NEARLY HALF of the federal budget now operates as a gigantic social insurance fund, paying benefits to Americans who are retired, sick or out of work. The biggest of these programs, Social Security, will send out some $88 billion this year. The checks go to one out of every seven people in the country. By 1985 those benefits will have doubled to about $180 billion a year. But Social Security's income, from its earmarked payrol tax, isn't rising as fast as the outgo. That's why Congress is now rewriting the Social Security law Beneath the actuarial technicalities lie choices of vast significiance for future socialand economic policy.
The immediate shortfall is the result of the last recession and high unemployment. The traditional solution has been to raise the Social Security tax. But raising taxes tends to slow down the economy and make unemployment worse, so President Carter would prefer to shore up the Social Security system with general revenues. Congress doesn't like the idea, however, for a political reason that is much to its credit: Congress understands the terrible tempation to win votes by raising Social Security benefits in election years, and most members agree privately that the only device to control that tempation is the discipline of a tax increase to pay for each benefit increase. That's why the House Ways and Means Committee rejected Mr Carter's plan and voted, instead, to raise the limit of the earnings on which the tax is levied.
Currently, the payroll tax is collected on a person's wages up to $16,500. The ways and Means bill would raise that limit to $19,900 next year and upward in steps to $39,600 in 1987. The effect would be to increase the burden on the middle class. It would meet the immediate crisis-but it would also create larger liabilities in years ahead. As a wage-earner's contributions rise, his retirement benefit also rise. They do not rise as fast as contributions, but they do indeed get bigger. That raises an interesting question: How much of its future income does the United States wants to commit to Social Security benefits?
The country now spends 11 per cent of its taxable earnings on Social Security. Because of a mistake in drafting, the 1972 law gave an unintended bonanza to people who have not yet retired. In setting their future benefits, it provided double compensation for inflation. Over the next 50 years, this defective law would drive Social Security costs up to 24 per cents of taxable earnings-almost one fourth of the average American's wages.
Perhaps 50 years seems like an excessively long time to look ahead. But the Americans who will be 65 in the year 2027 are in high school now. Some of them have jobs and are already paying Social Security taxes. If the present benefit formulas are to be curtailed in any way, it has to be done a very long time before the retirement of the people affected.
The Republicans on the Committee, led by Rep. Barber Conable (R-N.Y), have made the interesting suggestion that the age at which full retirement benefits are paid be pushed back from 65 to 68. This would be done by slow steps beginning in 1990 and running to 2001. People could still retire on partial benefits at 62, but that three-year delay in full eligibility would make a substantial difference in the cost of the system to the next generation. The committee rejected this proposal for the current bill, but it deserves further consideration in years to come.
The committee settled on a more conventional solution, simply correcting the overcompensation for inflation. With that change, Social Security spending in 50 years would be about 19 per cent of taxable earnings. That's a great deal more than Americans are spending for it now. Is that too much? The question is a curious test of Congress's sense of responsibility. The constituency for higher benefits is a powerful one, composed of people now in retirement or approaching it. But those benefits will be paid, in the year 2027, with the taxes of wage earners who, today, are still too young to vote.