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Revise the CPI

The Reagan administration's proposed reductions in social security bnefits are steps in the right direction. They should help ensure the solvency of the US government's largest federal cash transfer program. The administration plan does not go far enough, however.

The most urgent need is to revise the current cost-of-living formula used to determine benefit payments -- the Consumer Price Index (CPI) -- and to resolve the serious demographic dilemma which will arise at the end of the century when the ratio of benefits recipients to workers jumps sharply. Congress and the administration should avoid any temptation to go for hasty legislation that may score immediate political points but only defers the funding problem to another year.

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It might be recalled that Congress enacted a social security "reform" bill in 1977. That legislation, which sharply raised social security payroll taxes, was supposed to ensure the system's solvency. Alas, how temporary bail-out measures can become.

Mr. Reagan's package is geared more to the retirement system's short-term funding problem than to its longer-term demographics imbalance. It is a politically shrewd package, since its impact on current retirees will be minimal. Mr. Reagan would encourage people to keep working and not take early retirement by sharply hiking the early-retirement penalty (setting the benefit for age 62 at 55 percent of full benefits, down from the present 80 percent level). He would eliminate the restriction on earned income and eventually lower the program's tax rate for workers and employers. He would also cut back benefits for "double-dipping" by federal employees who seek social security benefits as well as their federal retirement beneefits.

So far so good. but can the future solvency of the system be guaranteed without changing the cost-of-living formula? During the past year alone benefits jumped by $20 billion, all but $3 billion of which represented automatic cost-of-living adjustments. The current CPI formula is widely recognized as overstating the impact of inflation on the elderly, since the formula takes into account current housing costs and interest rates. The Republican-controlled Senate is already moving forward in seeking revision of the CPI.

So far as demographics are concerned, sentiment is growing in Congress to shift the retirement age at which full benefits would become available to, say, age 68 instead of 65. Mr. Reagan has so far chosen to stay with age 65. But that yardstick was originally reached decades ago when longevity patterns were shorter. Today it would be reasonable to set full-retirement benefits at an older age.

The fact that the administration and lawmakers in both the Senate and House are now coming forth with innovative proposals on social security is a welcome sign of responsibility. What is needed now is statesmanship and bipartisan cooperation in putting the nation's social security house in order. The American people should demand nothing less to assure a stable social securi ty system.

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