dispute exists over where cuts should be made
i ht bA11 aliun Page IB.
WEDNESDAY, AUGUST 26, 1981
Overhaul of Social Security expected soon
By PETER A. BROWN
United Press International
WASHINGTON — Unless it
icks away from what now seems
nevitable, Congress will soon
iverhaul Social Security. The
guestion seems not whether large
uts will be made, but what form
hey will take.
The undisputed fact is that the
ystem is headed toward bank-
iiptcy. The big disagreement is
out where cuts should be made
save the old-age retirement
ogram approved by Congress in
[935 as a centerpiece of Franklin
(ioosevelt’s New Deal.
“Social Security is on the line
here and now; Congress has prom-
sed benefits that simply cannot be
delivered under the present
ound rules,” says Sen. William
nstrong, R-Colo., who chairs
he Senate Social Security sub-
ommittee.
“The question before Congress
i whether the 36 million Amer-
ns who currently depend on the
Social Security system can count
pn any check at all less than two
its hence,” budget director
David Stockman testified this
pring. Sometime in the fall of
2, he said, “The most devastat-
mg bankruptcy in history will
ccur.”
But any cuts by Congress would
iignify a major change in direction
for the program that has been
^expanded since 1940 when
1 out $35 million in benefits
) 254,984 people.
It is now the largest single fed
eral program — consuming 27
«rcent of the budget — and this
bar will pay $175 billion in be
nefits to about 36 million reci
pients, with an average monthly
ix-free check of $374.
Not only retirees, but survi-
jiors, the disabled and their de-
endents are on the rolls. The
jrowth of Social Security past the
Sasic retirement system it was ori
ginally created to be is cited by the
dministration as a major reason it
s facing financial ruin.
Social Security is financed
trough payroll taxes and the
evies paid by today’s workers go
:oward supporting present re-
irees, Those who are now retired
nd worked previously paid taxes
:o support the past generation of
ienior citizens.
So the money that is taken from
your paycheck is immediately
transferred to a retiree. Unlike
private pension systems, there is
no chance for interest to accumu
late or the money to be invested.
President Reagan, still dodging
the political flak he created with
his plan to impose stiff penalties
on early retirees, is keeping hands
off, trying to let Congress decide
how to cut and take the heat for it.
Armstrong, his House counter
part, Rep. J.J. Pickle, D-Texas,
and Social Security Commissioner
Jack A. Svahn all think it’s likely
Congress will put a limit on cost-
of-living increases in Social Secur
ity benefits.
What is almost certain is that
lawmakers will allow other more
prosperous Social Security funds
to lend the retirement system
money. But that will only buy a
small amount of time.
So, unless voters opposed to So
cial Security cuts have intimidated
lawmakers while they were at
Originally, Reagan had
said Social Security was
part of his “safety net”
that would not be trim
med in his budget cuts.
But that began to change
shortly after the inau
guration.
home during the August congres
sional recess. Social Security will
be on the chopping block.
Various projections estimate
the shortage at $11 billion to $111
billion over the next five years,
depending on economic condi
tions.
The administration sees the
need for about $100 billion in cuts
over that period, although some
Democrats say the need is no
where near that large.
The shortage is caused by the
economic slowdown unforeseen
when Congress passed a series of
Social Security tax increases in
1977. Lawmakers said they would
guarantee the solvency of the sys
tem into the next century.
“We are losing $12,300 every
minute from the Social Security
system — the clock is running and
time is running out,’’ says Health
and Human Services Secretary
Richard Schweiker, whose de
partment oversees Social
Security.
There is also a projected $1 tril
lion to $1.5 trillion shortfall — ab
out one and a half times the na
tional debt — beginning around
2015 when the baby boom genera
tion reaches retirement. At that
time, an average of only two work
ers will be supporting each re
tiree. In 1950, 16 workers paid
taxes to support each retiree.
Also on the horizon in a decade
or so is a potentially serious financ
ing problem for Medicare — the
government health insurance
program for the elderly. Lawmak
ers are avoiding that one for now.
Sen. Daniel P. Moynihan, D-
N.Y., is one of those who thinks
the administration is painting too
gloomy a picture, but he and the
others agree there won’t be
enough money on hand next year
to pay benefits promptly.
Moynihan and some other
Democrats say the administration
is using pessimistic economic
assumptions to rally support for
cuts of a size not needed to pre
serve the system’s integrity. They
say the program represents a con
tract between the American peo
ple and their government and cut
ting benefits would break that
commitment.
If one accepts the administra
tion’s projections, the only alter
native to cutting benefits or re
stricting eligibility is raising
payroll taxes or borrowing income
tax revenues, which would prob
ably require an increase in that
levy.
Originally, Reagan had said So
cial Security was part of his “safety
net’’ that would not be trimmed in
his budget cuts. But that began to
change shortly after the inaugura
tion.
First, he proposed ending stu
dent Social Security benefits, en
ding the minimum benefit level
that goes to people even if that
amount isn’t merited on the basis
of their contributions to the sys
tem, and ending the lump sum
death benefit.
Although the budget signed by
the president ends the minimum
benefit level, there is a move in
Congress to restore it. Social
Security officials concede that if
the minimum benefit is elimin
; Oli WL oiowch <y m w WHO Wit w Hiws
ated then the problem of the cash
shortage facing the system is less
severe — but still sizeable.
The choice facing lawmakers
boils down to a policy decision on
how the burden should be shoul-
So the money that is
taken from your
paycheck is immediately
transferred to a retiree.
Unlike private pension
systems, there is no
chance for interest to
accumulate or the money
to be invested.
dered between those who are now
retired or will reach that point in
the near future, and the young
who have decades to go before
they stop working.
Social Security, says Arm
strong, “is becoming a very divi
sive issue, pitting younger people
against their elders.’’
Raising taxes and increasing the
retirement age would put the bur
den on today’s young people,
since they would be forced to pay
the levies. Also next century,
when they get ready to retire, is
the point at which the retirement
age would be raised under the
proposals being forwarded.
Adjusting the cost-of-living for
mula would take away from both
current and future retirees. Penal
ties for early retirement would be
a problem mostly for workers now
in their 40s, 50s and early 60s who
had planned to stop working early.
Cutting the “replacement rate”
— the percentage of a worker’s
salary he gets in benefits — would
hurt both the young and those get
ting ready to retire in the near
future.
Although it represented the
largest chunk of cuts contained in
the Reagan program, it came
under little criticism and both
Pickle and Armstrong see it as a
method worth considering.
In recent years, the replace
ment rate has steadily increased
and Reagan’s plan would return it
to a point just below where it was
in the 1960s.
Lawmakers who talk of putting
a cap on cost-of-living increases —
and they emphasize eliminating
such raises entirely is out of the
question — seem to be pointing to
a system that would change the
way the adjustments are calcu
lated.
The most popular appoach is to
peg increases to jump with either
wage increases or price increases,
depending on which is lower.
Benefit increases are now based
on prices and during times of high
inflation, as has been the case in
the last few years, wages don’t
keep up with prices so retirees
actually do better than workers.
Limiting the cost-of-living in
crease, experts say, would not
only help in the short run — ex
perts say it could save $28 billion
by 1986 — but also make a dent in
the funding problem anticipated
next century.
Another approach would in
crease early and full retirement
ages by three months a year begin
ning in 2000 until they reached 65
and 68 respectively in 2012.
Backers argue scientific adv
ances have increased the lifetimes
of workers far more than the extra
three years they would have to
remain on the job.
Organized labor and senior
citizens groups, especially unhap
py with this proposal, say increas
ing the retirement age would
change the rules in the middle of
the game.
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