To the Congress of the United States:
This nation must not break faith with those Americans who have a right to expect that Social Security payments will protect them and their families.
The impact of an inflation now in its fourth year has undermined the value of every Social Security check and requires that we once again increase the benefits to help those among the most severely victimized by the rising cost of living.
I request that the Congress remedy the real losses to those who now receive Social Security benefits by increasing payments by 190 per cent.
Beyond that step to set right today's inequity, I propose that the Congress make certain once and for all that the retired, the disabled and the dependent never again bear the brunt of inflation. The way to prevent future unfairness is to attach the benefit schedule to the cost of living.
This will instill new security in Social Security. This will provide peace of mind to those concerned with their retirement years, and to their dependents.
By acting to raise benefits now to meet the rise in the cost of living, we keep faith with today's recipients. By acting to make future benefit raises automatic with rises in the cost of living, we remove questions about future years; we do much to remove this system from biennial politics; and we make fair treatment of beneficiaries a matter of certainty rather than a matter of hope.
In the 34 years since the Social Security program was first established, it has become a central part of life for a growing number of Americans. Today approximately 25 million people are receiving cash payments from this source. Three-quarter of these are older Americans; the Social Security check generally represents the greater part of total income. Millions of younger people receive benefits under the disability or survivor provisions of Social Security.
Almost all Americans have a stake in the soundness of the Social Security system. Some 92 million workers are contributing to Social Security this year. About 80 per cent of Americans of working age are protected by disability insurance and 95 per cent of children and mothers have survivorship insurance protection. Because the Social Security program is an essential part of life for so many Americans, we must continually reexamine the program and be prepared to make improvements.
Aiding in this Administration's review and evaluation is the Advisory Council on Social Security which the Secretary of Health, Education and Welfare appointed in May. For example, I will look to this Council for recommendations in regard to working women; changing work patterns and the increased contributions of working women to the system may make present law unfair to them. The recommendations of this Council and of other advisers, both within the Government and outside of it, will be important to our planning. As I indicated in my message to, the Congress on April 14, improvement in the Social Security program is a major objective of this Administration.
There are certain changes in the Social Security program, however, for which the need is so clear that they should be made without awaiting the findings of the Advisory Council. The purpose of this message is to recommend such changes.
I propose an across-the-board increase of 10% in Social Security benefits, effective with checks mailed in April 1970, to make up for increases in the cost of living. I propose that future benefits in the Social Security system be automatically adjusted to account for increases in the cost of living.
I propose an increase from $1680 to $1800 in the amount beneficiaries can earn annually without reduction of their benefits, effective January 1, 1971.
I propose to eliminate the one-dollar-for-one-dollar reduction in benefits for income earned in excess of $2880 a year and replace it by a one dollar reduction in benefits for every two dollars earned, which now applies at earnings levels between $1650 and $2880, also effective January 1, 1971.
I propose to increase the contribution and benefit base from $7800 to $9000, beginning in 1972, to strengthen the system, to help keep future benefits to the individual related to the growth of his wages, and to meet part of the cost of the improved program. From then on, the base will automatically be adjusted to reflect wage increases.
I propose a series of additional reforms, to ensure more equitable treatment for widows, recipients above age 72, veterans, for persons disabled in childhood and for the dependent parents of disabled and retired workers.
I emphasize that the suggested changes are only first steps, and that further recommendations will come from our review
The Social Security system needs adjustment now so it will better serve people receiving benefits today, and those corrections are recommended in this message. The system is also in need of long-range reform, to make it better serve those who contribute now for benefits in future years, and that will be the subject of later recommendations.
THE BENEFIT INCREASE
With the increase of 10%, the average family benefit for an aged couple, both receiving benefits, would rise from $170 to $188 a month. Further indication of the impact of a I o per cent increase on monthly benefits can be seen in the following table:
Present New Present New
Minimum Minimum Maximum Maximum
(A man retiring at age 65 in 1970) $55.00 $61.00 $165.00 $181.50
(Husband retiring at age 65 in 1970) 82.50 91.50 247.50 272.30
The proposed benefit increases will raise the income of more than 25 million persons who will be on the Social Security rolls in April, 1970. Total budget outlays for the first full calendar year in which the increase is effective will be approximately $3 billion.
Benefits will be adjusted automatically to reflect increases in the cost of living. The uncertainty of adjustment under present laws and the delay often encountered when the needs are already apparent is unnecessarily harsh to those who must depend on Social Security benefits to live.
Benefits that automatically increase with rising living costs can be funded without increasing Social Security tax rates so long as the amount of earnings subject to tax reflects the rising level of wages. Therefore, I propose that the wage base be automatically adjusted so that it corresponds to increases in earnings levels.
These automatic adjustments are interrelated and should be enacted as a package. Taken together they will depoliticize, to a certain extent, the Social Security system and ,give a greater stability to what has become a cornerstone of our society's social insurance system.
REFORMING THE SYSTEM
I propose a series of reforms in present Social Security law to achieve new standards of fairness. These would provide:
1. An increase in benefits to a widow who begins receiving her benefit at age 65 or later. The benefit would increase the current 85 ½ % of her husband's benefit to a full 100%. This increased benefit to widows would fulfill a pledge I made a year ago. It would provide an average increase of $17 a month to almost three million widows.
2. Non-contributory earnings credits of about $100 a month for military service from January, 1957 to December, 1967. During that period, individuals in military service were covered under Social Security but credit was not then given for "wages in kind"--room and board, etc. A law passed in 1967 corrected this for the future, but the men who served from 1957 (when coverage began for servicemen) to 1967 should not be overlooked.
3. Benefits for the aged parents of retired and disabled workers. Under present law, benefits are payable only to the dependent parents of a worker who has died; we would extend this to parents of workers who are disabled or who retire.
4. Child's insurance benefits for life if a child becomes permanently disabled before age 22. Under present law, a person must have become disabled before age 18 to qualify for these benefits. The proposal would be consistent with the payment of child's benefit to age 22 so long as the child is in school.
5. Benefits in lull paid to persons over 72, regardless of the amount of his earnings in the year he attains that age. Under present law, he is bound by often confusing tests which may limit his exemption.
6. A fairer means of determining benefits payable on a man's earnings record. At present, men who retire at age 62 must compute their average earnings through three years of no earnings up to age 65, thus lowering the retirement benefit excessively. Under this proposal, only the years up to age 62 would be counted, just as is now done for women, and three higher-earning years could be substituted for low-earning years.
CHANGES IN THE RETIREMENT TEST
A feature of the present Social Security law that has drawn much criticism is the so-called "retirement test," a provision which limits the amount that a beneficiary can earn and still receive full benefits. I have been much concerned about this provision, particularly about its effects on incentives to work. The present retirement test actually penalizes Social Security beneficiaries for doing additional work or taking a job at higher pay. This is wrong.
In my view, many older people should be encouraged to work. Not only are they provided with added income, but the country retains the benefit of their skills and wisdom; they, in turn, have the feeling of usefulness and participation which employment can provide.
This is why I am recommending changes in the retirement test. Raising the amount of money a person can earn in a year without affecting his Social Security payments from the present $1680 to $1800--is an important first step. But under the approach used in the present retirement test, people who earned more than the exempt amount of $1680, plus $1200, would continue to have $I in Social Security benefits withheld for every $I they received in earnings. A necessary second step is to eliminate from present law the requirement that when earnings reach $1200 above the exempt amount, Social Security benefits will be reduced by a full dollar for every dollar of added earnings until all his benefits are withheld; in effect, we impose a tax of more than 100% on these earnings.
To avoid this, I would eliminate this $ 1 reduction for each $ I earned and replace it with the same $I reduction for each $2 earned above $3000. This change will reduce a disincentive to increased employment that arises under the retirement test in its present form.
The amount a retired person can earn and still receive his benefits should also increase automatically with the earnings level. It is sound policy to keep the exempt amount related to changes in the general level of earnings.
These alterations in the retirement test would result in added benefit payments of some $300 million in the first full calendar year. Approximately one million people would receive this money--some who are now receiving no benefits at all and some who now receive benefits but who would get more under this new arrangement. These suggestions are not by any means the solution to all the problems of the retirement test, however, and I am asking the Advisory Council on Social Security to give particular attention to this matter.
CONTRIBUTION AND BENEFIT BASE
The contribution and benefit base--the annual earnings on which Social Security contributions are paid and that can be counted toward Social Security benefits-has been increased several times since the Social Security program began. The further increase I am recommending-from its present level of $7800 to $9000 beginning January I, 1972--will produce approximately the same relationship between the base and general earnings levels as that of the early 1950s. This is important since the goal of Social Security is the replacement, in part, of lost earnings; if the base on which contributions and benefits are figured does not rise with earnings increases, then the benefits deteriorate. The future benefit increases that will result from the higher base I am recommending today would help to prevent such deterioration. These increases would, of course, be in addition to those which result from the 10% across-the-board increase in benefits that is intended to bring them into line with the cost of living.
I recommend an acceleration of the tax rate scheduled for hospital insurance to bring the hospital insurance trust fund into actuarial balance. I also propose to decelerate the rate schedule of the old-age, survivors and disability insurance trust funds in current law. These funds taken together have a long-range surplus of income over outgo, which will meet much of the cost. The combined rate, known as the "social security contribution," already scheduled by statute, will be decreased from 1971 through 1976. Thus, in 1971 the currently scheduled rate of 5.2% to be paid by employees would become 5.1 %, and in 1973 the currently scheduled rate of 5.65% would become 5.5%. The actuarial integrity of the two funds will be maintained, and the ultimate tax rates will not be changed in the rate schedules which will be proposed.
The voluntary supplementary, medical insurance (SMI) of title XVIII of the Social Security Act, often referred to as part B Medicare coverage, is not adequately financed with the current $4 premium. Our preliminary.. studies indicate that there will have to be a substantial increase in the premium. The Secretary of Health, Education and Welfare will set the premium rate in December for the fiscal year beginning July 1970, as he is required to do by statute.
To meet the rising costs of health care in the United States, this Administration will soon forward, a Health Cost Control proposal to the Congress. Other administrative measures are already being taken to hold down spiraling medical expenses.
In the coming months, this Administration will give careful study to ways in which we can further improve the Social Security program. The program is an established and important American institution, a foundation on which millions are able to build a more comfortable life than would otherwise be possible--after their retirement or in the event of disability or death of the family earner.
The recommendations I propose today, which I urge the Congress to adopt, will move the cause of Social Security forward on a broad front.
We will bring benefit payments up to date.
We will make sure that benefit payments stay up to date, automatically tied to the cost of living.
We will begin making basic reforms in the system to remove inequities and bring a new standard of fairness in the treatment of all Americans in the system.
And we will lay the groundwork for further study and improvement of a system that has served the country well and must serve future generations more fairly and more responsively.
The White House
September 25, 1969