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Trend of the economy:

By Harry B. EllisSenior economics correspondent of The Christian Science Monitor / October 13, 1981



Washington

We now know, after a good deal of anguished uncertainty on the part of everyone, that the vast social security program will not be basically changed by government until after the congressional elections of 1982.

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Minor adjustments will be made, by shuffling payroll tax revenues among the system's three trust funds in a way to stave off for a few years the approaching insolvency of the Old Age and Survivors Insurance (OASI) fund.

More than 35 million Americans now receiving monthly green checks, and others soon to retire, can rest in the knowledge that their benefits -- and the way they were adjusted for inflation -- will not be eroded in the immediate future.

But there is a cost to all this that, come January 1982, will be vividly apparent to many millions of Americans who pay into the system to keep it going.

Payroll taxes are climbing again, from 6.65 percent of the first $29,700 of wages this year to 6.7 percent of $31,800 in 1982.

The government's indecision over social security, in other words, results in a heavier financial burden on workers, with the heaviest of all at the lower end of the income scale.

Against this background, hear these words from a retired librarian, who in her work talked with many young people:

"Without exception", she writes, "they wanted to abolish social security and their usual rationale was: 'Give me the money now, so I can buy a condominium.' When I pointed out the need for social security and its many ramifications, I got a shrug of the shoulders for a reply."

After retirement, the woman moved to another state and took a part-time library job with a major university.

"Again," she says, "I am amazed and disappointed in the attitude that young people have toward social security and retired workers."

She sees around her a "young generation that is only too ready to lash out at old people."

Countless young Americans, especially those with families, confront financial problems of their own, beginning with the inability to afford a starter home.

Preoccupied with their own problems, they may look askance at the "graying of America," which -- to many young people -- may translate into more oldsters supported, at least in part, by the young.

Resentment among the young may grow, if -- to make ends meet -- young couples feel forced to postpone a family or to have only one child.

The retired librarian may or may not exaggerate the situation. But experts agree that, among potential strains in the social fabric of the United States, none is or would be more damaging than resentment of the old by the young.

All this has started a debate about the feasibility, or wisdom, of phasing out social security and thrusting the responsibility for retirement income back on theh individual, his employer, or the two together.

Current beneficiaries of social security -- and those who became retirees while the program was being phased out -- would be paid their benefits out of general tax revenues. They would not lose ground.

"Working people", writes Peter J. Ferrara in "Social Security: The Inherent Contradiction," would be able to save and invest the amounts they would have paid in social security taxes in special, tax-exempt retirement accounts."

No one denies that such a step would turn the nation's back on a trend of many years, during which every industrial power has spread a government-sponsored social security blanket over its citizens.

Yet a key move was made by the US in the 1981 tax-cut bill, which conceivably would make it possible for young Americans to become millionaires by the time they retire.

Almost all workers, including those covered by company pension plans, are given the right to deduct from taxable income up to $2,000 yearly and place this money in an individual retirement account (IRA). Neither principal nor interest earned is taxable, until the money is withdrawn as needed after retirement.

A 20-year-old worker, putting aside $2,000 a year for 40 years at, say, 10 percent interest, would be a millionaire and then some at age 60.

He would be sitting pretty -- without social security -- especially if his own IRA was buttressed by a pension provided by his firm.

This possibility is not theoretical. It is law, beginning in 1982. But one thing has not changed. Workers still must pay into social security, unless and until the system is revamped.

So far, IRA looms no bigger than a man's hand on the horizon. It may mushroom into a major element in the developing debate about security and retirement.