The congressional Buget Office has warned that continued inflation and the slumping economy threaten short-run financing of the Social Security system, and suggested that new taxes or other infusions of money soon may be needed.
The warning, based on a series of pessimistic assumptions about the ecomony, comes at a time when many members of Congress are considering postponing a big Social Security tax increase approved in 1977 to take effect in 1980.
It also comes as the Carter administration, looking agead to next year, has suggested that if a tax cut is needed to offset the recession, the most desirable cut would be in the Social Security payroll tax.
In a July 31 letter to House Buget Committee Chairman Robert N. Giaimo (D-Conn.), CBO Director Alice Rivlin said that "recent inflation and anticipated economic slowdown have brought the short-run financial soundness of the Social Security system into question again."
The economic assumptions were developed by the House Budget Committee, and are more gloomy than projections by other government agencies. If the more optimistic assumptions prove correct, there would be less cause for worry, one CBO official said.
The buget office said the problem could be handled by increasing the payroll tax, allowing the old-age insurance fund to borrow from the Treasury on a temporary basis or borrowing from the system's disability or health insurance funds.
"We certainly aren't talking about a crisis involving the collapse of the Social Security system," Robert Reischauer, CBO deputy director, said yesterday.
Rather, he said, it is a matter of a "deterioration of fiscal strength" because projections of inflation and general economic conditions are far worse than projections in 1977, when Congress enacted new Social Security taxes designed to end financing problems for a generation.
The key problem is that it is going to take years before the taxing schedule laid out in 1977 begins to pile up substantial extra money. Meanwhile, because of automatic cost-of-living increases in benefit levels up higher than were expected, according to the CBO analysis.
As a result, the balance in the oldage and survivors insurance fund (oldage benefits), which at the start of 1979 was equal to 34 percent of anticipated outlays for the year, is expected to drop to 5.4 percent of anticipated outlays by 1984 -- not enough to insure cash flow to pay all benefits.
The CBO analysis said the problem could be solved by everal different methods.
One method would be to allow the old-age fund to borrow from the disability or health insurance funds, both of which are financed by specified portions of the overall Social Security payroll tax and right now are in better shape than the old-age fund. If the fiscal balance of the old-age and disability funds were combined, the overall balance, expressed as a percentage of anticipated outlays, would be 12.4 percent in 1984.
Robert J. Myers, former chief actuary of Social Security, and Robert Ball, former commissioner, both said in interviews yesterday that a 12.4 percent figure should be enough to get past the short-run crisis of the 1980s, and that the balance then should begin accumulating. However, the Rivlin letter said that 12.4 percent projection could drop should the economy go into deeper recession than the CBO estimates were assuming.
Other methods for getting around the problem outlined by the CBO borrowing from general Treasury revenues; putting a cap on cost-of-living increases in Social Security benefits (for example, holding such increases to 7 percent, the president's guideline figure for wages, instead of raising them the full 10.3 percent now projected for June 1980), and permanently using general revenues to finance all or part of the Social Security system. The CBO made no recommendations, but simply outlined ways to shore up the system temporarily.
Last April, when the Social Security trustees issued their annual report, they projected that the Social Security old-age and disability trust funds wouldn't require any financing other than that already scheduled for the next 50 years, as long as the economy took the "middle path." Only in a worst-case scenario -- high inflation and unemploymment -- might there be some temporary cash-flow problems in the mid-1980s, the report said.
The projections made by the House Budget Committee are in many respects close to the worst-case scenario for the few years.Reischauer noted that the Senate Buget Committee projections and the official administration economic projections are less pessimistic.
The administration's official July economic review projected inflation at under 10 percent in 1980, according to the CBO, declining to 6.7 percent by 1982. It projected unemployment averaging 6.8 percent in 1980 and declining to 6.1 percent in 1982.
Both the House and Senate Budget committee forecast substantially higher inflation and unemployment than the administration, the House's being the more pessimistic by a shade. It pedicted inflation at 10.3 percent in 1980 and 8.1 percent in 1980 and 6.9 percent in 1982. Some administration economists are reported to have, unofficially, an even gloomier view.