We feel that this is fair and a way of getting a handle on the runaway increases. After all, even with our proposals medicare expenses go up $2.2 billion a year from 1976 to 1977.

Chairman HUMPHREY. I want you to tell me why.

Mr. LYNN. A good part of it is the increases in expenses, and another part is the growing population.

Chairman HUMPHREY. What about fees and hospital costs?

Mr. LYNN. Well, that is what I meant by the cost of service. Even with the 7-percent and the 4-percent limit you have that kind of increase plus a growing number of eligible people. We also thought it made sense to say that while a person is going into the hospital he or she should pay 10 percent. Let's suppose the daily hospital bills is $110. That would mean an $11 a day cost for that person, but he would always be assured every year that his hospital expenses would never run over $500. On the doctor's bills, we have it the same way: we keep the existing 20-percent match, but we insure that this match never will exceed $250 a year for an elderly person or his children. There is no doubt that the 10-percent hospital cost sharing does help slow down the rate of growth of medicare spending, but it by no means stops the $2.2 billion for the year.

One of the things I think we have to explore together is what it would cost an elderly family to get insurance protection, if they wanted to get it, against even that 10-percent sharing with the hospital. We would be happy to do that with you.

Now for food stamps, I remember, Mr. Chairman, we appeared together on ABC and we both concurred that something had to be done about food stamps. And you told me and told the American people that night that something will be done and we will cut money out of that budget. And I am delighted to see you are gettting to that Because we have to do something about it.

Chairman HUMPHREY. That is correct.

Mr. LYNN. We made our proposals. I think they make sense. Representative ROUSSELOT. Can I interject at this point? I have to go over to the House committee to testify on some concepts of conout of that budget. And I am delighted to see you are getting to that. I will come back.

Chairman HUMPHREY. Do you have any questions?

Representative REUSS. Well I do have a lot of questions but I will defer to my colleagues because I certainly don't want to interrupt.

Representative BOLLING. You will never make the meeting, Congressman Rousselot.

Mr. LYNN. On taxes, you pointed out the President is proposing increases in two types of taxes; namely, unemployment insurance and social security. I do understand that yesterday in your discussions you were talking about unemployment insurance. I would like to point out to the committee ha in July 1975 the Secretary of Labor came before-I think it was the Ways and Means Committeeand said that we had to do something about unemployment insurance. The very point you were making yesterday, the interrelationship between welfare programs on the one hand and unemployment insurance on the other hand, where should one begin and the other

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end, was addressed as part of those proposals. That is a complicated business. One of the proposals made then was a commission to report within a year with respect to the interrelationship of all of those programs. That Commission would be appointed in part by the Congress of the United States and in part by the President. It would include representatives of employers including State and local governments, employees, and the general public. The proposal was also to extend coverage to some 6 million people that are not covered by unemployment insurance-that are not covered I should say by the regular programs: they are getting benefits from the emergency programs but they are not covered by the regular programs. So the propasal was to take some short-term action, yes, to try to restore the fiscal funding side of this, to increase the benefits and as average benefit level State by States, yes. I would urge the Congress to give prompt consideration to those proposals, to all of them that were made by the President and the Secretary of Labor at that time. We agree with you that it is a problem, but it is a problem we made a proposal on. We have not at all ignored it, and we would like you to address our proposals.

Now it is true social security taxes go up. There are three alternatives basically in social security. First, we can reduce benefits, and no one wants to do that. Second, we can go to the general fund and say, "Let's get rid of the concept of a trust fund, and let's just take it out of general revenue." But I frankly think that destroys the whole concept of social security. The third option is a combination of reforms plus a tax increases. This is a tax increase that no one wants to make. Believe me, I agree with you about this. I would love to avoid that kind of tax increases. But, nonetheless, it's the best alternative.

Chairman HUMPHREY. I think it is a question of timing.

Mr. LYNN. Of course we are not proposing it take effect this year. We are proposing it for January 1 of 1977. But we have to face up to it, it seems to me, eventually. And we are talking about an increase that is less than $1 a week at most even at the upper end, and at the lower end I think it is 20 cents or 30 cents a week. The President is also proposing other reforms. He is proposing decoupling which, as you know, deals with a serious problem that I think got into the law unintentionally. Currently there is a double adjustment of benefits for inflation. So if we have inflation, the benefits a worker will be entitled to when he retires increase faster than inflation. That doesn't have much short-term effect. But when you get out to the 1990's or the year 2000, it just blows the system. And the President is saying, as has every advisory committee that has looked at this, that we should eliminate this double adjustment.

Second, we have other things that need reform. For instance, as the law is now, if a person has a job for one month-and let's take something rather exotic-and he brought in $20,000 or $30,000 during that month, he can elect to go on monthly eligibility and collect social security for the other 11 months. The President believes, and so do I, there should be an annual eligibility level. There is the same problem, incidentally, with food stamps. We are not suggesting a year there, but we are suggesting the eligibility period be increased. There are a number of proposals that the President is making.

With these proposals we think we can restore the integrity of the social security trust fund.

Representative BROWN of Michigan. Would you clarify what you just said? You said you think the same problem is applicable to the food stamp program.

Mr. LYNN. It is the same perspective that should be applied, yes. Representative BROWN of Michigan. And eligibility for food stamps should be based upon a monthlitizing of annual income, which is not true now. It is based upon actual income.

Mr. LYNN. Going on, if I may, you mentioned the Pentagon. The Pentagon's situation today is not one of adding people. The Pentagon's situation is one of reducing employment due to initiatives both by the administration and by the Congress. The number of employees in the Defense Department, in both the military and in the civilian area, has been going down drastically. If I recall correctly I think on the civilian side, and I may be wrong, but I think it is 100,000 in 2 or 3 years. And the proposal, as you know, is a 25.000 decrease in the civilian side from the beginning of the year to the end of the year in fiscal year 1977, with no further decline in the military side. But I do believe that the "problem" in the Pentagon at the moment-although we believe it is a good kind of change, not a problem-is reduction of employees, not an increase. Chairman HUMPHREY. Mr. Lynn

Mr. LYNN. Mr. Chairman, I'm about to conclude.

Chairman HUMPHREY. Good, because I want to know if we can get some questions in before the votes.

Mr. LYNN. To conclude, we really do believe that this budget does slow down the growth of the Federal Government. There isn't any doubt about that. We think that is desirable. We think it is the only way that we are going to get the opportunity to return choice to the American people, and give them a break on the tax side. We really do think it is the only way we are going to create the kinds of jobs that we all want; namely, the real rewarding, permanent jobs. And as we move on the road to recovery, we do believe that the budget does take care of needs and gives due recognition of the kind of situation we have now.

Chairman HUMPHREY. All right. What we are going to try to do here, because we have a big assignment in a limited period of time, is to get as many participants as possible. I'm going to ask we keep our questions to the point and our answers to the point.

Senator JAVITS. Mr. Chairman, do we have a limitation on time? Chairman HUMPHREY. Yes.

Senator JAVITS. I would suggest 10 minutes and they be given notice of the time.

Chairman HUMPHREY. All right, we will cease and desist at the time limit. All right, do you want to start, Congressman Brown of Michigan?

Representative BROWN of Michigan. I'm in no hurry. Do you?
Senator JAVITS. I would love to, if I may.

Chairman HUMPHREY. Should we go on the basis of our attendance. here today if that is agreeable?

Representative ROUSSELOT. No, why don't we go by seniority?

Chairman HUMPHREY. All right.
Senator JAVITS. That is all right.

Representative BROWN of Ohio. It certainly is.
Senator JAVITS. I will just take 5 minutes.

Chairman HUMPHREY. I'm going to ask the first round of questioning to last only 5 minutes and then we will come back. Is that agreeable? All right, let's go.

Senator JAVITS. I have one central question. And that is you made the statement that it was up to the private sector to find the permanent jobs. And, of course, we are very discouraged by the continuance of deeming it acceptable to have this high level of employment for all these years.

My question is: Exactly what are you recommending, aside from this special tax credit for capital investment income in high unemployment areas other than just the fact that the vitality of the economy will move it forward-to endeavor to materially reduce the amount of unemployment out of the private sector? I see nothing that reflects any new program.

You are cutting out opportunities and CETA. You are cutting even the summer jobs for youth, which involves 170,000. You had not a new idea in the whole package that I can see except the bread and butter of tax indulgence and that is of a very modest kind. What are you doing to stimulate private enterprise to do what you think they are going to do?

Mr. LYNN. Well, you spoke of a tax stimulus to the private sector of a modest size. My first comment to that would be, Senator, as the President said in his State of the Union message, he looked upon his proposal to encourage investment in high unemployment areas as a supplement to his main proposals and not as his centerpiece. The centerpiece is making permanent reductions in taxes for small business; reducing corporate taxes from 48 to the 46 percent; giving public utilities the six-point package of tax aids; making the higher investment credit, which was initially an emergency measure, a permanent provision of the law; increasing the purchasing power of the American people above what it would be otherwise by reducing taxes-for a family of four making $15,000 a year, by reducing their tax about $227, not counting the social security increase, which is about $45.

Now we really do believe that this will bring the private sector to a point where it will be producing the kinds of jobs we want them to. At the same time on CETA, Senator, we are not cutting back the regular CETA programs, as I understand it, at all. We do look to CETA to get at the endemic kinds of problems. Now we ought to look at CETA together. We ought to ask: Does it need improvement? If it does, then let's improve the programs of the local communities working with people that are chronically unemployed or don't have real attachment to the labor force. If the program isn't working the way it should be, then we ought to work together to improve it. But, in any case, the main part of the jobs for the unemployed ought to come from the private sector in our judgment. Senator JAVITS. Mr. Lynn, the main part of the job does have to come from the private sector but you are not giving the stimulus to the private sector which it needs because there isn't any single

innovative program here. Even your tax cut is conditioned upon other expenditure cuts, and you are already going to strangle the cities with your special revenue sharing proposals which are simply going to give the people who need it the least, the most money. You are going to hit New York very hard. You are going to hit New Jersey and Connecticut very hard because when it comes to making a change in the revenue sharing formula on the floor of the Senate. and the House, the big city States get taken every time. And the people who need it the least, get the most.

Mr. LYNN. The health program, for example, in my judgment will afford New York more money than New York would get the way it is going right now. I say that because New York is on a matching program. New York is taking steps to slow down its medicaid increases. And as it does, for every dollar that they save of their own money, they lose a dollar of Federal money. Under the President's proposal New York would get more in 1977 than it is getting in 1976, not a lot, but certainly wouldn't get less than they have now.

Senator JAVITS. They are going to get $35 million less for mass transit alone and millions in Federal funds for health, education, and social grants, especially in the long run.

Mr. Chairman, I ask unanimous consent to include a news story on revenue sharing cuts that appeared in the January 22 issue of the New York Times as a part of the record.

Chairman HUMPHREY. Fine, we will place it in the record at this point.

[The news story follows:]

[From the New York Times, January 22, 1976]

THREE STATES DEPLORE HEALTH FUND CUTS

New York, Connecticut and New Jersey Fear End of Many Federally Aided Projects

(By Martin Tolchin)

Washington, Jan. 21.-Officials of New York, New Jersey and Connecticut declared today that President Ford's budget proposals would cost their states and cities millions of dollars in health funds, and predicted that this would compel the elimination of many hitherto federally funded programs in education, social services and health.

The President also made a mass transit proposal that would cost New York City $35 million in operating subsidies and lead to a 5 cent increase in the subway rate, according to city officials and members of the city's Congressional delegation.

The states would lose health funds, state and city officials said, because of the $10 billion limitation on Medicaid and a package of health programs that would be distributed according to a new formula in which a state's per capita income was a major factor.

New York State, which has a large, rich population as well as a large population of poor people, ranks sixth in the nation in per capita income. New Jersey ranks fourth and Connecticut, second.

Any disbursement of funds with per capita income as a major factor would thus be detrimental to these states in the long run, although the President has proposed that no state receive less in the coming fiscal year than it received last year. The other factors in the formula would be the poverty population and tax effort.

MRS. ABZUG DISPLEASED

"We'll probably lose about $300 to $500 million," said Representative Bella S. Abzug, Democrat of Manhattan. "This again is a question of the President's not meeting the needs of the American people in New York or elsewhere, but trying to out-Reagan Reagan."