Social security: ways to get past the wrangling
The Social Security Administration's $73 million computer center sits in a copse of trees near Baltimore, biding its time.
Open for a year and a half, this futuristic building is still only partly full. Magnetic tape storage racks stretch in long rows. A pair of lonely telephones keep each other company, huddled on an expanse of open floor. Someday , these vast areas of unused space, big as indoor ice arenas, should be jammed with the computer equipment needed to process checks for social security recipients - a pool of retirees projected to double by 2025.
But many taxpayers doubt the gleaming center will ever be fully utilized. Opinion polls routinely show a majority of workers believe social security won't even exist when they retire.
The system is shuddering through a short-term cash-flow crisis, while the long-term problem of providing for an increasingly older US population looms on the horizon.
Will social security go broke? Will the five-story computer center, built with a tear-away roof to facilitate addition of two more floors, never be filled?
Key participants in social security policy all stress that the system will survive. And they claim that current beneficiaries will not have one penny shaved from their checks.
''I think it's a certainty, just as much as the sun rises in the East, that something is going to be done to solve social security's problems,'' says Robert J. Myers, executive director of the National Commission on Social Security Reform.
Years of scrutiny have produced a lengthy list of possible solutions for social security's problems. The real challenge, say experts, is political, not technical. Somehow, Congress must struggle past the bitter partisan wrangling social security sparks and agree on a particular package of reforms.
For that to happen, a consensus must be reached on broad goals for the system. Should social security be simply an antipoverty program? Or should it guarantee that retirees won't have to face a declining standard of living, no matter the status of their private pensions or personal savings?
It will be difficult to reach such an agreement, given the sensitive political nature of the subject. But unless some hard choices are made, that computer center in Maryland may never be needed.
''What we have to do as a nation,'' says Social Security Commissioner John Svahn, ''is decide what it is we want social security to be.''
Since its founding in 1935, social security has undergone a distinct change in personality. Originally, the system was meant to rescue the elderly from the claws of destitution. The first benefits were modest, averaging $22.60 per month.
In this mission the program has been successful. The incidence of poverty among the elderly declining from 35.2 percent in 1959 to 15.7 percent in 1980. But the system is now much more than protection against meager income during old age. Congress has expanded benefits
In the years since 1935, Congress has greatly expanded social security's boundaries. Medicare and insurance for disabled workers were tacked onto the basic system. Workers were given the option of retiring at 62, on reduced benefits. Benefits were periodically raised, and in 1972 were hooked to increases in the consumer price index.
Over the first 30 years of the system, workers could expect their social security check to average 30 percent of their last monthly paycheck. By 1981, this replacement rate had risen to 56.4 percent.
Social security and medicare now account for almost one-third of all government spending.
''We've created a system that's almost Frankensteinian,'' says Dr. Robert Holland, president of the Committee for Economic Development, a Washington think tank.
No one is talking about scaling social security back to the bare bones system of the 1930s. Regardless of what its founders intended the system to be, today's policy makers must deal with what it has become - the major income base for most of America's elderly.
For 56 percent of the elderly couples receiving social security benefits, the monthly government check accounts for more than half their income. For single beneficiaries, the figure is 73 percent.
When deciding what to do about social security's problems, say many experts, the government must balance the future cost of the system against the economy's ability to pay, taking into account the rapid growth in benefits of the past three decades.
But the social good of providing for the elderly must not be slighted.
''Will the price of a scaling back be a tremendous growth in the incidence of poverty for those 65 and over?'' asks James Hacking, assistant legal counsel of the American Association of Retired Persons (AARP).
Social security's short-term problem centers on the Old Age and Survivors Insurance trust fund (OASI). Largest of the system's three funds, OASI has been battered by the economy's poor performance recently, which constricts the flow of payroll taxes into the system.
OASI's cash flow crisis will abate in 1985, when scheduled tax increases take effect. But unless Congress shores up OASI's finances, the fund will be unable to pay beneficiaries on time by next July.
To solve the short-term crisis, there are but two broad alternatives, says Robert J. Myers, executive director of the national commission. ''Either we get more money, or we reduce the growth in benefits.''
One way to pour more money into the trust fund would be to raise taxes or move forward tax increases scheduled under the 1977 Social Security Act amendments - suggestions that cause members of Congress to turn pale.
But the most mentioned money-raising proposals are interfund borrowing, and loans from general revenues. Interfund borrowing considered
Interfund borrowing allows the sounder trust funds - Disability Insurance and Hospital Insurance - to lend money to their more shaky compatriot, OASI. Congress last year approved interfund borrowing through 1982. Extending such authority would allow the three trust funds, huddled together, to barely last until 1984, under the Social Security Administration's ''most probable'' economic outlook.
Another way of keeping the funds going would be to lend them money from general federal revenues. But, as Dr. Robert Kaplan, a dean at Carnegie-Mellon University, points out, ''there's not a great excess of general funds around.''
Over the short term, reducing benefits growth means changing the way social security checks are adjusted for inflation. Some cost-saving suggestions:
* Increase benefits by either the percentage increase in wages, or the percentage increase in prices, whichever is less.
* Increase benefits by the same percentage rate as the increase in wages, minus 1.5 percent, as the national commission is considering.
* Create a consumer price index for the elderly, reflecting their purchasing habits. Some fear this new CPI might turn out to be even more expensive than the current index.
Some sort of cost-of-living adjustment (COLA) seems inevitable, in light of the last decade's benefit increases. But critics object to COLA changes for retirees already on the benefit rolls, saying such a move would constitute changing the rules in the middle of the game.
Social security will enjoy a period of tranquility from 1990 to about 2013. Scheduled tax hikes, combined with relatively few new retirees, should allow the trust funds to pile up healthy surpluses.
But long-term problems will loom in the background, crackling with menace. The central problem is demographic. Around 2010, the post-World War II baby-boom generation will start to retire. By 2025, social security will be paying pensions to an estimated 72 million beneficiaries, double the figure of 1981. The ratio of workers to beneficiaries will decline from today's 3 to 1, becoming less than 2 to 1. Today's solutions would help long-term problems
Many solutions for the short-term problems would also improve the system's long-term economic picture. Changing how cost-of-living increases are figured, for instance, could greatly lower future costs.
Almost everyone involved with social security emphasizes that older workers must be encouraged to work and pay taxes past age 65.
The first step toward this goal, say many experts, would be to gradually raise social security's retirement age from 65 to 68. The Committee for Economic Development recommends raising the cutoff age two months each year, until about the year 2000. The earnings test could be eliminated. Benefits for those who take early retirement could be reduced.
But roughly half those who choose early retirement do so for health reasons. Any hike in the retirement age should allow for those who simply can't continue to work. One solution might be liberalizing the eligibility requirements for Disability Insurance.
To keep the elderly in the work force, however, the private sector will have to make some adjustments.
''The critical thing is to get jobs designed for older people,'' says Kenneth McLennan, a vice-president of the Committee for Economic Development.
Another way of bolstering the worker-beneficiary ratio would be to bring government employees and some nonprofit organization workers into the fold. This universal coverage could be approached several ways: All workers could be brought in right away, or only new workers could be added to the social security rolls. Either way, the system would eventually have a broader base of workers to draw on.
The long-term cost of the system could also be reduced by changes in the complicated formula for figuring benefits. For current workers, this would mean a cut in promised benefits.
The portion of social security benefits financed by employee benefits might also be taxed, with the resultant revenue cycled back into the retirement system.
So far, Washington - fearful of the voting power of the elderly -has been unable to muster the political will needed to grapple with social security's pressing problems.
Republicans have had to retreat twice on the issue: last May, when the administration's reform package quickly sunk, and this spring, when Senate Republicans withdrew a proposal for $40 billion in unspecified social security cuts, spread over three years.
Now, asked their opinion on social security reform, politicians often shield themselves by saying ''I'm waiting for the commission (report).'' Commission report due in December
The National Commission on Social Security Reform, appointed by the President last fall, must produce recommendations by Dec. 31 - conveniently after the 1982 congressional elections.
''By the time we get the commission's report, deadlines will be very short,'' says a congressional aide, ''And the longer we wait, the more difficult our options are.''
Critics question whether the 15-member, bipartisan board will be able to agree on a package of reforms. But commission members say they will meet their deadline, despite a well-publicized partisan argument at their May meeting.
''I think the commission has been tremendously successful in avoiding sharp policy differences among its members,'' says commission member Sen. John Heinz (R) of Pennsylvania.
Some observers say Congress will have a tough time agreeing on the issue, even if the commission produces a report signed by all.
''For the moment, following the organizing of the commission, the debate has simply been put on the back burner,'' says James Hacking of AARP.
To help depoliticize the issue, suggests Senator Heinz, social security should be an off-budget item. That would eliminate the temptation to tinker with the retirement system in order to make the overall budget look better, he says.
Critics, such as Commissioner Svahn, call the move ''an accounting gimmick.''
After the commission's deadline, the pressing nature of the short-term problem will likely force Congress to quickly agree on a patch-up solution, say congressional sources. But they worry whether today's long-term problems will be tomorrow's short-term crisis.
After all, the report of the last blue-ribbon advisory panel, the National Commission on Social Security, was delivered in March 1981, after a two-year study. Its 88 suggestions have been ignored.
''One thing we can be fairly certain about: We've got this big, high-cost World War II baby boom group coming along,'' says Robert Myers. ''Something has to be done. The question is, what can you get a consensus on?''