of the
program up into a higher orbit and that orbit would continue
in the future.
The second feature is the fact that we have
revised upward -- and "we" represents a very large group of
people the economists generally in this country agree that
on the long term, looking out over the next 75 years, both
wages and prices are going to be higher than anticipated
when this System was last examined in 1972. So that has
another long-term inflationary effect. That is the second
long-term cost feature.
The third one -- well, I guess there are really
four. The third one is that under those circumstances this
particular provision that we are trying to correct compounds
the effects of inflation.
The final long-term problem is the result of a
revision in the prediction of how the population will mix
over the next 75 years. We are predicting now that we will
not even replace ourselves in terms of the fertility or
birth rate. We are predicting a low replacement rate
level. That means fewer workers over the long term paying
into the System, it means more proportionately older people
drawing out of the System.
Now this particular provision will recognize the
long-term inflation and attempts to avoid the double indexing
that would have caused that phenomenon to increase the cost
of the system.
Q
One of the criticisms a number of the Democratic
candidates have made this year is that some of the current
problems of the Social Security System are attributable to
high unemployment. What would half the current rate of
unemployment do to the current stability of the System?
MR. CARDWELL: If you could do it, you could not
make up now for the deficit that is immediate on hand by
sudden improvement in employment. A high rate of
employment over the long term would offset some of the
effect of the demographic predictions. In other words, you
would have a larger share of your work force working. The
long range estimates that we are talking about assume a long-
term average unemployment rate of about 5 percent. So you
can reach your own judgment for the 75 years.
MORE
- 10 -
Q
What would 4 percent do to that? Would it
make much difference?
MR. CARDWELL: It would make a difference but it
would not swing the System by any means.
Q
Has any consideration been given in the matter
of inquity to fixing up the situation under which the people
who run the Social Security System have got a better retirement
set-up than the retirement set-up --
MR. CARDWELL: Could I take that question and then
just finish my review of what the President did today?
The proposal which stabilized the so-called replace-
ment rates, the share of a person's earnings that are
replaced by Social Security upon retirement, at the levels
essentially as they exist today literally that effect would
take place in the year in which the law is changed. We are
assuming this would not be before 1978 so, in effect, it would
freeze the replacement rates, if I can use that term, as
they would exist in 1978.
Q
You don't think the Congress is going to act
today on the President's proposal?
MR. CARDWELL: Well, they could act on it today.
We are saying it would not be effective until 1978 and
you move some lead time to rearrange all the machinery to
carry out a new formula. It does not disturb and leaves
in place the concept of an automatic cost of living increase
for retirees.
Q
But it confines it to that?
MR. CARDWELL: But it confines it to that. However,
it does have as one of its basic features the idea that
future benefits for future retirees would be based on wage
levels at the time of retirement, the real wage question that
we had earlier, and that they would recognize any inflation
or deflation for that matter that would have occurred in
the society during the period of the workers' work life.
The provision also has a transition provision.
It says that any individual over the next ten years -- ten
years following enactment -- would have the right to the
benefit computed by this new formula or the benefit computed
by the old formula, whichever was higher for his particular
circumstance.
Now you want to go then to your question?
MORE
- 11 -
Q
Yes. The point I had in mind was that the
government workers -- say, the Social Security staff -- when
they retire they can retire on immediate full benefits and
work in addition.
MR. CARDWELL: Yes.
Q
Now the Social Security retiree has to wait
seven years if he wants to work.
MR. CARDWELL: That is an issue that has surfaced
more and more of late. My personal opinion as someone who is
eligible for Federal retirement--who will be if I behave
myself, I think it is inequitable but I think as with the
question of State and local Government employees who have
a right that the average worker does not have -- namely, to
either opt in the System optionally or opt out once they
come in -- both of those are anomalous situations. The 1975
Social Security Advisory Council took note of both of those
situations and recommended that eventually for that matter,
assuming public policymakers could agree to it, they
should put the System on a universal coverage basis. That
means they merge Federal workers and State and local
Government workers into the System.
Most people assume that that means that the Government
worker would have to give up something, and you can assume
what the consequence of that might be.
Q
Another criticism heard by Presidential
candidates is the fact that the working spouse, the working
wife, gets short-changed -- the one who works all the time --
because she is limited, she can go only up to about, I think,
half of what her husband gets.
MR. CARDWELL: No, not really, she can get her
benefit right or the two of them together can get his right
and the spouse's right, whichever produces the best effect
for the two of them.
However, her right combined singularly with his
right could perhaps produce a better effect, and the law
does not allow that. The law says, I think really --
Q
That is the point.
MR. CARDWELL: More often than not the issue raised
by single women and by working women comes in the form of a
concern that the housewife, the non-working married woman --
non-working married man even -- has a right to draw in effect
a 50 percent benefit without ever having paid in.
MORE
- 12 -
The married worker also will find herself often in
a situation where she will have worked for a short while prior
to marriage and will have paid in, will not have worked
long enough to earn a full right, she will go back into employ-
ment in her later years in married life and again will perhaps
only work for a short period -- the two periods combined
not being sufficient to earn a benefit. The single woman has
sometimes the same complaint.
This is, I think, a very complex issue and it
really comes into contest in part with the matter of how you
look at the family unit, single people versus married
people. The solutions to that problem turn out to be very
expensive, if you try to round everybody upward. If you
leave the wife's benefit in place and if you try to also
give the working wife an equivalent benefit opportunity,
that increases the cost of the System.
Another advocacy on the part of women these days
is that housewives should get a full benefit, and even though
they directly do not pay into the System.
You have all these points and counterpoints flooding
in for consideration at a time when we see the long-term
cost of the System rising at a very rapid rate. We think
that by putting the System on a firm footing -- which we
think the President's proposal would do -- you improve the
opportunity for policymakers to later rationally approach
these kinds of questions. The answers are not going to be
easy to come by.
THE PRESS: Thank you.
END
(AT 12:50 P.M. EDT)