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Social Security Bailout: Is a 'Big Fix' Needed?

Booming US economy improves 'solvency' of retiree program, as debate intensifies over the scope of any system overhaul.

The thriving United States economy is proving to be a horn of plenty - and not only for business, workers, and investors. It is also doing wonders for the nation's two biggest "safety net" programs, repeatedly declared to be on the brink of insolvency.

With more Americans on the job during this economic expansion, taxes deducted from paychecks to support Social Security are up. The added money, coupled with low inflation, is expected to postpone the day when the Social Security system would not be able to pay retirees their full benefits.

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Under the new projections, retirees would not see their checks cut until 2032, three years later than expected.

As for Medicare, the bustling economy and legislated changes in 1997 will keep the medical-payment system for those 65 or older solvent until 2008, the trustees of the Hospital Insurance trust fund reported Tuesday. The depletion date they projected last year was 2001.

President Clinton has said he wants Social Security to be the first beneficiary of any federal budget surplus. White House budgeteers have stuck so far to a surplus prediction in the range of $8 billion to $18 billion - but other experts say the figure could go higher.

"At least $75 billion and could be higher," says economic consultant Fred Ross, whose budget predictions in the past several years have been more accurate than official ones. The consensus of Wall Street analysts is a $50 billion surplus for the year ending Sept. 30.

Mr. Clinton repeated his opposition to new tax cuts or spending after cheering Tuesday's good news on Social Security.

"We must save every penny of any budget surplus of any size until we have strengthened Social Security," he said.

To economist Michael Tanner, the postponement of "insolvency" in the Social Security system is "not particularly relevant" to the need for reform. "We are going to have a problem sooner or later," says the director of a group at the Cato Institute in Washington that is pushing for privatization of Social Security.

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But to another economist, Dean Baker, there is "no crisis" in the Social Security system. It could be fixed with relatively minor changes, he says. These could include requiring government workers to join and contribute to the system, raising the ceiling on wages subject to payroll taxes, and, if necessary, a small tax increase or cut in benefits.

A 2.2 percent hike in the combined employee-employer payroll tax, such as occurred in each of the past three decades, would solve the problem without any other measures, he says.

"The Social Security long-term financing problem is one of manageable proportions," Kenneth Apfel, commissioner of Social Security, said Tuesday. He is one of six trustees.

THE long-term problem stems from the retirement of 75 million baby boomers starting early in the next century. There will then be fewer workers per retiree. The trustees, in their annual 75-year projection of the adequacy of the system, report that income from payroll taxes will become insufficient to meet all Social Security obligations in 2013.

At that time, the system will begin using interest income to the trust funds. As of 2021, it will start redeeming the $1.8 trillion of Treasury securities in the fund to pay benefits until 2032. Then, trust-fund reserves will be exhausted, and income coming in from payroll taxes will provide money to pay only three-fourths of benefits.

Such long-term projections hang on assumptions about the economy, demography, and longevity, among other factors.

"They are really, at very best, a guess," says Mr. Baker of the Economic Policy Institute in Washington, a liberal think tank.

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