You and I had better get used to the proposition that Social Security benefits will have to be trimmed in some manner, or the taxes paid into the system raised, because the Social Security trust fund otherwise will run out of money in the next couple of years.
That is a factual statement, meant to be neither alarmist nor an uncritical acceptance of the administration argument that in trimming federal budget expenditures, the entitlement programs of which Social Security is the costliest can't be ignored.
It is a hard concept for liberal Democrats to accept. Social Security is one of the more enduring monuments of the New Deal, providing the cornerstone of income security programs for the elderly.
Robert W. Ball, who served the system for more than 20 years, likes to say that "Social Security is America's most successful program of social reform." And Ball argues against cutting benefit protection, recommending instead a tap on the general revenue pot, especially to cover a share of rising Medicare outlays.
I have a most touching personal letter on my desk from a 90-year-old Social Security beneficiary, F. A. Sieverman Jr. of Fayette, Ala. It is hard to challenge. He cites the oppressive burdens the aged and ailing must bear and deftly notes that there are other places where the government could save money, notably "tax expenditures." This, of course, is a euphemism for subsidies to businessmen and individuals alike.
But the Social Security System has developed a basic flaw it didn't have when Sieverman first started collecting monthly checks: Because the rate of increase of inflation is outstripping the rate of increase of wages, the total benefits being paid out far exceed the total of taxes coming in to support what was intended to be a pay-as-you-go-system.
Not anticipating double-digit inflation, economic stagnation and low productivity, a generous Congress indexed the system to the Consumer Price Index in 1975. It was a costly decision: Since price hikes out ran wages, Social Security beneficiaries were better protected than wage earners.
This dangerous development has taken place despite the fact the Social Security System now takes a bigger tax bite -- 6 1/2 percent on individuals up to $29,700 this year, matched by an equivalent amount on employers -- than do income taxes for more than half of the American families in the United States.
In addition to the short-term problem, most experts think there is a longer term problem building, because the number of aging and retired persons who are eligible for Social Security is zooming ahead faster than the numbers of people who work. Today, roughly three workers pay into the system for every one drawing benefits. By the year 2025, the ratio will shrink to 2 to 1.
Clearly, something has to give. Increasingly, if reluctantly, some liberals are coming to accept the notion that current benefits have to be reduced, to assure a steady flow of payments to present retirees, as well as to give younger people paying into the system the confidence that when their turn comes to take something out, the trust fund won't be empty.
The only real solution is for Congress to withdraw the overly generous indexing system it unintentionally created in 1975. Sar A. Levitan, an old New Dealer and specialist in labor economics, is one who has come to that conclusion. Addressing the National Economists Club here shortly after the election, Levitan noted that the indexing formula gave retirees a 14.3 percent increase last July 1, while wages increased only 9 percent in 1980.
"Therefore, it may be time to cut down on the Consumer Price Indexing formula," Levitan said. "Of course, it will hurt old people and many orphans. But it is also hardly equitable to give proportionately more income to people who are not working than to active workers."
Similar savings, Levitan said, could be made in retirement pay for both civilian and military employes of the government. The cost of 38 federal retirement programs is more than $15 billion a year, the most burdensome being the civil service pension system, indexed twice a year, contrasted with once a year for Social Security and no indexing at all for most private pension plans.
Moreover, civil service pensions, which were designed to replace up to 70 percent of pre-retirement earnings, compared with 20 percent to 25 percent for private plans, are doing even better in this era of double-digit inflation. f
For example, former House Speaker John McCormack, who died last year, reportedly was receiving -- 10 years after he retired in 1970 -- an indexed benefit of between $90,000 and $100,000. His final salary as speaker in 1970 had just been raised to $62,500 from $43,000.
What can be done, without a sledge hammer, that will help restore viability to the trust fund? Alice Rivlin, director of the Congressional Budget Office, listed the choices, and they are all painful. The index itself, which overstates real changes in the cost of living, could be revised downward. Or there could be a cap on the indexation -- say to 85 percent of the increase in the CIP. Or, the index could be tied not merely to the CPI, but to a choice between the CPI and a wage-level measure, whichever is lower. Or automatic indexing could be abandoned, leaving it to the president and Congress to tailor each year's adjustment to prevailing economic conditions.
If the benefit levels aren't changed, the number of retirees could be altered by slowly phasing in a retirement age from 68 (instead of 65), and starting reduced benefits at age 65 (instead of 62). That would tend to keep more people in the labor force -- paying in -- while reducing those who have retired -- taking money out.
No solution to the problem will be easy. Some politicians think that tinkering with benefits spells political suicide. And they may be right.