Trying to Slow Social Security

White taxpayers howl and a time bomb ticks, Carter asks for cuts

The budget that Jimmy Carter sends to Congress next week will make history in one respect: it will propose the first significant cuts ever made in Social Security benefits. The reductions would not touch the basic payments made to retired people, widows and Medicare patients. Still, a year or two ago, no President would have dared advocate even two-bit trimming of what has long been the most popular and sacrosanct of all Government programs. Carter's plans so far have provoked barely a peep of protest from Congress because the legislators know that the rapid growth of Social Security benefits has put a time bomb under the whole U.S. economy.

In 1977, to save the system from being bankrupted by the rise in payouts, Congress passed the biggest tax increase of any kind in history: $227 billion over ten years. As angry workers were reminded when they opened their first paychecks of 1979, the initial boost mandated by the new law took effect New Year's Day. The real impact for many will be felt later in the year, as Social Security payroll deductions that stopped in 1978 when an employee had earned $17,700 continue until he or she reaches $22,900. That person's total tax goes up $333, to $1,404.

That is only the start. In 1981 the tax rate rises from 6.13% to 6.65%, and the tax will be collected on $29,700 in earnings. The maximum bite on any employee jumps to $1,975 in 1981, and to a projected $2,792 in 1985.

Those increases will severely reduce consumer purchasing power, especially for low-and middle-income workers, who often pay more in Social Security than in income taxes. But even that is not all. In theory, employers pay Social Security taxes equal to those levied on their workers. In practice, the public pays the employers' share too, because companies raise prices to pass along the boost. This year's increase may add half a point to the U.S. inflation rate; the bigger rise in 1981 will push prices up much more. Some bosses may also choose to hire fewer workers because the tax raises the cost of each employee. So the increases probably will aggravate unemployment as well as inflation.

Appalled by these prospects, and still more by voter fury, Congressmen are searching for ways to roll back the tax boosts. The increases are unavoidable if payouts continue to rise at their present superheated rate--from $39 billion as recently as 1970 to an expected $135 billion this year and almost $250 billion in 1985. Falling birth rates shortly will reduce the supply of new workers available to pay taxes, and people are living longer, thus collecting benefits for many more years than the architects of the Social Security Act of 1935 ever anticipated.

Presidents and Congresses have competed to make the program more generous. They have grafted extremely costly disability and Medicare programs onto what started out as a straightforward retirement plan. They have raised benefits so much that some blue-collar families can collect Social Security pensions equal to 85% of the after-tax incomes they earned while working. And pensions now rise automatically with inflation. The bills for all this present a painful dilemma: the Government must either find some method of financing other than the payroll tax or slow the growth of benefits --which will probably have to be done in any case.

Carter's budget proposals make a small start. The President would: 1) eliminate the $255 lump-sum burial benefit paid to survivors; 2) phase out benefits paid to students aged 18 to 21 who are children of a retired, disabled or dead Social Security beneficiary; 3) repeal the $121.80 minimum monthly retirement benefit now collected by people who have paid as little as $100 in Social Security taxes during their entire lifetimes; 4) tighten disability rules so that fewer young workers will collect for a lifetime after a few years of labor; 5) continue to provide that pensioners must reach age 72 before they can have unlimited earnings from outside jobs and still collect full Social Security benefits (under present law, the age at which this is permitted would drop to 70 in 1982).

The total savings would amount to $600 million next year, and $3 billion annually by 1984. All experts on Social Security agree that far more fundamental reforms are needed. Among the leading ideas for change:

> Cover everybody. While 108 million workers contribute to Social Security, some 6 million state, city and federal employees do not; they have their own, more generous pension plans. The taxes they would pay could help shore up the Social Security system, but government workers loudly complain that their benefits would be reduced. At minimum, Congress should end the outrageous double-dipping by government workers who retire early, work just long enough in a private job to qualify under Social Security and then collect those benefits on top of their liberal government pensions.

> Slow the rise in benefits. Many economists suggest tying the growth not to increases in wages (as is done now) but to increases in consumer prices, which are expected to rise less than wages. Some other ideas: tighten disability standards further; raise the age at which full Social Security benefits can be collected from 65 to 68; phase out the benefits paid to non-working spouses of Social Security retirees. Benefits to spouses not only are expensive, but they also discriminate against working women. Many wives who work long years in low-paying jobs retire on pensions that are little if any higher than they could have collected if they had never paid any Social Security taxes at all.

> Tap general revenues. Even significant reductions in the growth of benefits may not stop the payroll tax from rising oppressively, so long as it is the only source of financing. Many liberals advocate using revenues from general income and corporate taxes. That would mean increasing income taxes or cutting them less in future years than would otherwise happen. But it would also shift the burden from an inflationary tax to one that is less damaging to the economy because it would not raise employers' costs so much. But many conservatives, among others, fear that paying Social Security benefits even partly out of general revenues would remove all incentive for Congress to hold down the growth of benefits, since the legislators would no longer have to couple any increase with a rise in the highly visible, and painful, payroll tax. Senator Russell Long and Representative Al Ullman, the top congressional tax writers, suggest supplementing the payroll tax with a "value added tax," a kind of indirect sales tax on a broad range of goods. Opponents object that VAT also is inflationary.

The rises in benefits and taxes scheduled for the next few years pale before those expected by the year 2000, when, by some calculations, the top Social Security tax on a worker will have to climb to a frightening $7,160. And the early 21st century will be even worse: there are now three workers to support each beneficiary, but then there will be only two. Social Security unquestionably has brought the nation immense benefits by enabling millions of people to live in dignity rather than poverty. But the U.S. simply cannot afford to keep it growing at the present dangerous rate.

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