Skipping or cutting the cost-of-living adjustment (COLA) for Social Security is both unwise and unfair. Although many seem to have forgotten, the Social Security COLA was permanently cut in the 1983 legislation. The date of payment was moved from July to January, and as a result, Social Security benefits were cut approximately $5 billion in 1984 and again in 1985, and will be cut by $6 billion in each of the next three years. These cuts continue. The cuts in the 1983 legislation amounted, on average, to a reduction of 21/2 percent in benefits over the lifetime of both present and future beneficiaries.
The 1983 cuts were part of an agreement struck among many diverse interests in order to bring the separately financed old-age, survivors and disability insurance systems (OASDI) into balance. Employers, employees, the self- employed and the general taxpayer all made some sacrifices. To now impose additional sacrifice on one group, beneficiaries, breaks that agreement. It would seem particularly unfair since OASDI is both adequately and separately financed and is not contributing one cent to the deficit.
Let me review the recent history:
All during 1981 and 1982, Social Security beneficiaries -- 36 million elderly retired persons, totally disabled people, widows and motherless and fatherless children -- were terrorized by the fear that their benefits would stop or be reduced. There were almost daily reports of Social Security "bankruptcy." Under this daily pounding, not only beneficiaries, but a high proportion of the 120 million contributors to the program became convinced that they would never receive their benefits.
As a consequence of the great public concern, a National Commission on Social Security Reform was appointed jointly by the president and the Republican and Democratic leadership of Congress. After a year of study, the commission presented a set of recommendations, which were endorsed by 12 of its 15 members. These recommendations were in turn endorsed by the president, the Republican leadership in the Senate and the Democratic leadership in the House and became the basis for the 1983 Amendments. These amendments have restored financial integrity to OASDI as far as the eye can see. (Medicare is another story and probably faces financial problems within about 10 years.)
Because of the 1983 Amendments, Social Security is already helping to reduce the deficit in the consolidated budget and will do so for a long time. In order to build up reserves, Social Security, under present law, will be taking in more than it pays out for several decades. This, of course, helps overall government financing. Social Security funds that are not needed for the payment of benefits are lent to the government at interest. Thus other activities can be partially financed by borrowing from Social Security, without the government's going into the financial markets and competing with private industry. Social Security is doing more than its share now, and benefits should not be reduced because of an apparent unwillingness to raise the taxes necessary to pay for other spending.
The COLA is not something extra but an integral part of Social Security. The law provides that Social Security should be inflation proof, and Social Security financing is designed to pay for it. People are counting on it. The president has reinforced the promise in the law by an unequivocal pledge not to cut Social Security protection, including the COLA. He was very clear on this, even after the campaign.
The American people agree with this policy. For example, in a Washington Post/ABC poll conducted Jan. 11 to 16, only 5 percent said Social Security should be cut to reduce the budget deficit, as compared with 46 percent who said military spending should be cut.
Nevertheless, many in Congress have shown support for a COLA cut or freeze. Some of them seem to have the mistaken notion that Social Security, because it has no needs test, is somehow a "middle-class program." Social Security is a universal program and, of course, does cover the middle class, but it is also our most effective anti-poverty program.
If there were no Social Security, there would be about 3.5 elderly poor persons for every one now below the poverty level. The overwhelming majority of beneficiaries have low incomes. Social Security supplies more than half the income of two-thirds of its over-65 beneficiaries. About one- third get more than 90 percent of their income from Social Security. Yet, the average benefit payment is less than $450 a month. If the increase in the Consumer Price Index for next year is 4 percent, a freeze would cost the average beneficiary $18 a month; if 5 percent, $22.50. These amounts may sound small to most of us, but to people largely dependent on Social Security, these cuts can mean choosing between food and medicine. An additional 500,000 people would be pushed below the government's rock-bottom measure of dire poverty if their pruchasing power were cut by a COLA freeze.
Most fundamentally, the main reason for not tampering with the COLA is that keeping benefits up to date with the full cost-of-living makes sense, and not just for the poor. It makes sense to decide on the proper level of benefits that people should get at the time of first receipt, then to maintain the purchasing power of that benefit. It doesn't make sense to provide a given level of benefits at the time of retirement or total disability, or to survivors on the death of a wage earner, and then let inflation cut the value of those benefits so that people in their seventies or eighties, for example, have less to live on than when they first started to get benefits.
The 1983 amendments to the Social Security Act restored fiscal solvency to Social Security and, as the amendments are understood, will reassure people that their benefits are safe. That is, if we don't start tampering with the system for purposes that have nothing to do with Social Security. After the turmoil of 1981 and 1982, Social Security is now doing just fine. Let's keep it that way.