SOS on Social Security
Given the political sensitivities of tampering, even slightly, with US social security benefits, it is understandable that the Reagan administration chose to propose only shortterm changes in the nation's federal retirement program rather than undertake any major reform. But the inescapable fact remains that if the administration is to get a firm handle on spiraling federal budget outlays it will have to come to terms with the social security issue.
Since its inception back in the mid-1930s, the social security program has become the largest transfer program in the federal budget. Benefit payments alone run well in excess of $118 billion. roughly 35 million Americans annually receive benefit checks. Significantly, of the $30 billion earmarked for automatic cost-of-living increases in federal programs this year, $18 billion to
The Reagan team proposes a phasing out of social-security student loans; an elimination of the $122-a-month minimum benefit payment; and weeding out of unqualified disability insurance recipients. Through these changes, Congress could save upwards of $15 billion or more through 1985. These cuts alone suggest the enormous potential for savings possible under a close scrutiny of the social security system.
That system, which has become perhaps the most sacrosanct of all US entitlement programs, faces a broad range of challenges. In immediate terms, despite a hike in contribution levels mandated by Congress, the retirement program trust fund is expected to show a deficit by 1983. Looking farther down the road, the real financial crunch will come after the turn of the century when the ratio of retired persons to workers jumps sharply and current employees will face a massive tax burden to keep the system solvent.
Few economists call for the elimination of the social security system. Rather, at issue is the adequacy of the system's taxing process, benefit levels, and whether social security is now being asked to do "too much." Originally intended only as a supplemental retirement program for workers in commerce and industry, the system was eventually broadened to include disability and medicare programs while coverage has been extended to farm and domestic workers.
In recent years (and in the past few weeks) a number of innovative proposals have been put forth for reforming the system. The time is here for Congress to give them a fair examination; every delay simply imperils the system and hastens the day of reckoning. Thus, one common sense proposal is to change the effective date of the annual social security increase from July 1 to October 1, a step that would save between $4 billion and $5 billion anually over the next five years. Law- makers should also give serious thought to either revising the formula used to compute benefits (the Consumer Price Index) or pegging benefits at less than 100 percent of the CPI. the fact that the CPI overstates the inflation rate (by giving added weight to home mortgages costs, for instance) has been noted in these pages before.
To mention some other ideas, substantial bipartisan support exists in Congress for basing cost-of-living increases on the prevailing wage rate in the private sector. Mr. Reagan, however, feels bound by his campaign pledge not to change cost-of-living increases. Whether he remains adamant in that position, or for political reasons would prefer that Congress take the lead in initiating the change, is a matter of speculation. In any case, while the idea has some appeal, there is question whether linking benefits to prevailing wages would save money in the long run (despite short-run savings), since historically wages in the US have risen faster than the cost of living. Moreover, if wage levels were to decline social security benefits, assuming they would not be reduced, would again be outpacing the private sector.
In terms of the long-range stability of social security, Congress should weigh raising the retirement age (to 68, perhaps) some time around the year 2000 , as recently recommended by a presidential commission. It should also consider establishing "means tests" and taxing benefits above a certain total-earnings level (i.e., private income plus social security benefits), a reform which would protect those on the bottom rungs of society most needing social security. Such a change, in turn, would be more palatable to other social security recipients if the limit on earned income were raised at the same time.
Using general revenues (either in part or whole) for financing the medicare portion of social security is still another reasonable proposal. the fact that medicare payments now come out of a social security health insurance trust fund distorts the purpose of social security and complicates evaluation of the social security system on its own merits.
Finally, a more controversial proposal -- recommended recently by the President's Commission on Pension Policy -- would establish a minimum universal pension system that would integrate private pensions (which would become mandatory) into a comprehensive system along with social security benefits. The current two-tier system obviously presents great inequities since approximately 30 percent of all retirees subsist entirely on social security benefits and benefits from private plans vary sharply.
In raising these alternatives we do not argue that any one proposal or combination of proposals will necessarily be the "best solution" for setting right the social security system. Obviously, some will work better than others. But the range of possibilities being offered by an increasing number of economists and tax specialists suggests that lawmakers need not feel constrained in their handling of the issue. It is important to remember that when social security was first put into effect, relatively few American workers looked forward to enjoying several decades or more of retirement. But, with today's increased longevity, two to three decades of retirement is hardly unusual. That means enormous benefit costs.
The nation's legislators must show as much open-mindedness and imagination in meeting the current grave challenge to social security as the framers of the sy stem displayed in 1935.
