Salvaging US social security: cuts loom as funds run low

If Congress and President Reagan needed solid proof that they must significantly change the nation's troubled social security system, it now has come.

In its July 6 annual report, the Social Security Board of Trustees warned that the massive social program touching just about every American is in real danger of going broke. Simply put, more money is being paid out to beneficiaries than is being provided by workers and their employers. There is an "urgent need to strengthen the financing of the social security system," the trustees report. Without this, they warn, the system will "barely get through the early 1980s" -- under even the most optimistic of economic assumptions.

Beyond this short-range danger, projections into the 21st century are even more troubling. After the turn of the century, the baby boom generation will have reached retirement age, the average life span will have lengthened, and lower birthrates will mean fewer young workers to support the system. The number of social security recipients compared with workers could rise by as much as 126 percent.

Just last week, the 36 million Americans receiving social security retirement checks got an 11.2 percent cost-of-living increase. This will cost an additional $15.4 billion over the next 12 months.

The reaction from official Washington to this sobering news is not despair, however, but determination to solve one of the nation's most serious long-range economic problems.

"Social security can regain permanent solvency if it does not become a political grenade, being lobbed back and forth for exploitive purpose," says Sen. William Armstrong (R) of Colorado, chairman of the Senate Social Security Subcommittee. Mr. Armstrong's panel begins three days of hearings today.

Four years ago, Congress enacted an $80 billion social security payroll tax increase that President Jimmy Carter said would "guarantee that from 1980 to 2030, social security funds will be sound." That optimistic assessment has proven far from correct.

Rather than increase the system's source of revenue -- by either raising the payroll tax even more or drawing from general federal revenues -- the inclination here is to trim social security benefits in order to regain fiscal solvency.

Republicans as well as Democrats responded with a resounding "No!" when President Reagan in May suggested immediate cuts in benefits to early retirees (among other reductions).

But both House and Senate, in their budget reconciliation packages, began chipping away at social security benefits. Among the recommendations to be worked out in conference: ending the $122 minimum monthly retirement payment, and restrictions on lump-sum death benefits and postsecondary student payments.

There is no doubt among all concerned, however, that much more needs to be done. Interest is focusing on two areas: raising the full retirement age above 65, and changing the timing and size of cost-of-living adjustments (COLA) in payments to retirees.

At present, cost-of-living raises are tied to the consumer price index and made in July, based on the CPI for the first three months of the year. The Reagan administration figures that delaying the COLA payment until October and basing it on a full year's inflation rate would save some $6 billion over the next five years.

Some argue that the CPI is unrealistically high and that the annual COLA for social security retirees should be linked to average wage increases, which typically lag behind prices. While it is true that older people typically do not buy houses (which is a large factor in figuring the CPI), others contend that they do have higher than average fuel and medical costs and thus should receive full CPI increases.

While Congress shot down the Reagan proposal to reduce payments to early retirees as soon as next January, it seems likely to phase in such a change itself.

Rep. J. J. Pickle (D) of Texas, who chairs the House Social Security Subcommittee, suggests phasing in early retirement benefit cutbacks and raising the full retirement age from 65 to 68 in 1990.

The President's Commission on Pension Policy (appointed by President Carter) reported that raising the retirement age from 65 to 68 would have the effect of doubling the number of contributors to the system per beneficiary.

This week's report from the Social Security Board of Trustees increases the likelihood that such chang es will be made.