THE OTHER DAY President Carter wrote to the congressional conferees on the Social Security bill, warning them of the perils of excessive fairness. It is quite true that the Social Security rules are full of unfair eccentricities. Why, for example, should benefits be cut when recipients earn wages, but not when they get stock dividents? Income is income, after all. The trouble is that fixing the formula and ending the cuts would cost several billion dollars a year. With the enormous growth of the Social Security system over the past decade, even relatively small adjustments in the rules can be astonishingly expensive. Mr. Carter isn't the only citizen who's beginning to get apprehensive about the scale of the government's pension obligations.
Unfortunately, Congress is still determined to finance Social Security with the traditional payroll tax, and nothing else. Last spring Mr. Carter suggested that it might be wise to begin using, in a modest and hesitant way, the general revenues. That means personal and corporate income taxes. Congress turned the idea down flat and Sen. Russell Long (D-La.), the chairman of the Senate Finance Committee, continues to scoff at it. The general revenues, he observes, already fall short of balancing the federal budget, and diverting some of them to Social Security would only increase the deficit.
There is less to Mr. Long's logic than you might think at first glance. Next year Congress is going to have to cut income taxes to compensate for the automatic increase in Social Security payroll taxes. The effect on the deficit will be precisely the same as if the income tax revenues were being used directly for pensions. The difference is that, when Congress cuts the income tax and increases the payroll tax, it is shifting the tax burden from a progressive tax to a regressive one.
There's another consequence as well, as it deserves more thought than Congress seems to be giving it. The payroll tax makes labor more expensive to the employer. The increases are very gradual, to be sure, but they are mounting up. To accelerate this trend over the coming years, as the emerging Social Security bill will do, is going to make it harder than ever to push the unemployment rate down.
These next few years are going to be a particularly bad time for the federal government to impose this kind of tax on labor. Because of the very high birth rates in the 1950s and early 1960s, unprecedented numbers of young people will be pouring into the job market. At the same time women are increasingly looking for paid work outside their homes. The proportion of the American population actually holding jobs has never before been as high as it was in November, according to the Bureau of Labor Statistics. But the unemployment rate - still a painfully high 6.9 per cent - is evidence that the number who want to work is even higher.
Congress keeps saying that, as a matter of national policy, it wants those people on payrolls. Quite right. But in that case, it does not make much sense to put a stiff, and steadily rising, tax on the payrolls.