Representative RUMSFELD. In your statement you say: "The income deficiency of the poor in 1965 was $11 billion. This is the total amount by which their incomes fell short of the poverty line. Without these programs”—and I am not quite sure what "these programs” means "the deficiency would have approached $20 billion." This means, that "these programs" reduced the potential deficiency by $9 billion? Mr. COHEN. Right. Representative RUMSFELD. Could you explain what "these programs" are and what their cost was? Mr. COHEN. The two general programs that I was dealing with was the so-called social security program, and the public assistance or public welfare program. Representative RUMSFELD. What were their cost? Mr. COHEN. Their total benefit expenditures at the present time would be in the nature of about $5 billion for public assistance and about $20 billion for the social security program. That is about $25 billion. Representative RUMSFELD. So an expenditure of $25 billion reduced the deficiency from $20 billion potential to an estimated $11 billion. Mr. COHEN. Public assistance payments in 1965 were $3.5 billion, 100 percent of which went to the poor. In 1965, social security cash benefits were $18 billion. In the social security program of course, the payments are not made only to the poor. Any person who has contributed and meets the eligibility requirements receives benefits and there are large numbers of middle-income groups who, if they have private pensions and other investment income or if they are still working some or less than full time are not in the poor category. Representative RUMSFELD. I appreciate that. I would just like to concur with the comments of Mr. Widnall concerning your comment about greater work force participation of beneficiaries who are able to work. I have had a bill in that would accomplish this for a period of years. It has never received favorable consideration. I am hopeful that we can do something in this area. I think it is very important. I have a number of questions, but one is quite general, and I will pose it first. You have indicated that the social security income and output of the programs have a stimulating effect on the economy, in your opening remarks, a net stimulating effect. Certainly the administration's proposal for a tax increase will have a depressing effect. Let's say they are offset, which I think is not an inaccurate statement. The net result is that with respect to the effect of the economy, they are offset, and yet the other effect is that you will have higher taxes, non-social security, and in addition, you will have higher social security taxes, and there will therefore be a smaller total percent of earnings left to individual wage earners as a result of both of these factors, and therefore Government will be playing a larger role in the expenditure of an individual's total earnings than previously, and yet there is no net effect there on the economy. Now you made a very fine statement in response to the question concerning a guaranteed income, and you said a number of things that I agree with you on very strongly. It seems to me that this trend that you have described in your statement works directly against the response you have made I believe, to Senator Talmadge or Senator Javíts, about the need for incentives in our system. The fact is that, in the last analysis, incentive is most important in solving some of these problems, and you suggested that with respect to the hard-core unemployed it isn't just dollars that are going to solve the problem. Are you worried about this? Are you worried about the fact that the net effect of the administration's proposals will tend to work against the things you believe in with respect to incentive? Mr. COHEN. Well, of course incentive is not easily measured by the usual kinds of tests. It involves psychological as well as economic factors. As a taxpayer, like everyone else, I don't like to pay higher taxes per se. But with respect to the social security system, as the contributions go up, I think that if you assure the average worker that he is getting a greater degree of protection, the evidence seems to be on the whole that he is willing to pay for a reasonable amount of protection. Representative RUMSFELD. You don't feel therefore it doesn't have an unfortunate effect on the incentive question because of this compensating factor you mentioned? Mr. COHEN. I would have to admit that it would have some effect on some people. I could conceive of the problem in lower and intermediate income levels. Quite frankly I don't think it is a disincentive on higher income people. I see no evidence whatsoever that people with higher incomes and with higher education and with greater opportunities have a disincentive because of higher social security taxes or in most cases higher income tax rates. But I would have to admit the validity of your question. You have to look all the way down the line and see what the disincentives are to people of less education, less opportunity, and maybe there comes a certain marginal point balancing a lot of other things where there could be a disincentive. In other words, I don't want the social security tax to go so high that it is a disincentive. I don't think we are at the point at the present time. Representative RUMSFELD. My time is up. I would like to ask one or two questions for the record. First of all, your statement is interesting. I am a little concerned that it doesn't seem to consider the effect of inflation, increases in the cost of living, as far as impact on the problems you have outlined here to the extent I would be satisfied. I think you have overemphasized one side of the picture and underemphasized the other. In your statement, in the section called "Expenditures for health, education, and welfare," I would like to have submitted for the record a breakdown as you have done in part for Federal public, State and local public, and private, with the trend say, since 1962, both in actual numbers and as a percentage. I would like to see what the trend of the private contribution in these areas are. I mention this because I have seen instances in Illinois, where the private sector, the voluntary organizations are pulling out of areas as Government money comes in. We just had a former member of this administration who is now running one of the great foundations of this country, announce that they were pulling out of many areas because of the Federal Government's involvement in those areas, and I think this is something that needs much more attention than we are giving it. Mr. COHEN. Yes, sir. Representative RUMSFELD. Because we are taking it out of one pocket and putting it in another, and we don't solve any problems that way. Mr. COHEN. I would like to put something in the record in answer to your question, because I think, overall, there is no evidence that the private sector in health, education, or welfare has diminished. As a matter of fact, it has also gone up rather markedly, although the character of the expenditures may have changed. Mr. RUMSFELD. I want to see it as a percentage. (The material referred to follows:) Question: What is the trend in private expenditures for health, education, and welfare? Answer: Public and private expenditures for health, education, and welfare, fiscal years 1961-62 through 1965–66: 1 Total adjusted to eliminate duplication resulting from use of cash insurance benefits to purchase medical care and educational services. Chairman PROXMIRE. Congressman Brock? Representative BROCK. Let me say first I have enjoyed very much your testimony. Mr. COHEN. Thank you, Mr. Brock. Representative BROCK. I appreciate it, Mr. Cohen. You have been clear and concise. I am just particularly interested in the questions asked by Mrs. Griffiths and also Congressman Rumsfeld and others, on this problem relating not only to women but to the aged. With your limit on income, it seems to me that you do have a disincentive there. I am concerned lest we seem to be telling people when you get to be 62 or 65, why don't you just lay down and die. Don't be productive any more. I don't know-what is the average payment. to a social security recipient now? Mr. COHEN. About $84 a month. Representative BROCK. That is $1,000 a year, approximately. You are talking of a $1,500 limit on the income. That is a $2,500 gross, if they work, for the average. You have got half the people that are below the average. They are getting even less. I can't imagine why this administration or the Social Security Administration would want to limit the productivity of an individual. We all age in differing degrees and at different times, and it seems to me that those who want to remain productive in society ought to be encouraged in every way possible to do so. Is there some reason other than what you have said? Mr. COHEN. Well, I don't know that I could amplify any more on what I have already said. I think it is a matter of degree. In the recommendation to increase the earnings exemption to $1,680 we recognize the same principle as you. The question is at what point would you not be giving an incentive, because there would be people who would work anyhow and draw their full benefits. You would be taxing younger people to pay for people who would work anyway. What we are trying to do is find some point on that scale where people are encouraged and given an incentive to work, but we do not necessarily want to pay an annuity to people who would otherwise work and not retire. Representative BROCK. I am willing to do that, but I question whether we ought to keep that point below the poverty level. We keep talking about $3,000. I am not sure that $3,000 is anywhere near adequate to somebody in New York City, for example. Mr. COHEN. Yes. Representative BROCK. It may be in my district, but it certainly in some of the more metropolitan areas is not. Mr. COHEN. This gets into a problem on the statistics. The actual poverty line for an aged individual 65 and over is $1,500, and for a man and wife, $1,890. The $3,000 figure is where there is a man, wife, and two children. Representative BROCK. I don't know how many people you know who are trying to live on $1,500 today, with today's cost of living, but it is doggoned hard to eke out a bare existence, and I personally think if we would go somewhere closer to $3,000, it would be a lot better. Another question, following Mr. Rumsfeld's thought. On these incentives, as I recall, there has always been this magic figure of 10 percent. I think Secretary Ribicoff, when he was Secretary, mentioned the maximum of 10 percent when you reach a point of diminishing returns on the productivity of this program. You say we haven't reached it, and, of course, we haven't today, but we are programed to go beyond that, and I wonder if you have any concern, because you are proposing a 20-year increase this year. Subsequent Congresses probably will enact further benefits. How high do you think we can go? What is the point where we stop? Mr. COHEN. I was with Secretary Ribicoff at the time he made that statement before the congressional committee, and after about a year or two of discussions in congressional committee, the 5 percent level was broken-eventually, not immediately-by including medicare. At the present time as you know, the eventual, not current, total employee tax rate would go as high as 5.65 percent, roughly 53 percent. Representative BROCK. How high will it go for the 20 percent this year? 75-314-67-pt. 2- -10 Mr. COHEN. It will go to 5.8 eventually, not immediately. Representative BROCK. You are getting close to 12 then overall. Mr. COHEN. Yes, overall. Now I think you always have to look at that in terms of the distribution of income in the country. I think there is, quite frankly, a limit to the use of the payroll tax as a method of financing social security benefits. There is some point at which it would be a big disincentive. Representative BROCK. Would you suggest going to general revenues at some point in the future then? Mr. COHEN. Well, I think it is something that ought to be looked into, but before I would go to extensive general revenue financing, I think that Congress would have to take a very hard look at the role of payroll financing and general revenue financing, in relation to the benefits that are provided, the distribution of income, and what other types of programs it wished to finance in the income maintenance. field. Now if Congress were going to some guaranteed income minimum, some income deficiency program, in my opinion, that would have to be paid out of general revenues. And you would want to examine first the total type of program and its characteristics before you made a decision about using general revenues. Representative BROCK. I certainly agree. I can ask you one other question. If you were 21 years old today, would you consider social security a good investment? Mr. COHEN. I certainly would, for two reasons, sir. First many people do not realize that social security provides life insurance protection. A young man at 26 or 27 with two or three children gets the equivalent under social security of a $40,000 or $50,000 life insurance policy, which I don't think many young men who are starting in the work force could provide on their own at that time. Representative BROCK. Did you ever, Mr. Cohen, inquire of any of the insurance companies as to what kind of annuities or insurance program they could furnish for the same amount of money? Mr. COHEN. Well, you see there is a difficulty of just looking at an annuity. We are providing three types of group insurance in a combined package and that is the point I am trying to make. Social security is not merely a retirement program. A young person gets $40,000 or $50,000 life insurance protection. The program also provides disability insurance coverage without a medical examination, which is very attractive to the middle-aged person when his family responsibilities are developing. He may have $40,000 to $50,000 disability insurance protection under social security. If he becomes disabled he may be a tremendous burden on his family and his relatives. Now, of course, if a man lives to 65, and he hasn't died or become disabled that is fine; but you should include the valid cost of the protection he has had over the years. Representative BROCK. I was interested to inquire of a local insurance company in my hometown. If they provided the protection against disability, the insurance, and the retirement program, all of the advantages that accrue through social security, what would be the premium charge to a 21-year-old, and it was significantly lower than |