Social Security, the nations largest income security program, paid out more than $150 billion in cash or Medicare benefits in fiscal 1980. Three-quarters of the money went to monthly pensions covering retired, disabled or deceased workers and their dependents or survivors. The rest went for the hospital and doctor bills of aged and disabled persons under Medicare.
All told, about 35 million people received monthly cash payments. The system, financed by a payroll tax on employed persons, was the major source of income for about two-thirds of the nation's elderly -- and increasingly important in a time of high inflation because benefits levels are automatically raised eacy July to keep pace with increases in the cost of living.
The maximum benefit for workers at 65 is presently $653.80 per month, plus an added 50 percent if there is an aged dependent spouse.
The payroll tax rate, levied on the first $25,900 of earines for an employed worker in calendar 1980, is 6.13 percent each on employer and employe -- $1,587 each if the worker is making the maximum taxable amoung (about 9 percent make the maximum or above).
However, under a schedule laid out in 1977 by Congress to help fund the system, the taxable maximum will rise to $29,700 on Jan. 1, 1981, and the rate to 6.65 percent. For a worker at $10,000, this is a raise of only $52 a year.
But for those at the new maximum, the annual tax will be $1.975 -- a big jumb over the previous $1,587 top tax. Under increases in the wage base each year and the rate will also rise in steps to 7.65 percent in 1990. In short, the bite will get bigger.
Even so, it won't be quite enough, although congress had hoped to make the system completely sound when it put in the 1977 schedule of increases.
Economic changes, not fully foreseen, have faced the system with severe financing problems. An underlying factor is the gradual aging of the population. Today there are 10 workers in jobs paying taxes into the system for three beneficiaries. By the year 2030, under intermediate assumptions about the economy, each 10 workers will have to support five beneficiaries.
The new factors, presenting themselves in the past three years, are higher unemployment and higher inflation than expected in 1977. Higher unemployment means Social Security takes less from the payroll tax than expected, and higher inflation means it pays out more because of the automatic cost of living increases.
The upshot: Unless Congress either raises the taxes -- which many are already complaining are too high -- or finds some way to prune benefits or at least retard their growth, which clearly would cause a plitical firestorm among the increasingly powerful beneficiary groups, the system will start running out of money.
For the next year or so -- until early or mid-1982 -- Social Security is okay, in part as a result of certain interfund allocations voted by Congress a few months ago.
But then it faces severe problems, which House Social Security Subcommittee Chairman J.J. Pickle (D-Tex.) has promised to take up next year. These could disappear if the economy picks up enormously -- unemployment and inflation plummeting, the most optimistic economic assumptions -- but nobody expects that.
Under less optimistic economic assumptions (intermediate or worst-case), the old-age insurance systems won't have enough money to pay obligations starting in 1982. (Worst-case assumes 9.8 percent inflation in 1985 and 6.8 percent unemployment.)
Even if combined with the presently well-funded (but much smaller) disability fund, the old-age fund would be in deficit in the mid-1980s under intermediate and worst-case assumptions.
The two combined funds would then pick up for a while as new taxes voted in 1977 went into effect and began accumulating revenue, but would then sink to insolvency again in 2030 under intermediate assumptions -- but much earlier under worst-case assumptions.
As for Medicare, it is surviving now. But because of rising health-care costs and the larger elderly population, it will become insolvent within 25 years under any assumptions, and much sooner -- before 1990 -- under worst assumptions about the economy.
What is frightening most planners is that instead of fully swinging up to intermediate assumptions, the economy is hovering somewhere between intermediate and worst-case.
This somewhat precarious state of Social Security has all but wiped out any possibility of a rollback of the tax raises already scheduled in the 1977 law. Congress must now decide whether to use general revenue funds to supplement the payroll tax, "prune" benefits or raise taxes.