In the short run, Congress willing, the ailing social security system can be kept viable without hurting anyone very much. Congress could simply authorize the three trust funds embraced by the social security system to borrow from each other, thereby staving off for a year or so the insolvency of the largest fund -- Old Age and Survivors Insurance (OASI).
Without some help, OASI will dip into the red sometime late next year or early in 1983. By law none of the three trust funds -- Hospital Insurance (HI) and Disability Insurance (DI) are the others -- can borrow from each other, nor can the Treasury use general tax revenues to bolster social security funds.
Former President Jimmy Carter tried twice, in his budgets for fiscal 1981 and 1982, to persuade Congress to allow interfund borrowing. Lawmakers said no.
Now Sen. Lawton Chiles (D) of Florida is trying again. He would allow OASI, HI, and DI to borrow back and forth, whenever the reserves in one of the funds fall below 25 percent of one year's outlays. That point already has been reached by OASI, according to the Congressional Budget Office.
Interfund borrowing, says Senator Chiles, would keep the combined trust funds in the black through 1983, though they would suffer a $3.5 billion shortfall in 1984. Beyond that, the red ink rapidly spreads, if nothing else is done.
Chiles also would realign the amount of payroll (social security) tax going to each fund, with OASI getting a bigger slice of the pie.
Americans know that 6.65 percent of the first $29,700 of their earnings is taxed for social security. They may not know that a precise formula divides that tax among the three trust funds. The 6.65 percent breaks down as follows: 4.70 percent goes to OASI, HI (which pays hospital costs under medicare) receives 1.30 percent, and DI gets 0.65 percent.
Senator Chiles proposes that 50 percent of the HI contribution come from general revenues (income taxes) in 1981, rising to 60 percent in 1982 and 70 percent in 1983.
Beyond these short-term remedies, structural reform of the vast social security system necessarily will reduce the expectations of one or more of three groups of Americans -- elderly people now drawing benefits, those in late middle age preparing for retirement, and the great pool of younger workers from whose tax contributions the system draws its main sustenance.
No debate is likely to be watched more intensely by Americans than the upcoming effort within Congress to spread the burden of change as fairly as possible across the age spectrum. No one can be sure just how Congress and the White House will shape the final package of remedies. If the US economy responds to the Reagan economic program by putting more people to work and cutting inflation, the near-term problem is eased.
In such a case, additional tax revenues would flow into the trust funds and the annual July 1 upward adjustment of benefits to match inflation would not be as steep.
Even at best, however, some combination of the following proposals for change appears to be in the cards. The first group would affect people already drawing benefits:
* The formula by which benifits are indexed yearly to the consumer price index (CPI) might be adjusted downward.
This could be accomplished by revamping the CPI or by increasing social security benefits by a smaller percentage of the CPI than the current 100 percent.
* Some portion of social security benefits might be taxed for beneficiaries with substantial outside income -- say, $25,000 a year or more. Lower-income recipients would not be affected.
Other adjustments would focus on middle- aged Americans whose retirement expectations are based on current law:
* Benefits would be reduced for workers retiring at age 62. It might also be made harder for early retirees to qualify for disability payments.
* Another way to encourage workers to stay longer on the job would be to raise the full retirement age from 65 to 68.
Some 70 percent of Americans now choose early retirement -- a majority of them for physical reasons or because they have lost their jobs. Clearly, any modification of social security that postpones retirement for millions of Americans would have vast political and social implications.
Younger workers would be affected most radically by the following possibilities:
* Payroll taxes might be increased more rapidly than provided for under current law.
* Future benefits could be scaled back by lowering the average initial social security benefit from the current 42 percent to 38 percent of a worker's last wage.
Finally, general US Treasury revenues could be tapped to pay any specified amount of the social security system's benefit programs.