Social Security: What Nest Egg?
MANY readers will have noticed another bite out of their paychecks starting last week. The reason - an increase in the social security tax kicked in on Jan. 1. Why the hike? Because, we've been told, the baby-boom generation needs to salt away money to help pay for the retirement benefits it will receive in the next century. That way the smaller generation of workers to follow - the baby boomers' children - won't have to shoulder the whole load.
But the system's not working, and now Sen. Daniel Moynihan (D) of New York has blown the whistle. He says the large social security surplus that has been building since the system was reformed in 1983 is just being used to fund current government expenses, and that federal bookkeepers use the surplus to mask the true size of the budget deficit. Three problems result:
Government services used by all Americans are being paid for in part by taxes that are doubly regressive. First, because social security taxes are levied at a flat rate, applicable to rich and poor wage earners alike; and second, because the taxes are levied only on the first $51,300 of salary.
Despite the surplus of social security receipts over current benefit outlays - now $52 billion and projected to grow to $236 billion by 2000 - the consumption of the surplus means that national savings aren't growing. So the goal to increase national income in 2020 and beyond is being defeated.
Including the social security surplus in government revenues for the purpose of meeting Gramm-Rudman deficit-reduction targets takes pressure off Congress and the administration to close the budget gap.
Moynihan wants to return social security to the pay-as-we-go basis in effect before '83. Revenues would be maintained at a level sufficient to fund concurrent benefit outlays. He would repeal last week's rate hike from 6.06 percent to 6.2 percent, and would further reduce the rate to 5.1 percent in 1991. The baby boomers' retirement benefits would be paid for by gradual rate increases up to 8 percent between 2015 and 2045. By then, Moynihan's staff says, normal productivity growth will produce real incomes that can sustain the rate hikes.
Moynihan seems to be throwing up his hands at the prospect of achieving real budget reform without his drastic remedy. But maybe his is the only realistic approach in the current political climate, when the deficit has been treated as a problem to be finessed rather than solved. And the senator makes a strong case for ending undue reliance on a regressive tax to meet the deficit.
We would like to think that the United States could, in deed not just word, use the social security surplus to increase the nation's savings rate and contribute to its economic growth, as called for by three economists at the Brookings Institution. But if that's beyond the national will, perhaps Moynihan has the best option.
In any event, Moynihan has with characteristic flair launched an important national debate.