[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




                  THE PRESIDENT'S AND OTHER BIPARTISAN
                      ENTITLEMENT REFORM PROPOSALS

=======================================================================

                               HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 18, 2013

                               __________

                             Serial 113-SS3

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin                 JIM McDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington        XAVIER BECERRA, California
CHARLES W. BOUSTANY, Jr., Louisiana  LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               RON KIND, Wisconsin
ADRIAN SMITH, Nebraska               BILL PASCRELL, Jr., New Jersey
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
KENNY MARCHANT, Texas                LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio

        Jennifer M. Safavian, Staff Director and General Counsel

                  Janice Mays, Minority Chief Counsel

                                 ______

                    SUBCOMMITTEE ON HUMAN RESOURCES

                      SAM JOHNSON, Texas, Chairman

PATRICK J. TIBERI, Ohio              XAVIER BECERRA, California
TIM GRIFFIN, Arkansas                LLOYD DOGGETT, Texas
JIM RENACCI, Ohio                    MIKE THOMPSON, California
AARON SCHOCK, Illinois               ALLYSON SCHWARTZ, Pennsylvania
MIKE KELLY, Pennsylvania
KEVIN BRADY, Texas








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                           C O N T E N T S

                               __________
                                                                   Page

Advisory of April 18, 2013 announcing the hearing................     2

                               WITNESSES

The Honorable Erica L. Groshen, Commissioner, accompanied by 
  Michael W. Horrigan, Ph.D., Associate Commissioner, Office of 
  Prices and Living Conditions, Bureau of Labor Statistics, 
  Department of Labor, Testimony.................................     8
Jeffrey Kling, Ph.D., Associate Director for Economic Analysis, 
  Congressional Budget Office, Testimony.........................    22
Ed Lorenzen, Executive Director, The Moment of Truth Project, 
  Committee for a Responsible Federal Budget, Testimony..........    44
Nancy Altman, Co-Chair, Strengthen Social Security Coalition, 
  Testimony......................................................    56
Charles P. Blahous III, Ph.D., Trustee, Social Security and 
  Medicare Boards of Trustees, Testimony.........................    68

                   PUBLIC SUBMISSIONS FOR THE RECORD

AARP.............................................................    92
Center on Budget and Policy Priorities...........................   101
Consortium for Citizens with Disabilities........................   116
National Active and Retired Federal Employees Association........   122
National Education Association...................................   125
National Senior Citizens Law Center..............................   127
RetireSafe.......................................................   129
Robert Munson....................................................   130
The Social Security Institute....................................   131

[[Page (1)]]




 
                  THE PRESIDENT'S AND OTHER BIPARTISAN
                      ENTITLEMENT REFORM PROPOSALS

                              ----------                              


                        THURSDAY, APRIL 18, 2013

             U.S. House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:31 a.m. in 
Room B-318, Rayburn House Office Building, the Honorable Sam 
Johnson [Chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

[[Page 2]]

HEARING ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                 Chairman Johnson Announces Hearing on

                  the President's and Other Bipartisan

                      Entitlement Reform Proposals

B-318 Rayburn House Office Building at 9:30 AM

Washington, Apr 11, 2013

Hearing is the First in the Committee's Hearing Series on Entitlement 
Reform

    U.S. Congressman Sam Johnson (R-TX), Chairman of the House 
Committee on Ways and Means Subcommittee on Social Security, today 
announced the first in a series of hearings on the President's and 
other bipartisan entitlement reform proposals. This hearing will focus 
on using the Chained Consumer Price Index to determine the Social 
Security cost-of-living adjustment. This proposal was included in the 
President's Fiscal Year 2014 Budget, the report by the National 
Commission on Fiscal Responsibility and Reform, and the report of the 
Bipartisan Policy Center's Debt Reduction Task Force. The hearing will 
take place on Thursday, April 18, 2013, in B-318 Rayburn House Office 
Building, beginning at 9:30 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Subcommittee and 
for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    Social Security beneficiaries receive an increase in their 
benefits, known as the cost-of-living adjustment (COLA), each year 
there is inflation. Prior to 1972, Congress enacted increases in Social 
Security benefits on an ad hoc basis. The Social Security Amendments of 
1972 (P.L. 92-603) established an automatic process for determining 
whether a COLA would be provided beginning in 1975.
      
    The Social Security COLA is based on the percentage change in a 
measure of inflation known as the Consumer Price Index for Urban Wage 
Earners and Clerical Workers (CPI-W). The percentage change is measured 
by comparing the highest third calendar quarter average CPI-W 
previously recorded to the average CPI-W for the third calendar quarter 
of the current year. The COLA becomes effective in December of the 
current year and is payable in January of the following year. If there 
is no percentage increase in the CPI-W between the measuring periods, 
no COLA is payable, as happened in 2009 and 2010. In 1975, the CPI-W 
was the only inflation measure produced by the Bureau of Labor 
Statistics (BLS). Since then, other indices have been developed by the 
BLS.
      
    In December 1996, a Senate-appointed commission to study the CPI, 
chaired by Michael J. Boskin, Ph.D. (the Boskin Commission) found that 
both the CPI-W and the later developed Consumer Price Index for All 
Urban Consumers (CPI-U) overstated inflation in a number of ways. The 
BLS modified the indices to respond to a number of the Commission's 
recommendations regarding how these two indices were measured, but did 
not address their inability to account for the fact that as prices 
change, consumers will adjust their spending habits across categories 
of goods (e.g., if the price of beef goes up, consumers might buy pork 
instead).
      
    In 2002, BLS introduced the Chained Consumer Price Index for All 
Urban Consumers (C-CPI-U), which accounts for consumer substitution 
between CPI item categories, as well. According to the 2003 BLS report, 
Introducing the Chained Consumer Price Index, the C-CPI-U is ``designed 
to be a closer approximation to a `cost of living' index than existing 
BLS measures.'' This index cannot be used to deter

[[Page 3]]

mine Federal program adjustments unless Congress passes, and the 
President signs, legislation permitting the change.
      
    In announcing the hearing, Social Security Subcommittee Chairman 
Sam Johnson (R-TX) said, ``Americans deserve action to protect and 
preserve Social Security, and the inclusion of Chained CPI in the 
President's budget is a welcome acknowledgement that we must take 
action to shore up the program for future generations. Since 2010, 
Social Security has been paying more in benefits than it receives in 
revenue. According to the Congressional Budget Office, the cash flow 
deficit for the 10-year period ending 2023 is projected to reach $1.3 
trillion. Beginning in 2033, Social Security will be unable to pay full 
benefits, according to the Social Security Board of Trustees. In other 
words, when today's 47-year-old workers reach their full retirement age 
in 2033, they and everyone else already receiving benefits face a 25 
percent benefit cut unless Congress does its job and steps in to fix 
this problem. The President likes to say that if we agree on a policy, 
then we should act and not let our differences hold us up, and I agree. 
This hearing will include a full discussion of a policy with bipartisan 
support--more accurately measuring inflation in order to strengthen the 
Social Security program.''
      

FOCUS OF THE HEARING:

      
    The hearing will examine proposals by the President and bipartisan 
groups to more accurately measure inflation.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov/, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word or 
WordPerfect document, in compliance with the formatting requirements 
listed below, by the close of business on Thursday, May 2, 2013. 
Finally, please note that due to the change in House mail policy, the 
U.S. Capitol Police will refuse sealed-package deliveries to all House 
Office Buildings. For questions, or if you encounter technical 
problems, please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      

[[Page 4]]

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days' notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman JOHNSON. Good morning. Thank you all for being 
here. This is the first in the Committee's hearing series on 
the President's and other bipartisan entitlement reform 
proposals.
    We need to protect and preserve Social Security. That is 
what this Committee is all about.
    According to the Social Security Board of Trustees, 
beginning in 2033, Social Security will be unable to pay full 
benefits. In other words, when today's 47 year old workers 
reach full retirement age in 2033 and everyone else is already 
receiving benefits, they will face a 25 percent benefit cut 
unless Congress reforms Social Security, which we can do.
    The inclusion of using a more accurate measure of inflation 
in President Obama's budget is a welcome acknowledgement that 
we must take action to make sure that Social Security is there 
for our future generations.
    The purpose of this hearing is to have a full discussion of 
a policy with wide bipartisan support, more accurately 
measuring inflation in order to fix the Social Security system.
    Congress passed the first benefit increase in 1950, later 
increased benefits ten other times before passing a law in 1972 
that created a formula to determine the cost of living 
adjustments or COLAs.
    The Social Security COLA increases benefits each year that 
there is inflation. If there is no inflation, there are not any 
COLAs, as was the case in 2009 and 2010. If prices fall, 
benefits cannot be reduced.
    At the time automatic COLAs were enacted, the Bureau of 
Labor Statistics or BLS only produced one measure of inflation, 
which remains the inflation measure used to determine Social 
Security COLAs today.
    However, BLS has since developed other measures including 
the Chained Consumer Price Index or Chained CPI, which we will 
discuss today.
    The President's own budget says most economists agree that 
the Chained CPI provides a more accurate measure of the average 
change to the cost of living than the standard CPI.
    In testifying before the full Ways and Means Committee last 
week, Treasury Secretary Jacob Lew stated ``The Chained CPI is 
a more accurate measure of inflation in that it does a better 
job of reflecting the substitution of goods in response to 
relative price changes.''
    Today we will hear from the Commissioner of BLS why that 
is. Some say using the Chained CPI to measure inflation would 
result in a benefit cut, but that is plainly false.

[[Page 5]]

    The truth is that benefits will continue to grow, only more 
slowly than under the current less accurate measure. Only in 
Washington would that be called a ``benefit cut.''
    That said, I fully recognize and am sensitive to the impact 
this change could have on some beneficiaries' pocketbooks, 
especially those who receive benefits for a long time.
    The fact of the matter is the current measure overstates 
inflation and ignores that it is simply unfair to your children 
and grandchildren who rightly expect us to make sure Social 
Security will be there for them.
    Let me be clear. Determining the adequacy of Social 
Security benefits especially for those who are most vulnerable 
is an important discussion to have, and we will as part of this 
hearing series on bipartisan entitlement reforms.
    The President likes to say that if we agree on a policy, 
then we ought to act and not let our differences hold us up.
    We owe it to every American to carry out our responsibility 
and carefully examine each bipartisan policy option, and we 
will through this hearing series.
    Mr. Becerra is not here yet. Without objection, all written 
testimony will be made part of the record.
    We have one witness panel today. Seated at the table are 
Erica Groshen, Commissioner, accompanied by Michael Horrigan, 
Associate Commissioner, Office of Prices and Living Conditions, 
Bureau of Labor Statistics, Department of Labor. That is a 
mouthful.
    Jeffrey Kling, Associate Director for Economic Analysis, 
Congressional Budget Office.
    Ed Lorenzen, Executive Director, The Moment of Truth 
Project, Committee for a Responsible Federal Budget.
    Nancy Altman, Co-Chair, Strengthen Social Security 
Coalition, and Charles Blahous, III, Public Trustee, Social 
Security and Medicare Board of Trustees, and thank you for 
being here again.
    Welcome. Thanks to all of you for being here.
    Commissioner Groshen, will you go ahead with your 
testimony?

  STATEMENT OF ERICA L. GROSHEN, COMMISSIONER, ACCOMPANIED BY 
 MICHAEL W. HORRIGAN, ASSOCIATE COMMISSIONER, OFFICE OF PRICES 
 AND LIVING CONDITIONS, BUREAU OF LABOR STATISTICS, DEPARTMENT 
                            OF LABOR

    Ms. GROSHEN. Good morning. I thank the Subcommittee for 
this opportunity to talk about the family of Consumer Price 
Indexes published by the BLS.
    As you know, we produce some of the nation's most current 
and important economic statistics, including the inflation 
measures under discussion today.
    In doing so, we help policy makers, businesses and 
households to make the best decisions for themselves and 
others.
    I will start by describing the CPI-U. The measurement 
objective of all of our CPIs is to estimate changes over time 
and the cost to consumers of maintaining the same standard of 
living.
    How do we construct the CPI-U? We estimate the change in 
prices that consumers pay for a market basket of goods and 
services in urban areas. This market basket is divided into 
item categories, such as uncooked beef steaks.

[[Page 6]]

    We collect prices for goods across 211 item categories in 
87 urban areas, resulting in over 8,000 unique item area cells. 
We collect expenditure weights for each of these cells, such as 
steak in Chicago.
    The weights represent shares of total consumer expenditures 
across all items and areas. The data source for the weights is 
our consumer expenditure survey.
    With prices and weights in hand, we produce the CPI in two 
stages, and understanding these stages is the key to 
understanding how our indexes differ.
    In stage one, we calculate a CPI-U for each cell. That is 
the average change in prices, and for most cells we use a 
formula that assumes that consumers actually do substitute 
among products within the cell.
    In stage two, we combine our indexes across all the cells 
to produce a national number. CPI-U uses a formula that assumes 
consumers do not substitute across items or areas. That is we 
assume they do not adjust their purchases between steak and 
chicken in Chicago as prices change.
    What is the CPI-W? It aims to estimate price changes for 
households that receive more than half of their income from 
wage and clerical jobs. The formulas and the prices that we use 
in the CPI-W are the same as for the CPI-U. The only difference 
is the CPI-W uses consumer expenditure weights that are based 
on the wage and clerical group.
    What about the experimental CPI-E? Again, we use the same 
formulas and the same prices as the CPI-U, but we use 
expenditure weights for households with a respondent or spouse 
age 62 or older.
    Over the past 20 years, while the CPI-U and the CPI-W 
increased at an average annual rate of 2.4 percent, the CPI-E 
rate was 2.6 percent. This reflects only differences in 
expenditure patterns of these populations. For example, older 
Americans relatively heavy spending on health care.
    We call the CPI-E experimental partly because the 
expenditure weights are based on smaller sample sizes, but also 
our CPI-U sample may not represent well where the elderly shop, 
where they live, what they buy, and the prices they pay. Moving 
to an official CPI-E would require a thorough research effort.
    Finally, what about the Chained CPI-U? This differs from 
the indexes I just talked about in weights and formulas. 
Furthermore, we revise it twice before it is final.
    Stage one is the same. Stage two uses a superlative index 
formula that captures how consumers actually adjust what they 
buy as relative prices change.
    Because consumers make such adjustments, the growth in the 
Chained CPI-U is typically smaller than that for the regular 
CPI-U. For the past 12 years ending in December 2011, while the 
CPI-U grew at an average annual rate of 2.5 percent, the 
Chained CPI-U rate was 2.2 percent.
    The other difference is there are lags in reporting the 
Chained CPI-U. It takes a long time to collect consumer 
expenditure shares and to estimate their weights. The final 
Chained CPI-U for March 2013 will be published in February 
2015.

[[Page 7]]

    To sum up, as part of our continuing efforts to improve 
measurements in our dynamic economy, the BLS has created a 
Chained CPI-U to gauge the cost of living in a way that 
accounts for how consumers substitute among goods when price 
changes are not uniform.
    I thank you for the opportunity to testify before this 
Committee. Dr. Horrigan and I will be happy to answer your 
questions.
    [The prepared statement of Ms. Groshen follows:]

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    Chairman JOHNSON. Thank you for your testimony. That is 
insightful.
    Mr. Becerra, do you still want to make your opening 
remarks?
    Mr. BECERRA. I can wait until everyone testifies or I can 
do it right now.
    Chairman JOHNSON. We will delay the rest of you for a 
moment and let Mr. Becerra make his opening remarks. Go ahead. 
You are recognized.

[[Page 18]]

    Mr. BECERRA. I appreciate that, Mr. Chairman. I apologize 
to the witnesses that I had to run a little late. Thank you for 
being here. We look forward to the rest of your testimony.
    I want to just begin by making a quick observation. At a 
time when folks are talking about their economic security, this 
is perhaps the most important time to make sure we maintain 
Social Security because it is for many Americans, not just 
seniors--many disabled Americans, working Americans who have 
become disabled, to children, widows and widowers, it is their 
economic security.
    Any time someone says to you Social Security is broke or 
bankrupt or causing our deficit, I will say emphatically here 
that is contrary to the evidence. In fact, I think I would be 
on very safe ground to say anyone who says Social Security is 
broke or bankrupt is lying because the facts show just the 
opposite.
    Let's look at the numbers. I would say to anyone who wants 
to contest what I am about to tell you, show me your numbers. I 
will show you some numbers and you can see them on this chart.
    Social Security currently has about a $2.7 trillion 
surplus, and that is because over more than 77 years of taking 
in taxes from Americans who have been working and paying into 
Social Security, it has brought in in tax contributions over 
$14.5 trillion.
    It has also earned interest on those trillions that have 
been invested into the Trust Fund by tax, paying Americans 
about $1.5 trillion.
    At the same time, it has only had to spend in benefits, and 
a very tiny sliver you see above that red bar, in 
administrative costs, because administrative costs are less 
than one percent, a total spending of $13.5 trillion.
    The math is very simple. More than $2.5 trillion that 
Americans have contributed to Social Security through their 
taxes that have never been used through 13 recessions, and in 
more than 77 years, Social Security has never failed once to 
pay benefits on time and in full.
    When we discuss Social Security, we should discuss it in 
that context of the reality and the truth of what Social 
Security is.
    When you hear conversations about what should happen to 
Social Security and to those earned benefits that Americans 
have paid into the system so they could get them when they 
retire or should they become disabled or should they happen to 
die so their spouse, who is now a widow or widower, or their 
children, who are now the children of a deceased parent, have a 
chance to survive, those are the folks we should concern 
ourselves most with.
    Switching to the Chained CPI, the so-called adjustment, 
change to the way we calculate the cost of living, the COLA 
increase seniors, disabled folks, survivors of an American who 
has perished get, is nothing more than a cut to the benefits 
that people receive.
    The paycheck or the earned check that people receive from 
Social Security will decrease. It is a cut. It is a substantial 
cut because we know the power of compound interest. With time, 
that cut grows in size.
    If we are talking about economic security at this time when 
our economy is beginning to recover from those devastations of 
the 2008 Wall Street crisis, you would think we would want to 
provide

[[Page 19]]

people with the greatest economic security and that would be 
through their Social Security earned benefits.
    The Chained CPI affects not just seniors, disabled, 
children or widows, it affects veterans who will see benefits 
they have earned cut. It affects any number of folks including 
middle income and low income tax paying families who will see 
their taxes rise.
    The Chained CPI is coming at the worse time for all those 
folks who worked very hard and thought they had paid into a 
system on a bargain, that it would be there for them because 
they paid into it.
    Let us remember that a typical American middle income 
worker at the age of 65 under the Chained CPI would lose about 
$140 of his or her annual benefit if Chained CPI were to become 
the law.
    By age 75, the annual benefit would be cut by $560. By the 
time he or she reaches age 85, the age at which most seniors 
tend to depend most on Social Security, the annual benefit 
would be cut almost $1,000 a year.
    The problem here is that we have to know our facts and we 
have to recognize that economic security is perhaps the most 
important thing for our parents, our grandparents, our 
children, disabled families, and certainly for American working 
families.
    Mr. Chairman, I am looking forward to hearing the testimony 
because there is nothing more important than the security of 
Social Security. With that, I will yield back.
    Chairman JOHNSON. Yes. You guys need to take what he said 
with a grain of salt. Some of that is shading the truth.
    Mr BECERRA. Show me the numbers.
    Chairman JOHNSON. Easily. We are not going to quit paying 
Social Security. Let's face it.
    Mr. Kling, welcome aboard. Please proceed.

  STATEMENT OF JEFFREY KLING, ASSOCIATE DIRECTOR FOR ECONOMIC 
             ANALYSIS, CONGRESSIONAL BUDGET OFFICE

    Mr. KLING. Thanks for inviting me to testify. As you know, 
the Social Security Administration increases recipients' 
monthly benefits in most years, for example, the 1.7 percent 
COLA that applied to benefits paid in January 2013 was based on 
the increase in the Consumer Price Index between 2011 and 2012.
    One option for lawmakers would be to link to another 
measure of inflation, the Chained CPI. That Index generally 
grows more slowly than the traditional CPI does, an average of 
about one quarter of a percentage point more slowly per year 
over the past decade.
    Using the Chained CPI in a variety of Federal programs and 
the Tax Code would reduce the deficit by a total of $340 
billion over the next ten years if implemented starting in 
calendar year 2014, according to estimates by the Congressional 
Budget Office and the staff of the Joint Committee on Taxation.
    The President's budget for fiscal year 2014 includes a 
related but less comprehensive option that would use the 
Chained CPI for Social Security and some other spending 
programs, as well as for the tax system.

[[Page 20]]

    CBO is currently reviewing that and other proposals in the 
President's budget. I will not be discussing those specific 
proposals today.
    In my remarks this morning, I will focus on the analysis 
examining a generic proposal to use the Chained CPI for 
indexing COLAs and Social Security starting next year. Such a 
policy would not alter the size of people's benefits when they 
are first eligible, either now or in the future, but it would 
reduce their benefits in subsequent years because of the 
reduction in the average COLA relative to current law.
    The impact would be greater the longer people received 
benefits, that is the more reduced COLAs they experienced.
    For example, after a year, the Social Security benefits 
paid to a 63 year old who had claimed initial retirement 
benefits at age 62 would be about one quarter percent lower on 
average if the Chained CPI was used for indexing.
    After ten years of COLAs, the effect for a 73 year old 
would be 2.5 percent on average. After 30 years of COLAs, the 
effect for a 93 year old would be 7.2 percent on average.
    According to CBO's analysis, using the Chained CPI for 
annual COLAs would reduce outlays for Social Security relative 
to CBO's current law baseline by $1.6 billion in 2014. Those 
savings would grow each year reaching $24.8 billion in 2023, 
and would total $127 billion over the 2014 to 2023 period.
    CBO projects that Social Security recipients would face an 
average benefit reduction of about $3 per person per month in 
2014 and roughly $30 per person per month in 2023.
    By 2033, outlays for Social Security would be three percent 
lower than they would be under current law or six percent of 
gross domestic product rather than 6.2 percent. As a result, 
the gap between Social Security's outlays and tax revenues in 
that year would shrink by about one-sixth to one percent of 
GDP.
    According to many analysts, the traditional CPI overstates 
increases in the cost of living because it does not fully 
account for the fact that consumers generally adjust their 
spending patterns as some prices change relative to other 
prices, and because of a statistical bias related to the 
limited amount of price data that the BLS can collect.
    However, using the Chained CPI instead for indexing Social 
Security could have disadvantages. The values of that Index 
revised over a period of years so the programs would have to be 
indexed to a preliminary estimate of the Chained CPI that is 
subject to estimation error.
    Also, the Chained CPI may understate the growth and the 
cost of living for some groups. For instance, some evidence 
indicates that the cost of living grows at a faster rate for 
the elderly than for younger people in part because of changes 
in health care prices which play a disproportionate role in 
older people's cost of living.
    However, determining the impact of rising health care 
prices on the cost of someone's standard living is problematic 
because it is difficult to measure the prices that individuals 
actually pay and to accurately account for changes in the 
quality of health care.
    Changing the measure of inflation used for indexing is only 
one of many possible modifications to Social Security, if the 
Congress

[[Page 21]]

wishes to slow the growth of Federal spending by constraining 
outlays for Social Security benefits or to improve the long 
term solvency of the program by making changes to its spending 
or revenues.
    Many other approaches are possible, a number of which CBO 
has analyzed previously.
    Thank you.
    [The prepared statement of Mr. Kling follows:]

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    Chairman JOHNSON. Thank you, sir.
    Mr. Lorenzen, you are recognized for five minutes.

[[Page 41]]

  STATEMENT OF ED LORENZEN, EXECUTIVE DIRECTOR, THE MOMENT OF 
   TRUTH PROJECT, COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET

    Mr. LORENZEN. Mr. Chairman, Ranking Member Becerra, Members 
of the Subcommittee, it is an honor to be before you and an 
unusual experience to be on this side of the table.
    I am Executive Director of The Moment of Truth Project, 
which was established to continue the work of the National 
Commission on Fiscal Responsibility and Reform, also known as 
the Bowles-Simpson Commission. I worked on the staff of the 
Fiscal Commission.
    On a personal note, I would like to briefly note that I 
have had significant personal experience with the value of the 
Social Security program having received survivor's benefits as 
a child after the death of my father, and more recently, having 
had to manage my family's finances for a period based on Social 
Security benefits.
    Neither of those experiences have convinced me that 
providing COLAs that are greater than the rate of inflation is 
the desirable policy, rather, that we should try to find a way 
to make the Social Security system fiscally strong by making 
progressive changes in the benefits in a way that strengthens 
poverty protections for the programs.
    The CPI offers a rare opportunity to achieve both 
significant savings spread across the entire budgets and by 
making a technical improvement to existing policies.
    Brief background. The issue of overstatement of inflation 
in the CPI gained prominence in 1995 when then Federal Reserve 
Chairman Alan Greenspan mentioned the issue and his belief in 
testimony before Congress.
    Even before Chairman Greenspan's comments, the 
Congressional Budget Office had done a report noting there was 
a growing discussion and debate among economists identifying a 
bias in CPI.
    In response to Chairman Greenspan's comments, the Senate 
Finance Committee, chaired by then Senator Pat Moynihan, 
appointed the Baskin Commission, which did a review of CPI and 
estimated the bias of between 0.7 and 2.0 percent.
    While there was controversy over many of the specific 
elements and disagreements of the specific findings, the 
general consensus was the findings were broadly accepted and 
confirmed by subsequent analysis by the Federal Reserve Board 
and others.
    In response to that discussion, the Bureau of Labor 
Statistics did a thorough review of the methodology and made 
changes where it felt there were improvements that could be 
made, including introduction of the geometric mean to deal with 
lower substitution bias and other changes.
    Those changes reduced the bias by 0.35 percent, and were 
implemented with very little notice or controversy, very 
similar to what switching to the Chained CPI would do.
    The changes that BLS were able to do administratively did 
not address the issue of upper level substitution bias, which 
is what Chained CPI is intended to do, as described before.
    On the Fiscal Commission, when we started meeting with 
various groups for suggestions about ideas for deficit 
reduction, switching to the Chained CPI for all parts of the 
budget was one

[[Page 42]]

of the common themes of suggestions from groups across the 
ideological perspective, and in the Commission meetings, it was 
an area of early discussion for potential consensus among 
members.
    There was definite agreement that it should only be done as 
a technical correction and therefore should be applied to all 
parts of the budget equally. Interestingly, it was a Democratic 
member of the Commission who first raised the idea of Chained 
CPI for Social Security, and a Republican member who raised it 
on the issue of revenues, both did so on the basis that it 
should be done for accuracy.
    The final Commission report did include a switch to Chained 
CPI, and had some low income protections. It was one of the few 
elements that every member of the Commission who voted for the 
plan did support.
    Since the Commission report has come out, there have been 
additional recommendations for improvements for low income 
protections, which should be considered.
    Switching to the Chained CPI has broad support from the 
Congress, across the spectrum, which I have detailed in my 
testimony, and has been included in every major bipartisan 
proposal.
    The budgetary effects have just been described. I would 
just note that while most of the focus has been on the impact 
it would have on Social Security, Social Security represents 
slightly more than a third of the savings while the remaining 
two-thirds of savings would come from revenues and changes in 
other Government programs.
    Switching to Chained CPI would also close approximately 
one-fifth of the Social Security funding gap and help avoid the 
Trust Fund exhaustion, and therefore, avoid the automatic 
reduction in benefits that would occur with Trust Fund 
exhaustion.
    It is important to remember that under Chained CPI, nominal 
benefits would continue to increase. We estimate they would 
increase by approximately 60 percent over 20 years under 
Chained CPI, instead of a 68 percent increase under the current 
measure.
    Also, interestingly, real benefits for an 85 year old will 
be higher in the future than a similar retiree today.
    If you were to compare a worker who retired at age 65 and 
is 85 today and took a worker who retired today at age 65 and 
received benefits subject to Chained CPI, that future retiree 
would still have a higher benefit in real inflation or adjusted 
terms by about eight percent higher.
    On the distributional effects, both the Tax Policy Center 
and the Social Security Administration have found that 
switching to Chained CPI is roughly distribution neutral. 
However, that does not mean we should not have concerns about 
the distributional effects.
    However, those should be addressed in the context ideally 
of a comprehensive plan where it makes comprehensive reforms of 
the Social Security program and tax system to make the Tax Code 
and Social Security system more progressive, but absent that, 
there are many proposals where you could make much more 
targeted, much more effective improvements to provide benefits 
for lower income beneficiaries who have been assisted by the 
higher Chained CPI

[[Page 43]]

which provides a very blunt and fully targeted way to provide 
assistance to those populations.
    Chairman JOHNSON. The gentleman's time has expired.
    Mr. LORENZEN. Very briefly, moving to the CPI-E would be a 
very controversial step. There are many questions and concerns 
about the methodology of CPI-E.
    I would just conclude by saying that any changes in deficit 
reduction are going to require tough choices, but moving to 
Chained CPI is not a change in policy, but rather a more 
accurate way to implement the current policy and any adverse 
effects of implementing current policy more accurately should 
be addressed by more targeted and effective policies.
    [The prepared statement of Mr. Lorenzen follows:]

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    Chairman JOHNSON. Thank you, sir.
    Ms. Altman, you are recognized.

STATEMENT OF NANCY ALTMAN, CO-CHAIR, STRENGTHEN SOCIAL SECURITY 
                           COALITION

    Ms. ALTMAN. Thank you. As you know, every January, Social 
Security benefits are automatically adjusted for inflation. 
Some refer to these adjustments as increases, but they are not.
    They are intended to allow those on fixed incomes to remain 
in place, to simply tread water, without accurate and timely 
inflation adjustments, retirees, people with serious and 
permanent disabilities, and others will see their Social 
Security erode as they age.
    That is no small matter. Half of retirees have total 
incomes, that is incomes from all sources, of less than 
$17,000. Most of that comes from Social Security. One out of 
three seniors relies on Social Security for virtually all of 
their income. Nearly one out of two seniors age 80 or over 
does. For women and people of color, the reliance is even 
greater.
    The intent of the adjustment is to allow beneficiaries to 
tread water, but they are not, they are sinking. The current 
inflation index under measures the inflation they experience.
    The Index is designed for workers and the general public, 
but seniors and people with disabilities spend more on health 
care where prices rise faster and less on clothing, recreation 
and other items where prices tend to rise slower.
    Chained weighting an Index that already under measures 
their inflation simply will sink beneficiaries faster.
    By shielding some from the harshest impacts of the Chained 
CPI, the Simpson-Bowles, Rivlin-Domenici, and Administration 
proposals all implicitly concede that it is less accurate for 
this population.
    People do not need to be shielded from a more accurate 
adjustment.
    These protections cannot solve what is a poorly targeted 
benefit cut. The Chained CPI cuts the benefits of every single 
one of today's 57 million beneficiaries, but people already on 
fixed incomes have little or no ability to make up the loss.
    In addition, the cost grows with each succeeding year, like 
a snowball rolling down a hill, hitting hardest the oldest of 
the old, the poor and the near poor.
    Members must confront many divisive issues, but Social 
Security is not one of them. Poll after poll reveals that 
Democrats, Independents, Republicans, Union households, tea 
parties, the young, the old, and virtually every other 
demographic overwhelmingly agree about Social Security.

[[Page 55]]

    They agree that Social Security should not be addressed as 
part of a deficit deal to reduce the deficit, and they are 
right. Cutting Social Security does not reduce by even a penny 
the Federal Government's total debt burden. Cutting it does not 
buy the Government a single extra day of borrowing authority.
    Let me repeat because many people find this surprising. 
Cutting Social Security does not reduce at all the Federal 
Government's debt subject to the debt limit.
    Including Social Security in a deficit package gives the 
appearance that policy makers are raiding Social Security's 
contributions and diverting them to unauthorized purposes.
    You can easily avoid this improper appearance by addressing 
Social Security as it should be addressed, on its own, and in 
the sunshine.
    That is how it was done in 1977 and 1983, when Social 
Security's projected shortfall was much more immediate in 1983, 
it was six months versus 20 years today, and much larger, over 
eight percent of taxable payroll in 1977 versus less than three 
percent today.
    Social Security is too complicated and too important to 
address any other way, but to do that, policy makers have to be 
prepared to follow the will of the people.
    This body must open the door to more than just a narrow 
group of budget experts, an open process focused solely on 
Social Security will not lead to the Chained CPI. Instead, it 
will lead, I am confident, to a stronger foundation of economic 
security for America's workers and their families.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Altman follows:]

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    Chairman JOHNSON. Thank you.
    Mr. Blahous, welcome again. Good to see you. Please 
proceed.

STATEMENT OF CHARLES P. BLAHOUS, III, TRUSTEE, SOCIAL SECURITY 
                 AND MEDICARE BOARD OF TRUSTEES

    Mr. BLAHOUS. Thank you, Mr. Chairman, Mr. Ranking Member, 
all the Members of the Subcommittee. It is an honor as always 
to appear before you.

[[Page 66]]

    As has been mentioned, I am here to discuss proposals to 
apply the Chained CPI to calculation of Social Security COLAs.
    In my written testimony, I have provided some background 
information about how the COLAs are currently calculated, along 
with some basic information about the current state of program 
finances.
    Because my speaking time is limited, what I would like to 
do is gloss over most of that background information and really 
just focus on three major points.
    The first point, admittedly, at the risk of stating the 
obvious, is that whether Chained CPI should be used for Social 
Security COLAs is primarily a function of whether you as 
lawmakers are persuaded that it is technically meritorious as a 
measure of general price inflation.
    Obviously, if you were not so persuaded, it would not make 
sense to apply it to Social Security.
    If you were persuaded, I would argue that it should be 
applied to Social Security along with everything else, 
including the Federal Income Tax Code, including other Federal 
programs. I would not recommend specifically singling out 
Social Security for the change nor would I recommend 
specifically exempting it.
    The second point has to do with the state of program 
finances and the impact that the Chained CPI would have upon 
them.
    Basically, the current Social Security system faces a 
substantial financial shortfall that consists of significant 
excess of scheduled benefits over projected taxes.
    One way or the other, we are going to need legislation to 
correct that.
    Our best estimates are that if Chained CPI were adopted, it 
would reduce that shortfall by between 16 and 20 percent, 
depending on the measure that is employed to measure it. That 
would be a significant financial step in the right direction, 
although one could argue it is modest in the context of the 
overall financing shortfall.
    A very important factor to bear in mind is that with each 
passing year, the shortfall has been growing larger, and 
because of that, changes to Chained CPI that improve the 
financing situation would actually get us back a little bit 
less than to where we were two years ago. It would make up not 
fully for the last two years of deterioration in program 
finances.
    We would still have a very long way to go. I would regard 
CPI reform as sort of a broader Government-wide technical 
reform on how inflation is measured. I would not regard it as 
Social Security reform or entitlement reform or tax reform. The 
basic work of comprehensive solvency reform would still be 
ahead of us.
    The final recommendation I have, and this is a subjective 
one, but I believe in it very strongly, which is regardless of 
what the Subcommittee concludes with respect to the technical 
merits of Chained CPI, I would recommend that we continue to 
base Social Security COLAs on measures of general price 
inflation affecting America as a whole and population as a 
whole.
    Occasionally, you read commentary from people suggesting 
that we should have sort of a senior specific inflation index 
and use that for Social Security COLAs. I would strongly 
recommend against

[[Page 67]]

doing that. That approach, I think, would suffer from a number 
of disqualifying problems.
    One is you have to remember a lot of Social Security 
recipients are not elderly. A lot are dependent children. You 
have the disabled, 19 percent are disabled, and their 
dependents.
    Clearly, it would be inappropriate to use an inflation 
index for the elderly to index benefits for children or young 
disabled.
    If you went down the road of trying to have specific 
inflation indices for specific sub-populations in Social 
Security, we could create real problems and real chaos in a 
hurry.
    We would have a situation where different components of the 
Social Security population would be getting different COLAs, 
that can be very divisive. You have to also remember that 
people move from one group to the other, when the disabled 
reach retirement age, they convert from disability to 
retirement benefits.
    It would not take very long for people to notice that there 
are other disparities in inflation experienced by other sub-
populations, geographic differences, things like that.
    I would strongly caution against going down the road of 
trying to divvy up the Social Security recipient population 
into sub-populations.
    I would recommend sticking with the long-standing use of 
CPI which is measure for general price inflation affecting the 
population as a whole.
    In conclusion, Mr. Chairman, I would just say again I think 
the main point is whether it should be applied for Social 
Security COLAs is really a function of the technical merits of 
the Chained CPI as a measure of general price inflation.
    It would have a positive, modest effect on program 
finances, and we would still have in front of us the major work 
of Social Security financing reforms.
    Thank you.
    [The prepared statement of Mr. Blahous, III follows:]

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    Chairman JOHNSON. Thank you, sir.
    As is customary, for each round of questions, I am going to 
limit my time to five minutes and ask my colleagues to also 
limit their questioning time to five minutes as well.
    Commissioner Groshen, it seems like we have an acronym for 
everything here in Washington. Maybe we could think of a new 
one today.
    For those not so well versed in the inside the Beltway 
jargon, what exactly is the ``CPI,'' and is it best called an 
``inflation estimator,'' and how does your staff go about 
determining it?

[[Page 76]]

    Ms. GROSHEN. As I said, we think of it as a way to estimate 
the changes over time in the cost to consumer of maintaining 
their standard of living.
    It really focuses on what it is that consumers buy and 
weights it by the experience of consumers. It is an attempt to 
measure a cost of living index, and in that way, the Chained 
CPI is different from the CPI that we had before, because it 
allows for substitutions.
    When people can substitute for goods, they experience less 
of a decline in their standard of living than when they cannot 
substitute among goods, and therefore, the cost to restore them 
to their previous standard of living is lower.
    It also corrects another technical problem called ``the 
small sample bias'' that I can tell you more about if you are 
interested.
    Chairman JOHNSON. How is Chained CPI different? What does 
it mean to call a CPI ``chained?''
    Ms. GROSHEN. One of the benefits of having it be chained is 
that you can compare the current level of the Index to an 
original level very simply. That is where the term ``chained'' 
comes from. Again, a somewhat technical explanation.
    It is really on the difference between the current one that 
you have to do a more complicated set of algebra to be able to 
get the total difference over time.
    Chairman JOHNSON. Do we have to go back to college?
    [Laughter.]
    Ms. GROSHEN. No, you might need to use your calculator. 
That is all.
    Chairman JOHNSON. Why is Chained CPI considered the most 
accurate measure of inflation?
    Ms. GROSHEN. It is considered more accurate because it 
allows for this substitution, where consumers substitute. It 
does not act as if consumers are more constrained than they 
actually are.
    Chairman JOHNSON. Dr. Blahous, you are well versed in 
Social Security history, and have been here many times. Was not 
the original reason for the COLA to ensure benefits keep pace 
with inflation? If the current measure is not accurate, do we 
not need to switch to a more accurate one?
    Mr. BLAHOUS. I would argue yes, and that was the original 
intent. The COLAs were basically created in the 1972 Social 
Security Amendments, which have kind of a history. There were 
some mistakes that were made in the 1972 Amendments, and also 
the way it is done today really reflects the state of knowledge 
at the time.
    Basically they made an effort to adjust benefits for 
inflation both for people already receiving them and for 
initial retirees. They made some technical errors in the 
application of new retirees, and that is what the whole 1977 
Amendment set of changes was about, the notch babies, and that 
whole story.
    They made some mistakes. The reason we are using CPI-W 
today for Social Security is not so much because people regard 
it as the most accurate measure of inflation, it was just the 
only one that was around at the time. Even CPI-U was not around 
at the time of the 1972 Amendments.

[[Page 77]]

    Over time, the interpretation has been that CPI-W is the 
one that has to be applied to Social Security COLAs based on 
the old wording of the law.
    Ms. ALTMAN. Mr. Chairman, if I can add to that.
    Chairman JOHNSON. No, ma'am. I am not asking you the 
question. Thank you. My time has practically expired. I am 
going to stop now. Mr. Becerra, you are recognized.
    Mr. BECERRA. Thank you, Mr. Chairman. I think it is 
appropriate to talk about this Chained CPI. I think it is a 
very appropriate name for this change in the way you calculate 
seniors' benefits.
    It really does drag down the ability of those who rely on 
Social Security to know their Social Security will be there for 
them the way they expect it, they will be chained down.
    On the issue, Commissioner Groshen, of the accuracy of the 
Chained CPI or the CPI, you also do a calculation called ``CPI-
E,'' which is a calculation of the cost of living for the 
elderly. You take a sample of elderly Americans throughout the 
country. It is a smaller sample. You do not apply it but you 
keep a study that samples elderly Americans when it comes to 
what their cost of living is.
    In that CPI-E, which calculates cost of living for elderly, 
do you notice a difference between the CPI-E and the currently 
used CPI?
    Ms. GROSHEN. Yes, we do. The difference between the two 
measures, the CPI-E and the CPI-U, are the weights, the 
consumption weights, differences between the elderly and the 
non-elderly.
    Mr. BECERRA. What are the actual results? I know I am going 
to run out of time. Which ends up providing a higher benefit 
amount to an elderly person, the currently used CPI-U or the 
CPI-E which takes into account the survey of elderly folks?
    Ms. GROSHEN. During the period from December 1982 to 
December 2012, the average annualized change for the CPI-W was 
2.8 percent, and for the CPI-E, it was 3.1 percent. It was 
three-tenths of a percent higher for the CPI-E.
    Mr. BECERRA. The CPI-E, which is a calculation of the cost 
of living for elderly that you do showed that the elderly have 
a cost of living that is higher than the average consumer that 
you use to calculate the regular Consumer Price Index.
    Now we have the Chained CPI, which would be below the 
currently used CPI down here. When people ask is this a more 
accurate measure of what the costs of a senior are, there is a 
good chance that senior is going to lose way more than what he 
or she is currently receiving, which may already be inaccurate 
given that seniors probably tend to use health care more than 
the average consumer you use to measure your CPI.
    I suspect--I am guessing Mr. Kling and Mr. Lorenzen are 
probably the youngest folks here. I suspect they have not had 
to worry about colonoscopies yet. They probably, being male, do 
not worry about mammograms as much.
    Once you are a senior, that colonoscopy is something you 
have to regularly do. If you are a female, you probably have to 
worry about mammograms quite a bit.

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    If you are young and healthy, you do not have to worry 
about that. You might decide if you are running out of money, 
you will not buy the steak, you will buy the chicken because it 
is less expensive.
    I doubt you are going to have a choice when it comes to a 
colonoscopy of getting a colonoscopy or a cheaper colonoscopy 
somewhere else, or taking your heart medication or buying a 
cheaper heart medication.
    It is a less flexible calculation for seniors when it comes 
to their ability to substitute one product or one service for 
another because for them--we would love to have as many choices 
in health care, for example, as possible, but they are not 
always there.
    Ms. Altman, does the change to a Chained CPI, as modest as 
it may sound when we speak of it in terms of accountants and .0 
this and .0 that, does it have an actual impact on the 
resources that most seniors or disabled or survivors of our 
deceased American workers have?
    Ms. ALTMAN. Absolutely. As I say, it has a snowballing 
effect. It compounds over time. The older you get, the larger 
the cut. We have calculated that for an average work, retires 
at age 65, fortunate enough to live 30 years, even these bump 
up's in these various proposals, would still lose a cumulative 
amount of about $15,000. That is someone who during their 
working years was only earning $40,000.
    Mr. BECERRA. It is a hit. Let me just conclude by saying I 
thank you all for your testimony. We have to continue to 
examine these things.
    I think Mr. Blahous said it correctly, we have to here in 
Congress decide what we do, and I would simply finally add that 
knowing that Social Security has never added a single penny to 
our deficits.
    I would hope that we confine our discussions about working 
on strengthening Social Security to Social Security, not within 
the context of budget deficits that Social Security never 
caused.
    Thank you, Mr. Chairman.
    Chairman JOHNSON. Thank you. Mr. Renacci, you are 
recognized for five minutes.
    Mr. RENACCI. Thank you, Mr. Chairman. I want to thank all 
the witnesses today for being here. When I saw this chart in 
the beginning, it is interesting, because you try to learn some 
things.
    Mr. Kling, I want to ask if this statement is true. Since 
2010, Social Security has been paying more in benefits than it 
receives in revenue and that the cash flow deficit for the ten 
year period ending 2023 is projected to reach $1.3 trillion 
according to the CBO?
    Mr. KLING. Yes, it is correct. The Congressional Budget 
Office generally focuses on the budget of the Government as a 
whole. On that basis, the dedicated revenue from Social 
Security taxes was less than outlays for Social Security 
benefits last year, and will be throughout the next decade 
under current law, contributing to the unified Federal budget 
deficit and increasing Federal debt held by the public.
    Looking at just the Social Security program, the total 
inflow including payroll tax revenue and interest payments on 
the Trust Fund balances from the Treasury will exceed the 
outflow from the

[[Page 79]]

combined Old Age Survivors and Disability Insurance Trust Funds 
for the next several years.
    That situation will reverse and the outflow will exceed the 
inflow starting in 2017, CBO projects. That combination of 
Trust Funds includes the Disability Insurance Trust Fund that 
will be exhausted in 2016.
    Mr. RENACCI. Between now and 2023, we will reach $1.3 
trillion? That is a true statement?
    Mr. KLING. Yes.
    Mr. RENACCI. Thank you. Mr. Lorenzen, I think this comes 
down to accurate measure. You were ending your testimony about 
this is all about coming up with an accurate measure of 
inflation.
    You did not get a chance to finish. I would like to hear 
the rest of what you were going to say.
    Mr. LORENZEN. What I was saying is the policy within the 
Social Security program, within the Tax Code and many other 
programs is to ensure that the value of those benefits or those 
provisions in the Tax Code keep pace with inflation.
    As long as that is the policy, we should try to implement 
that policy in the most accurate way and make sure those 
programs are indexed to the most accurate measure of inflation 
as possible.
    In some cases, providing a higher than justified increase 
in inflation masks other shortcoming's in the programs or 
provides benefits across the board that benefit certain 
populations more so and provide a more accurate measure that 
may have other undesirable consequences, but those should be 
addressed by policies that are intended to do that.
    We should not be having a policy to index programs to 
greater than inflation that provides a higher adjustment for 
everyone in order to help some.
    For example, it makes no sense to have an indexing of the 
Tax Code that provides a $450 windfall to someone at the top 
quintile of the Tax Code in order to protect a $25 tax benefit 
for someone at the bottom quintile.
    You would be far better to accurately index inflation for 
everyone, and then if we are concerned, as I am about the 
person at the bottom quintile, find another change to the Tax 
Code to address that.
    I think we can do that in Social Security and other 
programs, index the programs to achieve the policy goal of 
keeping pace with inflation for all of them and then finding 
ways to help and assist those for whom that change in inflation 
exposes other shortcoming's.
    Mr. RENACCI. What do you believe is the most accurate 
measurement?
    Mr. LORENZEN. I do believe the Chained CPI that has been 
developed over years is the most accurate measure based on what 
I have read from experts.
    Mr. RENACCI. Thank you. Commissioner Groshen, why is CPI-E 
referred to as experimental? Is it ready for prime time?
    Ms. GROSHEN. The short answer is no, it is not ready for 
prime time, which is why we all it experimental. The problems 
with it are it is based on a small sample size, but even more 
than that, it is

[[Page 80]]

based on using the same stores and the same prices and the same 
set of goods as for the general population.
    For the BLS to stand behind it as an official statistic, we 
would need to do the research involved to really design the 
program to measure the cost of living for the elderly in a 
statistically sound way.
    Mr. RENACCI. Mr. Lorenzen, do you have any comments about 
the flaws in the CPI-E?
    Mr. LORENZEN. I would add a couple of flaws. I think health 
care is one area of different expenditures, but there are other 
differences in spending patterns among seniors that are not 
reflected in CPI-E, including mail order and senior discounts.
    There are also questions about how it accounts for housing 
is accurate, that seniors are much more likely to own their own 
home and have paid off mortgages, whereas CPI and CPI-E both 
assume inflation based on imputed rent.
    On the issue of health care, I would say two things. First, 
as was noted, it is not clear how much the measures are 
accurate in measuring health inflation, that it is very 
difficult to do so accurately, and some suggestions that 
measures overstated health care inflation.
    I would add the bulk--the increase in health care costs for 
seniors is in a small population. Instead of again having a 
higher inflation adjustment based off the higher health 
expenditures for the smallest population, we can address that 
through something like an out-of-pocket limit and other reforms 
of the Medicare program instead of providing a higher 
adjustment for everyone.
    Mr. RENACCI. Thank you. I yield back.
    Chairman JOHNSON. Thank you. The gentleman's time has 
expired.
    Ms. Schwartz, you are recognized for five minutes.
    Ms. SCHWARTZ. Thank you, I appreciate the testimony. I do 
also have to start with where I think our premise has to begin.
    I will echo some of the comments made by the Ranking 
Member, that we should begin by understanding that Social 
Security is different and is funded differently, has its own 
Trust Fund, in fact, in the wisdom of Congress, they actually 
anticipated the baby boomers, unlike in Medicare, for example, 
and that was important. Those are dollars in Social Security 
going forward.
    We have made a commitment, Social Security to seniors and 
to their families, and we ought to start with the premise of 
absolutely sustaining it and making sure it's there for our 
current seniors and our future seniors.
    The discussion about how to modify the CPI, Consumer Price 
Index, for Social Security, it feels really different. How it 
affects seniors, as I think was pointed out in the panel, the 
idea of changing it and already we know it is not going to work 
for all seniors.
    Therefore, how many seniors are we then going to modify it 
for because we are worried about older seniors, the biggest 
group that is growing, over 85. The poorest seniors, which is a 
lot of them also, and our sickest seniors.
    If you are starting to say okay, it does not work for 
percent or that percent, we begin to say is this a wise thing 
to do. That is really the question before us, should we even be 
applying a change

[[Page 81]]

in the Chained CPI or even considering it for seniors and for 
Social Security?
    That is a big deal. In Pennsylvania, it is a big deal. We 
have almost two million seniors. As you know, seniors are 
aging.
    As already pointed out, they have very different uses of 
the economy than you might compare to a 25 or 35 or 45 year 
old. They are living on fixed incomes, more and more of them 
are relying on Social Security as the one piece they know is 
going to come to them.
    Small changes in an inflationary factor, I think it becomes 
increasingly important as we are seeing changed in retirement 
benefits for many Americans, to sort of move from defined 
benefits to defined contributions, it may be even more 
important as we go forward for future seniors.
    Again, you point out that most seniors--I thought the 
number was $14,000, average income, you said $17,000. It is 
still not very much.
    I wanted to really ask the question about how this would 
apply to the poorest and sickest seniors. The question was 
raised about seniors had a different position in terms of 
health care than younger Americans.
    I know when I talk to a group of seniors, and I bet if I 
say it to everybody in this room, how many of you take a 
medication. Forget the ones that are really serious, how many 
of you who are over 65 take a medication. They laughed.
    I said, ``does anyone take one?'' They all laughed at me. 
One. How about two, how about three, how about four. Which one 
are you not going to take if you do not get a little more of an 
increase.
    It is a little different than am I going to buy steak or 
chicken. It is really a question of am I going to buy chicken 
at all. Am I going to buy vegetables. Am I going to take one 
medication versus another.
    That is serious business. It has implications for higher 
costs for families, who often have to help out their seniors/
relatives, or higher costs to taxpayers because they show up in 
emergency rooms.
    The implication in relationship to health care costs, which 
seems to be very, very important and different for seniors, as 
well as some of the issues some others would like to raise 
about housing.
    These are seniors who live on a fixed income. It is not 
easy for them to shift costs to somewhere else, as some do. I 
will get a job. I will get a second job. I will find a higher 
paying job. I will not buy a new car this year.
    This is really not what most 85 year old's or 80 year old's 
or even 75 year old's are really thinking about.
    We really have to understand that may be very different 
than a change we might make or might not make in how we index 
increases.
    What we hear as Members of Congress all the time is the 
increases, and they are small, that they get in Social 
Security, often go to the increases in Medicare, cost sharing. 
They get pretty upset about it.
    It is not even an increase question, about whether they can 
afford increases in their heating bill because they have 
already used it all up for health care.

[[Page 82]]

    I really wanted to ask Ms. Altman if you could just speak 
more specifically to how many seniors would have to--I think 
Mr. Lorenzen talked about this--be ameliorated. The harm to 
seniors would have to be ameliorated in terms of our sickest 
seniors, our poorest seniors, our oldest seniors.
    Ms. ALTMAN. We have actually looked at that very carefully. 
It is really more than half. If you are talking about the 
poorest of the poor, you are talking about 9.4 million seniors 
who are not getting SSI but just Social Security, but are poor 
or near poor.
    As you say, the population is aging. More and more are 
getting older.
    If it is an accurate Index, you do not have to ameliorate. 
People talk about shielding veterans, two out of five Social 
Security beneficiaries are veterans.
    There are lots of groups that I think the American people 
would see as deserving and not worthy of having a cut.
    Chairman JOHNSON. The gentlelady's time has expired.
    Ms. SCHWARTZ. Thank you very much.
    Chairman JOHNSON. Mr. Kelly, you are recognized.
    Mr. KELLY. Thank you, Chairman. Thank you all for being 
here.
    There is an old adage where I come from, if you do not know 
where you are going, any road will get you there. In this case, 
we do know where we are going. We know if we do not take a look 
into the future, if we do not get this fixed--I understand 
charts and I understand income has nothing to do with solvency. 
A lot of people make a lot of money and still go broke every 
year.
    It is not a matter of how much you make, it is how much you 
save. It is about keeping your spending under control.
    Listen, I am/ 64. You think I am not concerned about what 
is happening? I am absolutely concerned with what is happening. 
By the same token, there is something about early detection. If 
you get it early enough, you can usually get it fixed and get 
it done at much less cost.
    I am trying to figure out why even have the hearing today 
if there is no problem. We have all kind of revenue. We do not 
have any problem looking into the future, why are we worrying 
about this? Why are we even having this conversation about the 
solvency and the long range stability of Social Security?
    If I look at the figures, what are we talking about? We 
have all kind of money. All kind of money coming in. It is 
growing at a tremendous rate, 1.6%, 1.8%.
    Here is the deal. If your heart is willing but your wallet 
is weak, I do not care how much you care about these folks, I 
care about them.
    We made promises to people years ago that we cannot keep 
today and then we try to soft soap it and really, I wish policy 
were the driving force in this town and not politics.
    I wish we could talk about the reality of how we are going 
to save this program as opposed to how we are going to spend it 
some way that makes us look good in the next election.
    If we really care about Americans, I do not care about 
Republican, Democrat, Independent, Libertarian, whatever you 
are in this country, there is always that ability to speak 
about it openly and do it the right way, but do it honestly, 
please.

[[Page 83]]

    I want to save the program, too. Mr. Blahous, you have some 
interesting approaches. Running a business all my life, there 
are a lot of things that I made a mistake on early. My dad was 
a World War II pilot, and much like the Chairman, he was a 
bomber pilot. We had a Cessna franchise for a while.
    The most important thing he told me is when we were flying 
somewhere. He would say, son, make sure that you chart that the 
right way and make sure you stay on course.
    It is no big deal being off one degree. I grew up in a 
little town called Butler, about 25 miles from Pittsburgh. You 
can be off one degree flying from Butler to Pittsburgh and end 
up pretty close to Pittsburgh. If we were flying from Butler to 
Los Angeles, we would end up in Oregon.
    There is a long range effect to this stuff. The equities 
that you talked about, if it is not a problem, we have all this 
income, if it is coming in and we cannot spend it fast enough 
and do not worry about it, why be concerned? Why all the 
interest?
    If we do not do this, what is the ultimate effect? I like 
the approach you have to it. We are talking now about numbers 
that support what our hearts want to do.
    Mr. BLAHOUS. I think even relative to many other experts, I 
am extremely concerned about the financial future of Social 
Security.
    You made a reference to early detection. I fear the early 
detection light has been going off for a while and there has 
been a failure to act.
    I fear we are actually getting to the point where it is 
going to be difficult to get this problem resolved.
    In 1983, the program faced a very substantial financing 
crisis. It took a tremendous amount of bipartisan cooperation 
to resolve it. You actually had Republicans and Democrats 
joining together to overcome the very spirited opposition of 
the AARP and other seniors groups. It was a very difficult 
thing to do.
    We had to delay COLAs by six months. They had to raise the 
retirement age. They exposed benefits to taxation for the first 
time. They had to bring all Federal employees into the system. 
They had to accelerate a previously enacted increase in the 
payroll taxes.
    This was really politically painful stuff. The current long 
range shortfall in Social Security relative to that then, it is 
about twice as large now. The amount of political pain that all 
of you would have to endure in a long range solvency fix is 
about twice as much as it was in 1983.
    If you did a 50/50 on benefits and taxes, conservatives 
would have to agree to twice as much in terms of tax increases 
and progressives twice as much in terms of benefit restraints 
as was done in 1983.
    That is a very tall order. With each passing year, this 
becomes a bigger problem to solve. I am very worried about it. 
I am worried about the consequences if we do not enact repairs 
relatively soon.
    Mr. KELLY. Mr. Renacci and I are both automobile dealers. 
In the old day, we had gauges that told us what the temperature 
was, what the oil pressure was, and they switched the lights. 
They would go red. It was called ``idiot lights'' because when 
the light was on, it was already too late. The engine was 
fired.

[[Page 84]]

    You say we have a blinking light right now. It may be 
blinking yellow but we better wake up and smell the coffee. We 
are at a dangerous, dangerous point.
    I thank you for your testimony. Mr. Chairman, my time has 
expired.
    Chairman JOHNSON. Thank you. Mr. Thompson, you are 
recognized for five.
    Mr. THOMPSON. Thank you, Mr. Chairman. Thanks to all the 
witnesses for being here today.
    I am glad you preceded me in the questioning because you 
raised an issue that I came into this Committee thinking about 
today. It is a little bit confusing as we deal with this.
    I think we need to talk about Chained CPI and what it means 
and how it works. The idea that we are talking about it from 
the vantage that you brought up as part of the shortfall for 
Social Security, I find a little bit baffling.
    I do not think it is a reform to Social Security. As I 
understand it, it is about 20 percent of the shortfall. That is 
a long way from what we need to be doing. It is even worse in 
this case because to get that 20 percent of the shortfall, you 
are cutting benefits to seniors and you are cutting benefits to 
veterans, and many times those veterans are the seniors that we 
are trying to help provide a secure retirement for.
    When we talk about Chained CPI as part of the deficit 
issue, I think it really muddies the water. Social Security 
does not have anything to do with the debt, as I understand it. 
I do not believe Social Security has added a dime to our debt. 
I do not believe it can by law.
    When you start co-mingling these topics, I do not know if 
it gets us to where we need to be. That is we certainly need to 
deal with our deficit. We need a long term plan to do it. When 
we start doing that, I think we need to look at what caused it.
    You cannot have major tax cuts without paying for them. You 
cannot go to war without paying for it. You cannot provide 
prescription drug benefits without paying for it. Yet, we are 
not talking about anything like that.
    We also need to make sure that Social Security is available 
for providing a secure retirement for many years to come.
    As I mentioned, this does not do it. It is 20 percent. I do 
not know you factor that in. If you look at the 20 percent and 
you are getting that from the seniors themselves, that kind of 
raises havoc with the security of those seniors that you are 
trying to help.
    I have a couple of specific questions. Ms. Altman, can you 
explain how Chained CPI cuts veterans' benefits?
    Ms. ALTMAN. Sure. The veterans' benefits actually can get 
hit three or four times because as you know, there are a number 
of programs Government-wide that are indexed, the largest 
savings comes from Social Security.
    As I said earlier, two out of five veterans receive Social 
Security. People who are disabled or die in Service in Iraq or 
Afghanistan qualify for Social Security benefits. Those 
benefits would be cut by the Chained CPI.
    In addition, there are a number of veteran specific 
programs, veteran retirement programs and programs for disabled 
veterans.

[[Page 85]]

Those also are indexed and those also would be cut by the 
Chained CPI.
    Mr. THOMPSON. If you are a veteran who was wounded in a 
previous war and you get a certain disability payment as a 
result of that, you can expect to see your veterans' disability 
check reduced?
    Ms. ALTMAN. That is right.
    Mr. THOMPSON. If you are a veteran who was killed and your 
children are receiving benefits, the children of that veteran 
can expect to see a reduction in their benefits they receive 
from their dead mother or father?
    Ms. ALTMAN. They will be cut twice. They also receive 
survivor benefits under Social Security.
    Mr. THOMPSON. Mr. Blahous, do you still believe we ought to 
privatize Social Security?
    Mr. BLAHOUS. As you know, I worked for President Bush and 
worked on his proposal to include personal accounts of Social 
Security. I actually think although at one time, it would have 
been prudent to try to save as much Social Security 
contributions as we could going forward in personal accounts, I 
think that time has passed.
    I think it is too late to advance fund a significant 
portion of Social Security obligations.
    I believe our solutions at this point are best confined to 
the traditional ones, trying to align benefits and taxes within 
the current structure.
    Mr. THOMPSON. You do not believe we should privatize Social 
Security?
    Mr. BLAHOUS. No.
    Mr. THOMPSON. How do you think we should do the reform?
    Mr. BLAHOUS. I will give you a two part answer. There is 
what I personally would design if I were dictator of the world, 
and there is what I would support.
    The second ranges much wider than the first one. I would 
tend to focus primarily on reductions in the rate of the growth 
on the high income end basically by changing the benefit 
formula. There are some other changes I would make.
    Mr. THOMPSON. Means test it?
    Mr. BLAHOUS. No, I would not do a true means test. A means 
test basically means measuring income outside the Social 
Security system and withholding benefits based on that.
    There is a benefit formula in the current law that is 
progressive. It is like a system of income tax brackets except 
you have benefit brackets. I would basically make those more 
progressive and hold down benefit growth on the higher income 
end.
    Having said that, there have been proposals put forward 
that would do more of a mix of revenue changes and benefit 
changes like the Simpson-Bowles proposal.
    Mr. THOMPSON. Raising the age, is that one?
    Mr. BLAHOUS. Raising the age would be something I would 
consider as was in Simpson-Bowles. Simpson-Bowles included some 
increases in the tax base as well.
    I frankly think a solution is important enough that I would 
go along with a variety of ways to do it.

[[Page 86]]

    Chairman JOHNSON. The gentleman's time has expired. There 
are a lot of ways to fix it and we need to and we will.
    Mr. Griffin, you are recognized.
    Mr. GRIFFIN. Thank you, Mr. Chairman. I want to start out 
by saying that I saw a representative from the White House here 
in the room. I want to say something I do not say much, which 
is I congratulate the President on acknowledging that we have a 
problem.
    There are some people here I have heard from today that do 
not acknowledge that we have a problem, and the President has 
acknowledged that we have a problem.
    We may disagree on what to do about it, but it was welcomed 
to see him at least putting something forward that starts the 
conversation on this.
    I will say one of the big problems is the longer we wait, 
the closer we get to the edge of the cliff, the fewer options 
we have.
    We have heard a reference to that here a minute ago. My 
mother is on Social Security. I pay into Social Security, 
despite what the Internet says. I hope to get Social Security 
benefits at some point, especially since I turned down my 
congressional pension.
    I am counting on Social Security. I want to save it. I feel 
like I am in a land of glitter and unicorns here because you 
have people who are saying Social Security has a problem, it 
does not have enough money, but it does not add to the deficit 
or the debt. Complete and utter nonsense.
    I am not going to be one of these guys that cites 
Factcheck.org, although they have commented on this. Sometimes 
they are right and sometimes they are wrong.
    The bottom line is we have a yearly deficit. If Social 
Security only used the money it has coming in, we would have a 
problem. You can say it does not add to the deficit. You can 
say it does not add to the debt. You may be thinking of Social 
Security as a separate fund and it technically is, but it is 
one Government.
    Mr. BECERRA. Will the gentleman yield?
    Mr. GRIFFIN. The gentleman will not yield. If you take $100 
in your personal account and separate it in ten separate 
accounts, you still have $100.
    The bottom line is because of where we go to get the money 
to plus up Social Security, at the end of the day, we are 
borrowing money. Where is the money coming from if we are not 
borrowing it from somewhere?
    This is just ridiculous. I agree with this gentleman, why 
are we here if there is not a problem. There is a problem and 
that is why we are here. It is that simple.
    You can talk Washington speak, about moving money around, 
and it is not here, that is a bunch of nonsense to normal 
people. You are insulting people when you say we have enough 
money.
    If you say we do not have enough money, then you have to 
admit it is adding to some deficit somewhere even if it is on 
another balance sheet.
    These ideas of trust funds is Washington speak, we know 
they are routinely treated as one big pool of money. Either you 
are wasting my time, which I rushed over here from somewhere 
else, or we have a problem.

[[Page 87]]

    I think the President just acknowledged we have a problem. 
I am a veteran. I am still serving. I had to get up early this 
morning and run Army Reserves all the way down the Mall. Do not 
talk to me about veterans. My grandfather served in World War 
I. I served in Iraq.
    I want to help veterans. Will they be better off if we have 
a debt crisis, folks? How are seniors going to be better if we 
have a debt crisis? Ask the Europeans. It is a bunch of 
nonsense.
    I had a question, but I am out of time. If I hear somebody 
else say that we have plenty of money and this is not adding to 
the deficit or debt, I just cannot listen to it.
    I thank President Obama for starting the conversation so we 
can fix this for the next generation of people, which includes 
me. Thank you, Mr. Chairman.
    Chairman JOHNSON. Thank you. The President is aware. Mr. 
Doggett, you are recognized.
    Mr. DOGGETT. Let me just affirm that Social Security is not 
adding to the debt to begin with. That does not mean that I am 
not concerned about the long term solvency of Social Security 
and that it will be there as strong for my grandchildren as it 
was for my parents.
    Mr. Lorenzen, your group has worked with the 
recommendations of the Simpson-Bowles Commission. This is not 
the only recommendation that the Simpson-Bowles Commission made 
to ensure the long term solvency of Social Security, is it?
    Mr. LORENZEN. No, it is not.
    Mr. DOGGETT. In fact, one of the other recommendations of 
the Simpson-Bowles Commission was that the wage base, the 
taxable wage base would be slowly expanded, and did not that 
proposal--if the concern is for the solvency, the long term 
solvency of Social Security, did not that proposal do more to 
protect the long term solvency than adjusting the cost of 
living increase?
    Mr. LORENZEN. It did somewhat more. It was a comprehensive 
plan that looked at all parts.
    Mr. DOGGETT. I want to be open to all points of view. My 
main objection here, when the President's name is invoked, that 
once again, as has happened a number of other times in this 
Administration, he begins by saying he agrees with what the 
Republicans want, which is clearly a limitation on the growth 
of Social Security benefits, and then begs for something in 
return.
    Of course, they have rejected any other revenues, including 
additional revenues to protect the solvency of Social Security, 
or closing corporate loopholes, or making the other changes 
that would allow us to address our budget shortfall, which is 
very real.
    Commissioner, let me ask you, with reference to the Chained 
CPI, my understanding from your testimony is that even if the 
Republicans exerted total control on this and they could impose 
it this morning, we are not quite ready yet to do so. It is 
not, as you said, ready for prime time yet.
    Ms. GROSHEN. What is not ready for prime time is the 
Chained CIP-E. The Chained CIP-U is ready.
    Mr. DOGGETT. Could be ready.

[[Page 88]]

    Ms. GROSHEN. That is right. You would have to deal with the 
fact that it is revised twice, but there is a plan out there 
that would allow that to happen.
    Mr DOGGETT. You have indicated that implementing that takes 
longer than the way we do the CPI now, that the data takes 
longer to collect and is not as available as quickly as the way 
we do it now.
    Ms. GROSHEN. No. We publish an initial number and that 
could be used to adjust the cost of living, were that the 
choice of the policy makers.
    The BLS makes no recommendation on how our official numbers 
should be used.
    Mr. DOGGETT. I guess like so many other members, I receive 
so many expressions of concern for seniors during the two years 
that they received no cost of living increase of any kind and 
the notion that increases in the cost of food at the grocery 
store did not decline or stay steady during that time, they 
soared.
    If we had in effect the cost of living increase that is 
being discussed today, the chained approach, how much less over 
the last decade or two would seniors have received? Would there 
have been other years in which they had no cost of living 
increase?
    Ms. GROSHEN. We can do that calculation for you. I do not 
have that off the top of my head.
    Mr. DOGGETT. It would not surprise you taking it say over 
the last two decades if they had two recent years in which they 
got no cost of living increase, if this new system had been in 
place, there would have been other years over that 20 years in 
which they also would have received no cost of living increase.
    Ms. GROSHEN. Possibly.
    Mr. DOGGETT. Ms. Altman, let me ask you also, looking 
forward with reference to veterans, and I appreciate the 
gentleman's service, I have a lot of veterans in the San 
Antonio/San Marcos/Austin area concerned about what impact this 
will have on them, just like seniors and individuals with 
disabilities.
    What difference will it make over time to them in terms of 
dollars and cents? What is the estimate?
    Ms. ALTMAN. Let me make clear that the American Legion and 
the Veterans of Foreign Wars are against the Chained CPI, both 
for Social Security and the veterans' programs.
    They would have the figures on the overall calculation.
    Mr. DOGGETT. You are saying both the VFW and the American 
Legion oppose this change?
    Ms. ALTMAN. We can give you a list of veterans, Paralyzed 
Veterans of America, those are the most prominent groups. There 
are about fifteen veterans' groups that have come out against 
it. We can provide your staff with the letters they have sent.
    Mr. DOGGETT. Thank you.
    Ms. GROSHEN. Actually, I have an answer. The two years 
where there was no increase were 2009 and 2010. The Chained 
CPI-U would have given three-tenths of a percent increase 
rather than zero.
    Mr. DOGGETT. Why is that?
    Ms. GROSHEN. It is because--basically the substitution 
effect.

[[Page 89]]

    Mr. HORRIGAN. One of the issues is we had such a large 
increase in energy prices in 2008 and then the decline, the way 
the adjustment in Social Security works using the CPI-W is it 
is compared to the previous peak.
    We had two years where the Index was not above the previous 
peak. However, with the Chained CPI, because of substitution, 
it started at a lower level and came back a little bit faster.
    Just in terms of the comparison of the previous year, it 
hit that previous peak one year earlier with the way it is 
adjusted, in the official way it is adjusted.
    Mr. DOGGETT. Thank you. Thank you, Mr. Chairman.
    Chairman JOHNSON. Thank you. Mr. Tiberi?
    Mr. TIBERI. Mr. Chairman, thank you. Mr. Doggett, can we 
sign you up for that proposal now?
    [Laughter.]
    Mr. TIBERI. Mr. Chairman, Mr. Ranking Member, if I were 
watching on C-SPAN 25, on the Internet right now, I would be 
pretty darn confused. I have to tell you, I am so blessed. I 
have an 80 year old father, he is going to be 80 this year, who 
came to America in 1950. In 1950, there were 16.5 workers for 
every retiree on Social Security. There were not 10,000 people 
retiring a day.
    Now there are less than three workers for every retiree. My 
dad had figured it out and my mom has figured it out, my mom 
and dad still live in the same house I grew up in in Columbus, 
Ohio--just got rid last year of their 18 year old car, not 
because they wanted to but because it broke down, and Social 
Security is still really, really important to them.
    They look at their grandkids and they have again figured it 
out, partly because of organizations like yours, who are doing 
a great job of saying we have a problem, even though some 
honorable folks even up here believe there is not a problem.
    Here is what helped them.
    Mr. BECERRA. Will the gentleman yield?
    Mr. TIBERI. After my five minutes, I will.
    Mr. BECERRA. I never said there is not an issue or 
challenge for Social Security. I just said today using Social 
Security funds to pay for deficits that it did not cause is the 
problem.
    Certainly, we all want to take care of Social Security long 
term.
    Mr. TIBERI. The long term for me is very quickly 
approaching. When I get my Social Security statement now, it 
says if we do nothing, if I go online, I will get approximately 
72 percent of the benefits that I am supposed to get.
    When I came in 2000, Mr. Becerra, it did not say that. I 
used to talk about saving Social Security for my kids. Now it 
is for people of my generation. My mom and dad get that, not 
because they are concerned about me, but they are really 
concerned about their grandkids.
    If it is going to impact me in my generation, God help my 
kids and their kids.
    Sir, in your written testimony, which I thought was 
awesome, you talk about the difference between the President's 
proposal and the current law, and the difference it has in 
terms of impact on benefits over a year, over a period of 20 
years.
    Can you expand on that for us?

[[Page 90]]

    Mr. LORENZEN. I was speaking about the proposals on the 
Chained CPI.
    Mr. TIBERI. Yes, generally.
    Mr. LORENZEN. With Chained CPI in place, benefits will 
still be increasing in nominal terms, obviously.
    Mr. TIBERI. Can you say that again? I could not quite hear 
you.
    Mr. LORENZEN. I am sorry. Benefits will still be increasing 
in actual terms. They will be increasing slightly less than 
they are under scheduled law, but doing it more accurately.
    However, the Trust Fund is projected to be exhausted in 
2033, at which point there will be a 25 percent reduction for 
all beneficiaries. The Chained CPI would delay that exhaustion 
briefly and make the shortfall thereafter smaller, so benefits 
would be higher with Chained CPI because the Trust Fund has 
money to pay benefits, but also because the initial benefits 
are indexed to wages, that a future retiree is going to start 
with a greater benefit in real inflation adjusted terms than a 
previous retiree.
    If you were to compare someone who retired in 1993 at age 
55 with what their benefit is today and took a comparable 
worker who retired today at age 65, 20 years from now when they 
are 85, even if Chained CPI had been applied and there was not 
any bump up in benefits or any other adjustments to compensate 
for it, someone retiring today would still have a higher 
benefit in real inflation adjusted terms at age 85.
    Mr. TIBERI. Thank you. Commissioner, one last quick 
question. To follow up on Mr. Doggett's point, if this is 
enacted, long term, this is not even enough, correct? We need 
to do more?
    Ms. GROSHEN. I am sorry?
    Mr. TIBERI. Because of demographics, in terms of Social 
Security.
    Ms. GROSHEN. The BLS does not do calculations of that.
    Mr. TIBERI. Mr. Blahous.
    Mr. BLAHOUS. You have to do a lot more.
    Mr. TIBERI. We have to do a lot more. Any suggestions on 
your part in terms of saving for my kids, saving Social 
Security for them, at the same time not hurting current seniors 
like my mom and dad?
    Mr. BLAHOUS. I think we are in ``all of the above'' mode. 
We have to make changes to the eligibility age. I think we have 
to make changes to the benefit formula. I think we should slow 
the rate of benefit growth on the high income end just by 
making brute force changes in the benefit formula itself.
    I think there are other changes we should make to improve 
the work incentives in the system that would basically have the 
effect of rewarding seniors for staying in the workforce 
longer.
    Mr. TIBERI. The longer we wait, the more difficult a 
challenge it is?
    Mr. BLAHOUS. Absolutely.
    Mr. TIBERI. Thank you.
    Chairman JOHNSON. We have to get it through the House and 
the Senate.
    [Laughter.]
    Chairman JOHNSON. May or may not happen. Mr. Becerra for 
half a minute.

[[Page 91]]

    Mr. BECERRA. Thank you, Mr. Chairman. I just want to make 
clear we are clear on something. We all say we want to preserve 
Social Security. This is about making sure for our kids and our 
grandkids, it is working as well as it has worked for our 
parents and grandparents.
    To try to make it sound like Social Security is having the 
sky fall on it today when what the sky is falling on is the 
Federal budget which has exhausted its resources and over 
spent, not Social Security, to say that the Social Security 
Trust Fund that Americans have created through their tax 
contributions does not exist and the interest it earned, it is 
like telling any American how much money do you have in your 
pocket today, can you pay off your house and your car loan 
today with the money you have in your pocket without going into 
your savings account?
    That is crazy. We have money in the savings account for 
Social Security. It is there because Americans contributed 
taxpayer money into that Fund.
    To cut benefits, to discuss a budget deficit caused by 
unpaid for wars or tax cuts that went to very wealthy folks, 
that is just putting it on the backs of seniors.
    I think a number of us are ready to engage in a 
conversation about what we do long term to make sure Social 
Security is viable for everyone.
    To just cut seniors and veterans' benefits to deal with 
today's budget deficits caused by other things, that is what 
concerns many of us.
    Thank you, Mr. Chairman, for the time.
    Chairman JOHNSON. The President likes the idea. Thank you 
to our witnesses for their testimony. I also thank our members 
for being here.
    We know we have to do something to protect Social Security 
long term, and we will do that. Come 2033, Social Security will 
not be able to pay full benefits. Americans deserve a Social 
Security program they and their children and grandchildren can 
count on.
    As our hearing series moves forward, I look to our 
continued examination of bipartisan Social Security reforms. We 
need to do right by today's beneficiaries and workers. When 
there is bipartisan agreement, we can and should act, and we 
will.
    I want to thank you all for being here today. The meeting 
stands adjourned.
    [Whereupon, at 11:05 a.m., the Subcommittee was adjourned.]
    [Public Submissions for the Record follows:]

                                 


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