The Social Security system needs at least $14 billion in new revenues or outlay cuts beyond those in the just-passed tax bill to keep going through 1985, Congressional Budget Office Director Alice M. Rivlin said yesterday.
In the first official assessment by any government agency of the impact of the tax bill on the troubled system, Rivlin told the National Commission on Social Security Reform that the tax bill will improve the status of Social Security.
But the system still requires an added $11 billion in fiscal 1983 and $3 billion in fiscal 1984 to keep going with only a paper-thin reserve margin of 12 percent of a year's benefits, she said, adding that much larger reserves, up to 75 percent, were desirable.
Brookings economist Henry Aaron sharply attacked the theory of Martin Feldstein, the new chairman of the Council of Economic Advisers, that Social Security's existence makes people save less and therefore retards investment.
"It is simply not true that saving, however measured, has tended to drop off as Social Security has grown in importance," Aaron said. Figures he presented showed that since World War II, total personal, business and government savings, while fluctuating slightly, have been virtually constant at around 16 percent of the gross national product.
Feldstein, in a recent pamphlet mailed from the National Bureau of Economic Research, defended his theory and said "the current level of Social Security benefits substantially depresses private savings."
Social Security faces a short-term financing crisis and could start running out of money to cover benefit obligations in early or mid-1984, according to government calculations. The commission was appointed by President Reagan to help recommend a solution, but it is not expected to come up with any proposals until after the fall elections..
Aides later broke down Rivlin's figures: under the CBO's July economic assumptions, the system would have needed about $30 billion before passage of the tax bill to keep all three trust funds (old-age, disability and hospital insurance) at a 12 percent reserve through the end of fiscal 1985, assuming interfund borrowing when needed.
The tax bill is expected to provide about $16.3 billion of the $30 billion, leaving $14 billion still needed over the three-year period. The $16.3 billion would come from the bill's $9.7 billion cuts in Medicare reimbursements to hospitals from 1983 to 1985 (it also cut doctor reimbursements but they aren't paid out of the hospital insurance trust fund), $4 billion in new hospital trust fund revenues resulting from imposing the 1.3 percent Medicare portion of the Social Security tax on federal employes, and $2.5 billion from added interest income to the system from these financial improvements.
Sen. John Heinz (R-Pa.), commission member and chairman of the Senate Committee on Aging, said that if the actual economic picture turned out only slightly worse than the CBO's scenario, up to twice the $14 billion might be needed.