THE EFFECT OF THE PROPOSED ACT (Statement of William H. Dempsey, Chairman, CHART 5 Senator HATHAWAY. In view of the fact that I have to leave in 5 minutes and we have three more witnesses to go, we will recess the hearing at this time until 2 o'clock this afternoon in this room, when we will attempt to complete these hearings. [Whereupon, at 11:42 a.m., the subcommittee recessed, to reconvene at 2 p.m., the same day.] AFTERNOON SESSION Senator HATHAWAY. The subcommittee will come to order. Mr. O'Neill, are you present? Mr. O'Neill is the Associate Director for Community Affairs, Office of Management and Budget. Mr. O'Neill, you may proceed with your prepared statement. We will make the entire statement a part of the record, and insert it at the conclusion of your remarks, and you may either read or summarize it. STATEMENT OF PAUL H. O'NEILL, ASSOCIATE DIRECTOR FOR HUMAN AND COMMUNITY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET Mr. O'NEILL. Thank you very much, Senator. If I may, I would like to place the prepared statement in the record, and deal with what we consider to be the major elements of consideration that should be before this committee, and indeed before the full Congress, as you consider this subject matter of S. 3612. First, I had the opportunity this morning to hear much of Mr. Dennis' testimony, and I would like to state that I thought he was very skillful in putting forward the views of his special interest; to be precise, both labor and management interests in the railroad industry. Having said that, I think that it might be useful to discuss these subjects from the broader point of view of the general public interest. There are four or five areas I would like to focus on. First, the discussion this morning about social security. I think it should be extremely clear to us, and to the whole Congress that the Social Security Trust Fund is just a short-hand concept that we use to describe moneys that are held in trust on behalf of people who are accruing benefits. The current situation of the Social Security Trust Fund is under examination by the Special Advisory Council, and I think that they will find, as we all know, that the Social Security Trust Funds are not at this time in a surplus position. The point I want to make here is that if we are to ask the Social Security Trust Fund to pay for the railroad retirement financing problem-we are not asking the trust fund to pay, we are asking the people who work under covered social security employment to pay a higher tax. The same concept applies to the general Treasury. It should be very clear, I am sure it is, that there is no surplus in the general Treasury at this time, nor is there one in the foreseeable future. If we are to proceed along the lines of the suggested legislation, we are going to be voting a tax increase as surely as though this legislation were being considered in the Ways and Means and the Senate Finance Committees. While it may not be necessary under the legislative rules to vote for a tax increase directly, to accomplish the purpose of this legislation, the effect will be the same as a tax increase, either through inflation or through a direct tax increase through the relevant committees that will pay for the benefits proposed under this legislation. Another area that I would like to point to very precisely has to do with the conversation this morning about $285 million. Over the last 20 or 30 years, in my judgment, sir, we have too frequently looked at 1 year's cost, and done our business, and made our decisions in terms of 1 year's cost. I think it should be absolutely clear to the representatives of the people when they deal with this issue that we are talking about a $4.5 billion tax increase for the American people. Finally, with regard to dual benefits, it is asserted that the cost to the general taxpayer is a cost associated with the dual benefit provision. In fact, I think you will find, if you examine the way the dual benefit concept works that if we were not to have a dual benefit provision, that the cost would only be reduced by half of the $285 million suggested as a Federal subsidy. The minimum pension benefits, and other provisions would act as a safety measure for people who had the dual benefit coverage lifted from them, and the real number would be someplace in the order of $145 million of cost savings associated with dual benefits. Senator HATHAWAY. So you would eliminate all those benefits of those on the rolls now, as well as those who expect to get them? Mr. O'NEILL. Under the legislation proposed by labor and management, it is our calculation that if we were to excise that other provision of law, that you would absorb half of the cost that is attributed to the dual benefit provision. I think the important point here is this: that dual benefit provision, special minimums, survivor's benefits and all the rest are convenient conceptual abstractions for driving the Federal taxpayer into the corner. I think Senator Taft brought out this morning, or Senator Beall, that in effect, by providing increases in benefits at the same time we are asking the Federal taxpayer to absorb an additional tax burden; it does not matter whether you say you are paying off a dual liability penalty, it is all money. I think the whole concept of trying to drive Congress and the Federal taxpayer into the corner on dual benefits just doesn't hold any water. There is one other point that I would like to make, sir, and that has to do with the precedent effect of this kind of an approach. For the last several years, our office, and I know this committee, and the committees in the House, have been concerned about what has been happening to the soundness of the Railroad Retirement System. We all wondered how we might solve this problem without reduced benefits, and I think as recently as last year, members of this committee, and of other committees in the House, still indicated that it was their own desire to find a way to solve this problem without loading the debt onto the Federal taxpayer. Now, we are saying we are going to do this just for one time. I am reminded that when I first came to the Government in 1961, the Federal budget was under $100 billion. We have said over the years as many legislative bills come down, "we are just going to do this one time, it is not going to be a precedent, and we will not have to pay these benefits for every imaginable beneficiary, for more than one time." And the Federal budget is $300 billion. I am just saying that I would hold faint hope that we are going to be able to hold the line once we get into a Federal taxpayer's subsidy of this system. Thank you, sir. Senator HATHAWAY. Mr. O'Neill, on your last point, you heard Mr. Dempsey testify this morning that the total payout to the Federal Government change to the system would be this level of $285 million for the next 25 years, and the carriers are required to pick up any additional benefits. Mr. O'NEILL. Yes, sir. Senator HATHAWAY. Why do you make the analogy to the fact that the budget used to be $100 billion, and now it is $300 billion. It is not the same situation. Mr. O'NEILL. If I may, I will give you an analogy. When we started out with the Social Security System there was a notion that the system would be self-financed, and over the years that concept was eroded, in order to provide greater benefits to people than what people were willing to pay for in the social security tax. So we stabilized, about 5 years ago, or perhaps 10 years ago, around the principle that said 1 year's outgo in benefit payments should be equal to the revenues that are taken in taxes from the social security covered workers. Three years ago, when it was desired to provide social security recipients an additional 25 percent increase, that principle was very simply modified. A group of people decided that there was nothing automatic about the 1-to-1 relationship. They suggested that the range might vary from 75 percent of 1 year's income to outgo, to up to 125 percent. Now we are below 75 percent. I think if you look at the history of our social legislation in the last 15 or 20 years it is very difficult to draw the conclusion that once a raid is started on the Federal Treasury, that it can be stopped at some specific point. I think all of the evidence is to the contrary. I can think of only one program in the departments, and agencies that I am responsible for that have been turned off in the last 6 years. I believe that Mr. Dempsey and Mr. Dennis are men of their word, and have no intention of coming back to ask the Congress for more money. But they are going to be replaced as they get older, and their successors are going to be telling you, or your successors, why it is that they need an additional 10, 20, or 30 percent increase for their beneficiaries, and they are going to be asking the Federal taxpayer to pick up the bill. Senator HATHAWAY. But the record will still be here to indicate that the carriers were willing to pick up any increased benefits in the future. The only circumstances where they foresee differently would be if we adopt something like a dual benefit scheme which inequitably reimburses the retirement fund. Mr. O'NEILL. Senator, it is hard to argue in the abstract. But let us adopt a premise. Let us say that if the Congress decides next year to provide a 25- or 30-percent increase for social security recipients, I would venture to guess that the railroad industry would not be too crazy about imposing a tax on themselves in order to provide that benefit, but they would very much like to have that benefit on the concept of parity that has prevailed in the past. Senator HATHAWAY. Well, I disagree with you. Certainly next year the carriers would be obligated to pick up whatever benefit they agreed to through negotiations with the union, and hopefully that will remain the situation forever. I wanted to question you on the social security aspects of S. 3612 so that we have it as a matter of record. You are saying that the Social Security Trust Fund cannot afford to pay any part of this deficit? Mr. O'NEILL. No, sir, unless we want to further erode the concept of financial integrity of the Social Security System, or in the alternative, raise the taxes that are now imposed on employees and employers that work under the Social Security System, and I think it should be very clear that we do not have a surplus in the general Treasury, and if this bill is voted Senator HATHAWAY. Do we have a surplus in the Social Security Fund? Mr. O'NEILL. No, sir, we have not. Not even on the constant dollar cash flow basis relative to the benefits that we are building up as due and payable in the Trust Fund. Senator HATHAWAY. We are paying out as much as we are taking in? Mr. O'NEILL. My recollection is that that it is correct. We are not making any inroads in providing a reserve in the future. Senator HATHAWAY. Î just want to have it as a matter of record so that we could now go on to the concept which the House committee has passed, of having this cost come out of general revenues. You say that we cannot, we do not have a surplus in our budget to afford $285 million, but what we have in our budget depends on what we appropriate. So we could conceivably cut back in other areas in order to provide the $285 million. Mr. O'NEILL. Yes. Senator HATHAWAY. You are doing it on the assumption that we go ahead with the expenditures that are now contemplated? Mr. O'NEILL. I am assuming, Senator, that we are going to get together to cut about $10 billion out of those amounts that are anticipated in Senate passed legislation. The report of the Joint Committee on Spending, indicates that if the Senate prevails on legislation that has already been acted on, and increases by not 1 cent, those things that they have not completed final action on, the final outlay number will be $309 billion plus, which will be about $14 billion in deficit in the face of what Ì think is a firm congressional and executive commitment to work together to get below $300 billion. So this program, if it is legislated, would be on top of the problem that is already enormous. Senator HATHAWAY. It would be an additional $285 million. |