So far, President Reagan has been leading a charmed life: The budget cuts designed for him by Dave Stockman, even when hitting such popular social programs as food stamps or Medicaid, somehow haven't stirred much antagonism. But in his sweeping proposals to cut back Social Security benefits, reversing a basic campaign promise, the president may have bitten off more than he can chew.
One must nevertheless tip a hat to him for being willing to take the political risk implicit in dealing with the threat to the financial stability of the Social Security system. In the short run, it's in trouble. The system must receive more money through some form of increased taxes, or the benefits have to be reduced.
The Congressional Budget Office -- not always on the same wave length as the White House -- says flatly that the Old Age and Survivors Insurance, will encounter a cash flow problem as early as next year.
But I doubt that, in his broad benefit cuts, the president has found the right cure. As former Social Security Commissioner Robert Ball points out, it is overkill, a heavy-handed permanent change in the system that may not be necessary to solve the current financial problems.
Put bluntly, the Reagan administration has succumbed to the demands of its ultraright Senate wing for a more convincing budget balancing operation. Reagan's recommendations on Social Security would pick up savings of $9 billion in fiscal 1982, the figure rising to $24 billion by 1986. Reagan is open to the charge that he is balancing the budget, which includes a fantastic increase in military expenditures on the backs of the old and infirm.
As White House officials explain it, Reagan is keeping faith with his campaign promise not to cut back on Social Security benefits for the 36 million Americans now on the Social Security rolls. (There would be on only a slight loss in income for current beneficiaries by shifting the July 1 indexing date to Oct. 1, beginning in 1982.) They would continue to enjoy inflation-adjusted benefits that exceed the typical inflation adjustment received by active workers.
Instead, the president laid a heavy burden on future retirees by changing the "replacement ratio," that is, the way the basic Social Security benefits are calculated. Instead of getting a pension of 41 percent of prior earnings, the average workerer would get 38 percent.
Next, the president proposed a heavy penalty on those who choose retirement at age 62 instead of 65, an option now exercised by 65 percent to 70 percent of all workers. Instead of getting 80 percent of their full benefits, early retirees would get 55 percent. A spouse's benefits on an early-retirement schedule would dwindle to 27 1/2 percent, instead of 40 percent.
The president will be accused of breaking faith with a vast number of workers who have been gearing themselves for early retirement. "This proposal will be disastrous for a very vulnerable group of people, not just those who want to retire early to play golf," said Burt Seidman, the AFL-CIO's Social Security expert. "Many of these early retirees have been displaced from their jobs, or are in bad health, hanging in there until they're 62."
Seidman also argues that a whole series of new rules to limit the payment for disability benefits will hit hard at an older group of workers, and especially those suffering from degenerative diseases such as multiple sclerosis. A new requirement for recipients of disability payments is that they must have worked for at least 30 out of 40 quarters preceding disability. Because diseases like MS don't strike all at once, many such victims would be frozen out of the system.
One observer of the Washington scene says bitterly: "You know, the Reagan people talk a lot about property rights and show an intellectual concern about capricious actions. From a legal standpoint, future Social Security benefits are probably not property rights, but an awful lot of people have been led to expect a certain level of retirement income -- and under the Reagan proposal, which is capricious, they won't get it."
In terms of specifics, a person retiring at age 62 on Jan. 1, 1967, would get (on the average) a monthly benefit of only $348.30 instead of $580.70 as is scheduled under the present law. Those in the maximum benefit category would get only $430 a month instead of $755.60, under the present system. Lesser benefits would also apply, except in the lowest benefit category, to those waiting until age 65 to retire.
Reagan has been propelled into his ill-devised recommendations by various proposals in Congress, including a Senate Republician effort to save $8 billion in fiscal 1982 by watering down cost of living increases, and a plan by some Democrats to raise the retirement age to 68.
As the CBO points out, the basic problem for the Social Security system is its great sensitivity to changes in economic conditions. High unemployment, cutting payrolls, reduces revenues funneling into the trust funds. High inflation, on the other hand, exacerbates the excessively generous indexing of benefits.
In the past few years of double digit inflation, the indexing system, because it is linked only to the consumer price index, has boosted Social Security benefits faster than wages themselves.One change that has been suggested is relating Social Security payments to whichever index, prices or wages, has gone up the least. Or a different price index, with less distortion than the CPL, could be selected.
Ideally, the idea of an automatic indexing of Social Security (and other government programs) should be abandoned, in favor of a joint presidential-congressional determination each year on what, if any, adjustment should be made in light of existing economic conditions. But politicians on Captol Hill will never have the guts to take on that burden.