Social security's future

A great sigh of relief seemed to go up from Congress and the White House when the thin ice of social security reform was once more skated over with no one actually falling through. But the future lies ahead, as the comedian said, whether Washington acknowledges it or not. An increasing elderly population will have to be taken care of one way or another. While Congress gets off the hook with short-term remedies, and the President gets off the hook with a bipartisan study commission, the American public ought to be demanding that the momentum for saving a humane and valuable system not be lost entirely. It is good to see that at least House Speaker O'Neill and Senate Majority Leader Baker have agreed that the commission ought to report back by April 15 rather than in a year or two as mentioned by Mr. Reagan.

The place to start is with the facts which the commission will have to consider - and which the President will have to act upon to regain the bold image achieved by his original social security initiatives. These facts begin with the well-publicized postwar ''baby boom'' generation reaching retirement age in the first half of the next century - with an added social security drain on the working generation then. But they add up to a picture of the US population that has encouraging as well as sobering aspects.

For one thing, the people who would now be called elderly are projected to have ''younger'' characteristics than the word suggests: more years ahead of them, better health, more education than their present counterparts - and a greater place for them in the working world. The latter would be due to slowed growth in the labor force, to an increase in the economy's service sector with physical demands suitable to older people, and to improved educational backgrounds enabling them to adapt to technological change.

One dramatic way of putting the trend is to note the actuarial calculations that retiring in 1980 at 69 years of age was equivalent to retiring in 1940 at 65 - and in the year 2000 the figure rises to 71 years. Such factors have to be taken into account when the social security commission considers increasing the age of retirement for full social security benefits. It appears that many people would be well prepared to benefit both themselves and society by staying longer in the work force.

Yet the picture is complicated. And we are indebted to such a social security expert as Alicia Munnell, vice-president and economist of the Federal Reserve Bank of Boston, for interpreting the statistics as she has for the Senate's Special Committee on Aging. Considering such matters as disability and technological displacement, she finds that proposals for a gradual increase of the retirement age from 65 to 68 would yield a long-term reduction in costs of only about 1 percent of taxable payroll, with somewhat more in later years. A question for the commission is whether such cost reductions are really worth the restructuring of the system and the risk of leaving some unemployedelderly without a sound means of support.

For Mrs. Munnell notes that past experience indicates lower-paid workers are not able to save for their own retirement and even middle-income workers are not likely to plan enough savings. As for private pension plans, less than half the private nonfarm workforce is covered by them. Pension benefits go mainly to highly paid people; low-wage workers receive almost none.

So, for all the lengthened years of activity open to tomorrow's older people there would remain many dependent on children or other sources if not social security. In other words, the costs of their keep will be borne somehow. Though the idea of raising taxes instead of reducing benefits has not been popular of late, Mrs. Munnell puts it in perspective. The upshot is that the system would have sufficient revenue to run well through the first decade of the 21st century if the present proposals for borrowing within the social security trust funds were combined with payroll tax increases costing $45 a year for a worker earning compared with scheduled taxes.

On into the next century the combined employee and employer tax rate would become 17 percent of taxable payroll. This seems high in relation to the present 11 percent for the pension portion of social security. But it is less than what a number of European countries already pay - more than 20 percent of payroll in Italy, Sweden, and the Netherlands, for example, with West Germany at 18 percent. And the rate would have to be seen in conjunction with a reduced outlay on dependents at the younger end of the spectrum. The proportion of the combined younger and older generations to the working generation is called the dependency ratio. It reached a peak of .95 in 1965 and fell to .75 by last year. Under birth rate projections rising to 2,100 births for every 1,000 women, the ratio continues to fall until 2005 and then rises to a plateau of .86 in 2035- 2055 - still not as high as in 1965.

Should Americans, then, invest more in social security rather than receive less out of it? This is the kind of question the commission will be having to go into, getting across that thin ice, this time onto solid ground.

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