November 17, 1971
Congressional Record - Senate: Pages 41,662 - 41,665
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. HATFIELD;
S. 2865. A bill to amend the Social Security Act to provide for partial general revenues financing of benefits under title II thereof to make social security benefits subject to income taxation, to permit individuals covered under certain other retirement programs to elect not to be covered under social security, and to provide for the financing from general revenues of the health insurance programs established by parts A and B of title XVIII of such Act. Referred to the Committee on Finance.
FINANCING REFORM OF SOCIAL SECURITY AND MEDICARE
Mr. HATFIELD. Mr. President, I put to the desk a bill to amend the Social Security Act.
Mr. President, an index of the humanity of any civilization is how it takes care of its elderly. In our society, we have provided social security since 1935 - albeit somewhat behind the first social security legislation which originated in Bismark’s Germany in 1881. Still, for us was a noble experiment. Virtually all Americans have grown to love and support the social security system. However, the system has become so encumbered with changes since its inception that few really know how it works, and even fewer would attempt to criticize it. Yet, there are upon examination, many shortcomings of the present system, some of which I would like to focus on today.
Today, social security is neither social nor security. It is not social in that all society does not equally participate. Nor is it security in that some are excluded, many any are paid too little to retire on, and the trust fund concept is a sham that has little relationship to the insurance principles.
Let me first elaborate on the social part of social security. That is, who pays for the retirement of the elderly? As it now stands, as emphasized by the President's 1971 Advisory Council on Social Security and by the reports of the Brookings Institute, the social system represents a transfer of income from lower and middle-income workers to the elderly unemployed. Social security contributions that support the system are not really insurance premiums, they are taxes. In fact, young workers could get three times the benefits from a private plan for such a level of contributions. And they are taxes on the wage of workers - currently the first $7,800 of earnings, but to rise to the $10,200 level in 1972, and $14,000 by 1980 in the House passed bill (H.R. 1) . The current 5.2-percent tax on wages up to this level is matched by an equal amount from employers. But as the Brookings Institution studies have shown, this additional tax is really also paid by workers because employers shift this tax black to workers by lower wages - or fewer jobs.
This means that the social security tax is now the most important tax for all workers earning under $10,000 per year. The next year, its total cost to the $10,000 worker will exceed that of his income tax obligation, assuming a family with two children. Under the existing bill this will lead to a 15-percent tax on the earnings of the $10,000 man by 1977, a far cry from the original measure 36 years ago that taxed each employee and employer 1 percent on the first $3,000 of wage earnings. Thus the social security contributions, and a payroll tax, have become the second most important tax in the American tax system - approaching $50 billion, and only to the income tax. But, the real point here is that this tax falls on the lower and middle-income wage salary workers because the tax rate falls to zero once income rises to about $10,100 is year and $10,200 next year. The tax is at zero on all non-wage investment-dividends, rent, interest. Thus, the original concept of investment for the retired wage earner on an equitable basis is negated.
Having established that the social cost providing for the elderly is borne inequitably, but by the current generation of lower and middle-income people, let us now turn to the security aspect of social security. More than 27 million Americans receive social security benefits. More than 90 percent of Americans are covered by the system. But how does the system work in providing security?
Surely, for some recipients, $100 a month is not a sufficient pension on which to live.
Surely, for the wealthy the social security benefits are not really needed, nor for that matter, even taxed.
Surely, for some, they do not represent work actually done. It is possible to qualify for social security by having had shares in oil lease operations that are defined as self-employed income.
Surely, for others, that growing number who choose to work after 65 and add to the national product, there are no social security benefits even though they might have paid social security taxes all their working lives and are still taxed after 65 on their current incomes.
And surely, there is no vast trust fund to pay out pensions for the future - the trust fund is only $36 billion, about 1 year’s payments - for the payments are primarily financed by taxes on the working generation. And that is the critical point. To run the social security system as a private pension scheme is a myth recognized by social security experts. To put the system on a true actuarial basis would mean generating a fund equaling $200 billion by 1986 and nearly $1 trillion - equal to our current GNP - by the year 2025. To maintain this myth in the law means much higher payroll taxes now on the current generation. In fact, social security taxes would be falling, rather than increasing, if it were recognized that the most appropriate way to run a social security system is on a pay-as-you-go system. This is how many European countries are doing it - it is also the way it should be done here. The present system is based on the totally unrealistic assumption that wages will not rise over the next generation - and thus tax rates now have to grow higher over the years to pay for the greater cost of pensions in the future. This really means that the unified Federal budget tends to get more and more financial support from wage taxes on the lower- and middle-income groups, rather than from our traditional progressive tax sources, such as the income tax. Indeed, while the income tax rate is falling, the social security rate is rising. The fellow making just under $200 a week will see his social security tax payments rise from $405 to $755 by 1977, while his income tax payments are scheduled to fall. This also means that the fall in the income tax payments by the rich - for some the rate has fallen from 91 percent to 50 percent - is rreally being subsidized by higher payroll taxes on lower- and middle-income workers.
WHAT SHOULD BE DONE?
Recognizing that taking care of the elderly is a social responsibility of the rich as well as the middle- and lower-income workers; and recognizing that benefits should flow to all Americans in adequate amounts to sustain a decent living standard; I propose the following recommendations:
First, social security taxes and payments should be on a purely pay-as-you-go basis to avoid the overtaxing of the current working generation. Anyone who has studied this subject knows that it is always the current generation of workers that must provide for those not able to work. It is unfair to use a payroll tax to finance other current projects of the Government which can and should be paid for by traditional progressive tax measures based on the ability to pay;
Second, the social security benefit system should be separated from medicare with respect to financing, while medicare would continue to be administered by the Social Security Administration. Medicare would be financed by general tax revenues which would significantly lower the burden on the wage earners who are presently bearing the financial responsibility for it;
Third, the payroll tax should be made optional to the worker as long as he or she is a member of an insurance or pension program of at least comparable magnitude in his or her judgment. This is only fair in that private insurance and pension plans now offer more incentive than would the Federal plan on a free market. And the goal is security in one’s old age; and
Fourth, the first $100 per month of social security benefits should be financed out of the general revenue, not the payroll tax. Today, an individual can be eligible for benefits of a program into which he has paid very little, the burden falling on the other wage earners contributing to social security. If it is accepted that an individual is entitled to benefits that are not related to how much he has contributed to social security, then the middle and lower wage earner should not have to bear the primary responsibility.
This plan could both spur recovery - by across-the-board payroll increase for workers to spend - and fight inflation by cutting labor costs of unit production as well as to revive business profits. It would increase employment and help the American balance of payments in competing with imports, while making exports more competitive. The new burden of social security would be more equitably distributed than the old burden of disproportionately taxing the lower and middle income workers.
Mr. President, I ask unanimous consent that the text of the bill be printed in the RECORD at this point.
There being no objection, the bill was ordered to be printed in the RECORD, as follows:
A bill to amend the Social Security Act to provide for partial general revenues financing of benefits under title II thereof, to make social security benefits subject to income taxation, to permit individuals covered under certain other retirement programs to elect not to be covered under social security, and to provide for the financing from general revenues of the health insurance programs established by parts A and B of title XVIII of such Act.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
FINANCING FROM GENERAL REVENUES OF FIRST $100 OF SOCIAL SECURITY BENEFIT
SECTION 1. Section 201 of the Social Security, Act is amended by adding at the end thereof the following new subsection:
"(i) In addition to any monies appropriated, pursuant to the preceding provisions of this section, for any fiscal year to the Federal Old-Age and Survivors Insurance Trust Fund and to the Federal Disability Insurance Trust Fund, there is authorized to be appropriated to each such Fund in or with respect to each fiscal year, commencing with the fiscal year ending June 30, 1973, an amount equal to the amount of the expenses (other than administrative expenses) of each such Fund which are attributable to payments from such Fund, during such fiscal year, of monthly insurance benefits under this title to individuals (excluding, in determining the amount of such expenses incurred with respect to any individual, so much of any monthly insurance benefit of such individual as exceeds $100)."
ELECTIVE EXEMPTION FROM SOCIAL SECURITY COVERAGE BY INDIVIDUALS COVERED UNDER CERTAIN OTHER RETIREMENT PROGRAMS
SEC. 2. (a) (1) Section 210 of the Social Security Act is amended by adding at the end thereof the following new subsection:
"SERVICES EXCLUDED UNDER ELECTION MADE BY INDIVIDUAL COVERED BY QUALIFIED RETIREMENT PROGRAMS
"(p) Notwithstanding the provisions of subsection (a), the term ‘employment’ shall not include any service with respect to which an election under section 3121(r) of the Internal Revenue Code of 1954 applies."
(2) Section 211(a) of such Act is amended -
(A) by striking out “and” at the end of paragraph (B);
(B) by striking out the period at the end of paragraph (9) and inserting in lieu thereof “; and"; and
(C) by inserting after paragraph (9) the following new paragraph:
“(10) There shall be excluded any income (and related items) with respect to which an election under section 1402(a) of the Internal Revenue Code Of 1954 applies.”
(b)(1) Section 1402(a) of the Internal Revenue Code of 1954 (relating to definition of net earnings from self-employment) is amended -
(A) by striking out "and” at the end of paragraph (9);
(B) by striking out the period at the end of paragraph (10) and inserting in lieu thereof “; and”; and
(C) by inserting after paragraph (10) the following new paragraph:
"(11) ‘there shall be excluded any income (and related items) with respect to which an election under subsection (i) applies."
(2) Section 1402 of such Code (definitions relating to tax on self-employment income) is further amended by adding at the end thereof the following new subsection:
"(1) ELECTION OF EXEMPTION BY INDIVIDUALS COVERED BY QUALIFIED PROGRAMS -
"(1) IN GENERAL. - Any individual who at the close of his taxable year is covered by a qualified retirement program (as deined in section 3121(r)) may, at his option, in such manner and form and at such time as the Secretary or his delegate shall by regulations prescribe, elect to be exempt from the tax under section 1401 for such taxable year. An election made by an individual for any taxable year under this paragraph shall be irrevocable (and may not be subsequently changed by amendment of such, individual’s return for such year or otherwise)
“(2) APPLICABILITY OF ELECTIONS. - All election made by an individual under paragraph (1) shall apply with respect to all income derived during the taxable year for which it is made from every trade or business carried on by such individual (and with respect to all deductions attributable to each such trade or business and any distributive shares of income or loss therefrom), and shall be effective with respect to any payments of estimated tax for the taxable year under section 6153 which fall due after it is made.
"(3) REQUIREMENT OF SIMULTANEOUS ELECTION WITH RESPECT TO EMPLOYMENT - No election may be made for any taxable year under paragraph (1) by an individual who during such year performed service which constituted (for would but for an election under section 3121(r) constitute) ‘employment’ for purposes of chapter 21 unless such individual also makes an election with respect to all such service under section 3121 (r); and, under regulations prescribed by the Secretary or his delegate, the election, under paragraph (1) shall also include or be accompanied by such an election under section 3121(r)."
(c) Section 3121 of such Code (definitions under Federal Insurance Contributions Act) is amended by adding at the end thereof the following new subsection:
“(r) SERVICE EXCLUDED UNDER ELECTION MADE BY INDIVIDUAL COVERED BY QUALIFIED RETIREMENT PROGRAM. -
“(1) IN GENERAL. - For purposes of this chapter other than for purposes of the taxes imposed by section 3111, the term ‘employment’ shall not include any service with respect to which an election under paragraph (2) applies.
“(2) ELECTION OF EXEMPTION.-
“(A) IN GENERAL. - Any individual who at the close of his taxable year (which shall be determined in the manner provided by section 211(e) of the Social Security Act) is covered by a qualified retirement program may, at his option, in the manner provided in subparagraph (C), elect to be exempt from the tax under section 3101 for such taxable year. An election made by an individual for any taxable year under this paragraph shall be irrevocable (and may not be changed by amendment of such individuals return for such year or otherwise).
“ (B) APPLICABILITY OF ELECTION. - An election made by an individual under this paragraph shall apply with respect to all service performed by such individual during the taxable year for which it is made which would constitute ‘employment’ for purposes of this chapter but for this subsection.
“(C) MANNER or ELECTION. - An election by an individual under this paragraph to b exempt from the tax under section 3101 for any taxable year may be made only by filing a claim (which must be included in or accompany an election made under section 1402(i)(1) in the case of an individual who is described in section 1402(i) (3) for special refund of such tax under section 6413(d), by means of a credit against the income tax on account thereof under section 31(b) for such taxable year or otherwise.
“(3) MEANING OF ‘QUALIFIED RETIREMENT PROGRAM' -
“For purposes of this paragraph (and for the purposes of section 1402(i)) a ‘qualified retirement program' means a program designed to provide, for workers covered thereunder, retirement, survivor and disability benefits which the Secretary of Health, Education, and Welfare determines to be comparable in value to the retirement, survivor, and disability benefits provided, to individuals covered by the insurance program establish by title II of the Social Security Act. An individual shall be deemed to have been covered by a qualified retirement program at the end of his taxable year only if he made (or had made on his behalf) contributions to, and was covered by, such program for all of the months of such year"
(d)(1) Section 6413 of the Internal Revenue Code of 1954 (special rules applicable to certain employment taxes) is amended by redesignating subsection (d) as subsection (e), and by inserting after subsection (c) the following new subsection:
“(d) SPECIAL REFUNDS ARISING OUT OF EXEMPTIONS BASED ON COVERAGE OF QUALIFIED RETIREMENT PROGRAM -
'“(1) IN GENERAL - If an employee described in section 3121(a) (2) (A) receives wages from one or more employers for services performed during the taxable year, such employee shall be entitled (subject to the provisions of section 31(b)) to a credit or refund of any amount of tax, with respect to such wages, imposed by section 3101 and deducted from the employee's wages (whether or not paid to the Secretary or his delegate)
"(2) NOTIFICATION TO SECRETARY OF HEALTH, EDUCATION, AND WELFARE. - The Secretary or his delegate shall promptly notify the Secretary of Health, Education, and Welfare of each special refund allowed under this sub-section.”
(2) Section 6413(c) of such Code (relating to special refunds) is amended -
(A) by inserting “Based on Multiple Employment” after “Refunds” in the heading; and
(B) by inserting after "during such year" where it appears in clause (D) of paragraph (1) the following:
“(after the application of section 312l(r)(1) in any case to which it applies)”.
(e) Section 31(b) of such Code (relating to credit for special refunds of social security tax is amended -
(1) by inserting "or 6413 (d)" after "section 6413 © in paragraph (1); and
(2) by inserting after “to which paragraph (1) appies” in paragraph (2) the following:
"and which represents a special refund allowable under section 6413 (c)".
(f) Section 205(c)(5) (F) (i) of the Social Security Act is amended by inserting after “information returns” the following:
(g) The amendments made by this section shall apply only with respect to taxable year beginning after the date of the enactment of this Act.
FINANCING OF MEDICARE PROGRAMS FROM GENERAL REVENUES
SEC. 3. (a) (1) Section 1401 of the Internal Revenue Code of 1954 (relating to rate of tax on self-employment income) is amended -
(A) by striking out subsection (b) thereof; and
(B) by striking out “(a)” at the beginning of such section.
(2) (A) Section 3101 of such Code (relating to rate of tax on employees) is amended -
(i) by striking out subsection (b) thereof; and
(ii) by striking out “(a) ” at the beginning of such section.
(B) Section 3111 of such Code (relating to rate of tax on employers) is amended -
(i) by striking out subsection (b) thereof; and
(ii) by striking out “(a) ” at the beginning of such section.
(3) Section 6051(c) of such Code (relating to statements required to be furnished employees by employers) is amended by striking out the last sentence thereof.
(4) (A) The amendments made by paragraph (1) shall be effective in the case of taxable years beginning after December of 1971.
(B) The amendments made by paragraph (2) (A) shall be effective with respect to wages received after December 31, 1971.
(C) The amendments made by paragraph (2) (B) shall be effective with
respect to wages paid after December 31, 1971.
(b) (1) Section 1832 of the Social Security Act is amended by adding at the end thereof the following new subsection:
“(i) There are authorized to be appropriated to the Federal Hospital Insurance Trust Fund for each fiscal year (commencing with the fiscal year ending June 30, 1972) such sums as may be necessary to assure a sufficiency of monies in such Fund to permit the making of such payments therefrom as are authorized by law. Any funds authorized to be appropriated to such Fund by this subsection for any fiscal year shall be in addition to any funds authorized to be appropriated for such year to such Fund under - any other provision of law.”
(2) (A) Section 1837 of such Act is amended by adding at the end thereof the following new subsection:
"(f) Notwithstanding any other provision of this title, if, for any month, any individual is entitled to the insurance benefits provided under Part A, such individual shall be deemed to be enrolled in the insurance program established by this part for such month and to be entitled to the benefits provided under such program."
(B) Section 1839(c) of such Act is amended by adding at the end thereof the following new sentence: “The preceding provisions of this subsection shall not be applicable to any individual deemed, under section 1837(f), to be enrolled in the insurance program established by this part.”
(C) Section 1840 of such Act is amended by adding at the end thereof the following new subsection:
"(j) For purposes of this part, any premium owed by an individual, who is deemed (under section 1837(f)) to be enrolled for any month in the insurance program established by this part, shall be deemed to have been timely paid."
(D) Section 1844(a) of such Act is amended -
(i) in Paragraph (1), (I) by inserting "(disregarding from such aggregate any premiums deemed to be paid under seection 1840(f))" immediately after "Trust Fund", and (II) by striking out "and" at the end thereof;
(ii) in paragraph (2), by striking out the period at the end thereof and inserting in lieu of such period “; and"; and
(iii) by adding after paragraph (2) the following new paragraph:
"(3) a Government contribution equal to 200 per centum of the aggregate of the premiums deemed to be paid under section 1840 (f)."