Inflation, joblessness, lagging output make it hard for Reagan to avoid cuts

Will you get social security when the time comes? Will it be worth what you put in? "Inflation and unemployment threaten the adequacy and even the security of benefits," warns the Congressional Joint Committee on Economics in a new study.

The committee's chairman, Sen. Lloyd Bentsen (D) of Texas, declares: "Retirement benefits are being threatened by inflation, unemployment, and lagging productivity."

The scope of the problem, touched only lightly in the presidential campaign, is mounting. Most of America's workers are involved:

* One hundred fourteen million US workers and employers paid $99 billion into the social security fund in 1979.

* Thirty-five million Americans collected $101 billion in benefits during the same year.

Those are not the only staggering figures in relation to the social security fund. Social insurance taxes and contributions at the end of 1979 amounted to an estimated 30 percent of total federal revenues. And more than half of all families in the United States now pay more in social security taxes than in income taxes.

President-elect Reagan has promised not to cut social security benefits in his program to reduce waste and extravagance in government. He has pledged to name a task force of experts to consider long-range financing and declares reassuringly:

"No one dependent on social security today is going to have the rug pulled out from under him."

Warnings persist, however. Janice Halpern, an economist with the Federal Reserve Bank in Boston, is quoted by a wire service story saying:

"There's no good solution. The program cost more than we thought. We're either going to have cut benefits to people or increase taxes on others."

She warns that even with higher taxes scheduled to begin next year (see chart above), the social security fund for Old Age and Survivors Insurance will dip into the red by $3 billion in 1983. That could zoom to $27 billion by 1985.

The short-range problems of the social security system are low economic growth and inflation.

For instance, for every 1 million workers laid off for one month in 1980, the social security funds lose about $100 million in contributions. So heavy joblessness in Detroit's auto plants and Akron's tire factories eats into the money coming in. Unemployment also prompts more people to take early retirement -- a further blow to social security.

The long-range problem is that US population is aging so that more and more people at the top get money from a fund supported by fewer workers at the bottom. "Today there are about three workers paying taxes into the social security system for every person who is drawing benefits from it," says the report. "By 2025, the ratio of contributors to beneficiaries will be 2 to 1."

Those who receive benefits are expected to rise from 35 million in 1979 to 47 million in 2000.

The congressional committee throws the new report into the developing tax debate just as Congress meets in a lame- duck session Nov. 12. Reagan forces argue that American income taxes should be reduced across the board, along with cuts in corporate taxes, to counterbalance the cost of the new social security taxes.

The new congressional study lists nine associate authors, including Michael Boskin and Marc Robinson of Stanford University, Frank Denton of Quantec Research Ltd., and George Rohrlich of Temple University.

1977 1978 1980 1981 1983 Percent of income withheld 5.85 6.05 6.13 6.65 6.70 Maximum amount of salary taxed $16,500 $17,700 $25,900 $29,700 33,900 Maximum tax $965.25 $1,070.85 $1,588.00 $1,975.00 $2,271.30

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.