Ronald Reagan's Social Security advisers are urging that he move to reduce old-age benefits for future retirees, so that the average person's first benefit check would be about a fourth of his last paycheck before retirement, instead of 41 percent as now.
Such a change, which would be achieved by changing the benefits formula, would eventually save from $15 billion to $25 billion in Social Security outlays each year, in current dollars. It is designed to improve the giant system's failure financial position without further sizable tax increases. It would not reduce the benefits of anyone already on the rolls.
A second task force, on welfare, is preparing a long-range plan recommending that the welfare program be converted into a system of block grants, in which the federal government would give a fixed amount of money to each state and allow it wide discretion in drawing up rules for its own system.
The new benefits formula is the most significant of several major proposals tentatively recommended by the Social Security task force, headed by Hoover Institution fellow Rita Ricardo Campbell, since it would save by far the most money in the long run.
All the proposals remain subject to review and could be altered before being sent to the president-elect. The proposals come at a time when Reagan is searching for ways to cut the budget while pledging no painful reductions in genuinely needed social programs. Other key items on the list are:
Compulsory Social Security coverage for new federal employes. Current employes already paying into the federal employe retirement system would be allowed to remain in that program and would not have to join Social Security. This proposal would end in a net gain to Social Security of about $2 billion a year, measured in today's dollars.
Raising the normal Social Security retirement age from 65 to 68, in gradual steps starting perhaps five or six years from now and ending about the year 2000. This also would be a big money-saver.
Basing cost-of-living increases once a person is on the Social Security rolls on average wage increases in the economy whenever wages are rising slower than prices. This would save money, too. Currently, price increases are always the standard.
Eventually phasing out the free extra benefit for the nonworking spouse of a person who has retired on Social Security. An eligible spouse, in most cases a woman, now gets a monthly payment equal to 50 percent of the workers' benefit even if the spouse has never worked. The task force, reasoning that more and more women are working, said that this "wife's benefit" could eventually be phased out, but only slowly. However, since women take time off for household work and child-bearing, the task force also proposed that they be given some free Social Security credits for such time, helping them build up a better work record. The benefit phase-out would not apply to the benefits for widows and minor dependent children, only to the "free" benefit.
The change in the initial benefit calculation -- from so-called wage indexing to price indexing -- is designed to slow the growth of benefits. Wages tend to rise faster over long periods of time than do prices. From 1950 to 1980, average weekly wages in the U.S. economy rose about 330 percent but prices rose only 218 percent. At present, when a person retires, Social Security recalculates his lifetime average monthly earnings, updating earlier year earnings to current dollars on the basis of average wage growth in the economy. Then it applies a formula to figure out Social Security benefits. If it used price increases to update the earnings, the average monthly earnings figure would come out lower and the benefit less. Currently, the average retiree gets about 41 percent of pre-retirement earnings in his first check. Use of a price-indexing system to figure the initial benefit would reduce this to around 30 percent by the year 2010 and 25 percent by the year 2050, assuming the economy resumes normal growth.