Social Security Is Insecure, Not Endangered

THE balanced-budget-amendment debate inevitably had to come down to Social Security. That's where the money is.

But Social Security is also the most popular by far of any major government program -- one that Americans are pessimistic about in future decades when baby boomers and their younger compatriots retire.

But the danger to the comfortable retirement of Generation X, according to many economists, is less the integrity of Social Security than what happens to the rest of the federal budget.

The trust fund that pays out Social Security benefits is currently running large surpluses that help finance the rest of the federal government. But whether this trust fund is counted toward a balanced budget means little to the fund's long-term survival.

Counting the surplus would make it easier to call the budget balanced. Without these surpluses, the federal deficit would be an average of $85 billion higher in each of the next five years.

But excluding the trust fund would not give it any legal protection from a revenue-hungry Congress. Congress could decide at any point to lower the Social Security payroll tax and levy the difference as a new tax for the general fund, notes Henry Aaron of the Brookings Institution.

Holding the Social Security money outside balanced-budget rules would give it some political protection, though. Martin Corry, federal-relations director for the American Association of Retired Persons, notes that counting the Social Security cash flow against deficits would give Congress an incentive to raise the Social Security payroll tax or, much more likely, cut Social Security benefits.

This would not be appreciated by the American public.

A RECENT Times Mirror survey found that 70 percent of Americans thought it more important to preserve Social Security and Medicare benefits than to reduce the budget deficit. Only 24 percent thought it more important to cut the deficit. Yet a clear majority thought deficit-cutting was more important than tax cuts for the middle class.

Pressure on Social Security will build anyway. As the baby boomers begin to retire, their large numbers are projected to start eating into the trust fund's reserves around 2019. By around 2029, the fund is gone.

This picture has led to a far greater pessimism about Social Security among the relatively young than most experts believe is warranted. One survey a few years ago found that a third of not-yet-retired Americans expected no Social Security to be available at all when they retired.

Yet the value of Social Security benefits for those retiring 30 and 40 years from now is likely to be actually higher, even accounting for inflation, than current benefits, according to Eugene Steuerle, author of ''Retooling Social Security of the 21st Century'' and a former Treasury Department official.

The catch is that he expects living standards to be higher, so that even a more generous Social Security check may not provide as large a percentage of pre-retirement income.

''So there is more pressure on people to save a little more,'' says Mr. Steuerle. ''But the picture isn't that bad.''

He expects that relatively mild cuts in the growth of benefits can put the system into balance. Currently, Social Security benefits keep place with wage growth, so that recipients keep up not only with inflation but with the younger Joneses as well. Pegging benefit levels to inflation, raising the retirement age slightly, and subjecting more types of income to the Social Security tax could put the balance right, he says.

Mr. Aaron, a leading authority on social insurance, sees a similar outlook. The truth is, he says, ''that it won't take that much to secure benefits for Generation X or the baby boomers.''

Billed for decades as a contributor-paid insurance program, Social Security has grown into the government's largest income-transfer program, redistributing hundreds of billions of dollars each year across generations.

Taking the promised value of benefits for all current adults minus the value of their contributions, all adjusted for inflation and the investment growth of money, the Social Security system has an implied debt of around $10 trillion, says Laurence Kotlikoff, an economist at Boston University.

The real problem that some economists see for future retirees is that their Social Security contributions mostly finance consumption by the federal government rather than economy-building investment.

So when the benefits come due, says Jagadeesh Gokhale, an economist with the Federal Reserve Bank of Cleveland, ''the money won't be there.'' Only Draconian tax increases could then fund Social Security, he says.

One point of consensus: The longer adjustment is put off, the more severe benefit cuts or tax increases will have to be.