THIS COUNTRY has committed itself to a huge public pension system - Social Security - that now pays benefits to one out of every seven Americans. The commitment includes a promise to keep those benefits rising in step with the cost of living. But with unexpectedly high inflation and high unempolyment, the system is outrunning its revenues. In the longer run, there's a still deeper issue: The proportion of the population over 65 will rise, and the proportion paying Social Security taxes will fall.
All together, the federal government's civilian pensions - Social Security, railroad retirement and federal employees' - will run $99 billion this year, close to one-fourth of the entire federal budget. Pensions are the largest item in the budget - defense spending, minus the military pensions, is $92 billion - and one of the most rapidly increasing. Support for the retired is one of the most decent things that the government does. But the questions of financing are pressing.
President Carter has now made a series of reasonable recommendations for the coming year. One of them would set an important precedent. He wants to start using the income tax to meet some of these pension costs. The traditional method of financing Social Security, the payroll tax, is the most harshly regressive tax in the United States, and it has now reached dimensions at which alternatives are essential.
The Social Security system, despite what many people seem to think, is not like a private pension plan. It's not a matter of taking contributions this year from a wage earner and holding them in a fund, earning interest, until he or she reaches retirement age. Under Social Security, this year's payroll taxes from wage earners pay this year's benefits to the retired and disabled.
The Americans income-tax laws, for all of their faults, try to be fair and take account of people's different circumstances. The Social Security tax makes no concessions to fairness at all. The payroll tax is a flat rate on your earnings up to $16,500, and that's that. A taxpayer with a dozen dependents pays the same rate as a taxpayer with none. The taxpayer with heavy medical expenses, or heavy casualty losses, pays the same rate as the healthy and the lucky. It's been tolerated only because it crept up on us slowly. Most taxpayers are aware only of the half of the tax that's deducted from their paychecks. But there's another half that their employers pay for them. Counting both halves, the average family is now paying more in payroll taxes than in income taxes. As a matter of simple fairness, it is essential to start moving some of this rising burden off the flat payroll rate and onto the progressive income tax.
Mr. Carter, in fact, is hardly moving fast enough. While he's ready to begin this shift, he wants to do it exceedingly slowly. To meet the system's requirements, he also wants to keep raising the payroll rate - especially for employers. But it's obviously unwise for the government to raise labor costs in a time of high unemployment. As usual, the administration has grasped the right principle but is brandishing it in an excessively gingerly manner.