capacity, you are not going to get that because they are not going to build additional capacity?

Secretary SIMON. No, sir. If I am a businessman and I take a look at my order book and I take a look at what I consider to be the demand in the future, and I remember back to 1973 and what I was operating at then, and if I am making a decision whether to expand my plant now or wait a couple of years and see what happens, I take a look at what the outlook is now. I take a look at inflation and, if I wait a couple of years, it is going to cost me 8 percent or 7 percent or 6 percent additional, I assume, I take a look at the fact the materials are going to go up in price and the wages are going to go up, certainly. So, I weigh all of these things. And just because I am operating at below capacity now doesn't mean I am not going to start a new plant or expand the existing one because probably it is going to take me a couple of years to finish that expansion. And by that time, I expect I will be at full capacity, and then I will be able to produce more goods and services. So, I don't think

Representative LONG. Let me try another tactic, then. What did you come up with in the way of figures as to the number of jobs this might create. Did you come up with a projection in that regard?

Secretary SIMON. We did, when we were figuring our revenue estimates at $300, $600 and $900 billion. But each project would employ different amounts of labor, so that is a highly judgmental number, just like our revenue estimates are judgmental, too.

Representative LONG. I don't argue with the need for long-range planning on the part of business and looking at where your market is going to be 3 or 4 years from now and what your capacity is going to be. But, it seems to me to be very elementary that if you are in an area that has high unemployment, that is logical that that means you are even at a lower rate of use of capacity than you are in the country at large, and that consequently you are again dealing with one where the need for capital investment to build your capacity is less than it could be in the country at large. And while most of the area I represent would fall into this category and I well recognize that, it still doesn't seem to me to have been a well thought out proposal.

Secretary SIMON. Well, we discussed it at great length. And of course, this is designed for the near term, to take care of the unemployment that exists today for providing incentives, if you will, to get the needed expansion certainly in industries that would be expanded in the future.

You know, the point is that maybe it won't work. Nobody knows whether it will work or not. But, if it does not work, it is not going to cost us anything.

Representative LONG. But, let's go back to this question whether at the time you were making this decision to come up with this recommendation, whether it would be judgmental as to the number of jobs that would be created?

Secretary SIMON. I will get the judgments we used on the number of jobs, Congressman.

Representative LONG. Could you come up with that figure?
Secretary SIMON. Fine.

[The following information was subsequently supplied for the record:]

The primary effect of the proposal to allow accelerated depreciation deductions in areas of high unemployment is to accelerate the timing of investment outlays. Some projects will be started and completed earlier than previously planned so as to take advantage of the tax incentive allowed under the proposal. Unfortunately, because of the temporary nature of this proposal and the absence of similar precedents in the past, any quantitative forecasts are conjectural at best. We know that the direction of change will be positive. However, too many other factors affect employment to isolate the impact of this proposal on the magnitude of jobs provided, holding all other things constant. Representative LONG. Finally, let me ask you one other thing to present for the record. We are doing here, as you know, some in depth analysis of this whole question of the social security trust fund. And it has been difficult for me, at least, to determine from the budget the status of the trust funds in a way that I can understand readily. As best I can, in fiscal year 1975, the trust fund receipts exceeded outlays by about $4 billion in round figures. And in fiscal year 1976, the outlays under that fund reversed the thing. Now, the outlays are going to exceed the receipts by about $2 billion.

It seems to me that this is directly related to the high unemployment that exists. The unemployment rate will probably average over 8 percent, or somewhere right around 8 percent, in fiscal year 1976, and

Secretary SIMON. Let me respond for the record, because I want to get the numbers for you, which will answer the first part of your question.

Representative LONG. That is what I was going to ask you to do. I really wasn't going to ask you to comment off the top of your head. We need the figures.

Secretary SIMON. Let me give you what has happened in the last 5 years as far as receipts and outlays and what we expect to happen in the future under various assumptions on the depletion of the trust fund; because I don't as I said to the Chairman before, I don't think anybody disagrees that the trust fund is going to be depleted in the future, whether it be 1987 or 1985 or 1981. I think we can have a difference of opinion on our assumptions, but the fact remains the trust fund would be depleted certainly in the 1980's. And I will supply these numbers for you, Congressman Long.

[The following information was subsequently supplied for the record:]

The following table provides actual receipt and outlay data for the Social Security trust funds for Fiscal Years 1971 through 1975. Also provided in the table are estimates for Fiscal Year 1976, the transition quarter, and Fiscal Year 1977. The estimates are contained in the President's 1977 Budget and are consistent with unemployment rates of 7.7% in Calendar Year 1976 and 6.9% in Calendar Year 1977.

The 1976 Annual Report to the Congress of the Board of Trustees of the Social Security Trust Funds is currently being prepared and we expect that this report will provide estimates under a variety of economic assumptions. The report is due by April 1, 1976.

FEDERAL OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE TRUST FUNDS, RECEIPTS AND OUTLAYS, FISCAL

Representative LONG. One of the assumptions I would like for you people to consider and project in that is full employment, sir, as to what it would be under the variable factors

Secretary SIMON. Absolutely.

Representative LONG [continuing]. Of unemployment that exists. Secretary SIMON. Yes, as I said again to the chairman, full employment today would help. But all it would do is postpone the ultimate depletion of the trust fund and not provide a permanent, if you will, solution.

Representative LONG. That statement scares me, Mr. Secretary. It gets me back to something that we had the biggest hassle here the other day with Mr. Greenspan about that I ever heard. It just seems to me as though it is an absolute lack of concern for people as human beings to say that we have been at work now, and that they are going to become entitled to social security because of the fact they are at work now, but that is going to create a problem for us down the road-to say that, Mr. Secretary, scares the hell out of me.

Secretary SIMON. I was not relating this to unemployment. I am talking about the revenue impact of having the high unemployment or the revenue impact of having the present unemployment rate we have now. It is immaterial. The social security trust fund is going to be depleted gradually over the years and we have to direct ourselves to the permanent financing solution. I wasn't relating it to high unemployment or low unemployment. I was making a financial state

ment.

Representative LONG. Well, I don't argue with your financial statement with you, but I am making a social and political human being statement that it seems to me it is directly related to the number of people that are covered by—

Secretary SIMON. I mean, we would love to have full employment and we want to get there as fast as we safely can, Mr. Long.

Representative LONG. In order to save your time and everyone's time, Mr. Secretary, let me ask our staff to get together with yours with respect to these projections on this issue.

Secretary SIMON. Absolutely.

Representative LONG. It could be helpful to us and there are three or four things we would like to have in this regard, if we could. Mr. JONES. That is on the social security?

Representative LONG. On the social security and also on the health insurance trust fund. The two are, as you well know, related.

Chairman HUMPHREY. Yes; in looking over the social security financing, it seems to me you have to lay down certain options and alternatives, such as the full employment figures and what they would give to you in terms of receipts and outlays, such as certain possible increases in the wage base.

Secretary SIMON. The wage base, if you increase the wage base, what that does is automatically increase the benefits in the future approximately 25 or 30 years from now

Chairman HUMPHREY. No, it doesn't automatically do it. Your benefits have to be determined by law.

Secretary SIMON. Yes, but the formula presently, as explained to me, increases the benefits in the future as we increase the wage rates. Chairman HUMPHREY. Yes, that is the decoupling provision. Well, I think the time is at hand to take a very good solid look at our social security trust fund and also how they are invested and in what kind of securities they are invested.

Secretary SIMON. They are invested in the finest securities in the world.

Chairman HUMPHREY. Yes, Government securities, but also at what rates of interest on those securities? Some of them are invested at rather low rates of interest.

Secretary SIMON. I think you will find the social security trust fund is managed just like all of our trust funds, Mr. Chairman, at the market rate of securities.

Chairman HUMPHREY. That is right. I have been told the trust funds have been invested in rather low-yield securities.

Secretary SIMON. Well, some of them were bought 20 years ago, or 10 years ago, when interest rates were lower than they are today. Chairman HUMPHREY. Yes, well you can be helpful to us in that also. The other point I want to make, and again these are all projections of your revenue estimates-and by the way, revenue estimate errors have been made by many Treasury Secretaries.

Secretary SIMON. Not many; all. And I would suggest that every Treasury Secretary in the future does

Chairman HUMPHREY. Well, it is still an estimate. That is my point. We understand that.

Do you consider these revenue estimates on the conservative side or on the more generous side?

Secretary SIMON. I would say that these estimates are our best estimates, if you will.

Chairman HUMPHREY. The last time you had some estimates on off-shore oil that were way off.

Secretary SIMON. Excuse me, that is on the expenditure side of the budget. That is a negative expenditure.

Chairman HUMPHREY. Well, that always confusés me.

Secretary SIMON. It always confuses me, too.

Chairman HUMPHREY. I don't think anybody really understands

that.

Secretary SIMON. Well, that is the way we keep our books and I don't understand that either.

Chairman HUMPHREY. If you can clear that up, Mr. Secretary, you and I will be better friends.

Well, you have been here a long time. Let me thank you for your extensive statement. We have some disagreements. I personally feel that the emphasis in our budget, which also relates to fiscal policy and monetary policy is not adequate in terms of getting at the problems of unemployment. And I am not using the word "unemployment" relating only to unemployed manpower; as I said a while ago, unemployed resources, unemployed capacity or unused capacity, unused capital, are also important. But these are differences that men of good will hold. I just think that there is a willingness to permit the recovery to come at a slower pace than I believe is desirable. Secretary SIMON. That is the difference.

Chairman HUMPHREY. Yes, that is it.

Secretary SIMON. And that is where honest men, Mr. Chairman-
Chairman HUMPHREY. That is the difference.

Secretary SIMON. Well, honest man can differ.

Chairman HUMPHREY. I never impugn anybody's motives who comes before us. That is the last thing I need to do. I know you people are concerned about the country, just as I am.

Secretary SIMON. Sure.

Chairman HUMPHREY. Our concern is sometimes expressed differently. I was very upset the other day, to be honest about it, about the job's program, which I know is not in your neck of the woods. I was darned upset when I listened to the Council of Economic Advisors tell us what we couldn't do. I wanted to hear what we could do. I worked with a fellow sometime ago who said, "If you have a fellow around telling you what you can't do all the time, you ought to find somebody who can tell you what you can do."

Secretary SгмON. I used to tell the story about my house counsel at Solomon Bros. I would come in and I would say, "Good morning.” And he would say, "No."

Chairman HUMPHREY. Yes, that is right. And so what I am trying to get is

Secretary SIMON. Is somebody who will go and find a way to do it. Chairman HUMPHREY. Yes, let's do it. Now, you've got the Humphrey philosophy.

Secretary SIMON. And I will add, do it safely.

Chairman HUMPHREY. Well, the problem is, Mr. Secretary, that I want to be safe, but being safe is sometimes moving fast enough so that you don't get run over, you know. [Laughter].

Chairman HUMPHREY. With that friendly note, we can recess. [Whereupon, at 12 noon, the committee recessed, to reconvene at 10 a.m., Thursday, February 5, 1976.]