The National Commission on Social Security Reform set up last year by President Reagan is still a month away from deciding on recommendations to shore up the Social Security trust funds. Top White House aides, however, are already ruling out one major option being considered by the commission. President Reagan, it is said, is adamantly opposed to further increases in the payroll tax.
There are good reasons to treat a payroll tax as a last resort. The payroll tax is already scheduled to rise in steps from 13.4 percent, split between workers and employers, to 15.3 percent in 1990. With unemployment over 10 percent -- and likely to remain high for some time to come -- increasing labor costs is a bad idea. In recent years, the non-wage parts of labor compensation -- payroll taxes, health insurance and other fringe benefits -- have been rising faster than wages. This makes employers reluctant to hire more workers, especially lower-paid workers for whom payroll taxes and other benefit costs are high relative to wages.
Ruling out a payroll tax step-up, however, would leave the commission with few ways to cover Social Security's imminent shortfall. Looking to the next century--when a rapidly rising aged population spells continuing difficulty for the trust funds--options, such as deferring the retirement age, can be considered. But uproar over the administration's earlier Social Security proposals made it clear that the public will not tolerate major benefit changes for those already at or near retirement.
Immediate action, however, is needed. Next month, Social Security's retirement fund will have to borrow money from the disability and Medicare funds to cover payments. If Congress allowed borrowing to continue, all three funds would run short in 1984, even if the economy improved considerably. To keep the system on a sound footing over the next five years, a gap of $50 to $60 billion must be closed. Raising that kind of money requires a sharing of burdens between those who get the benefits and those who pay for them.
Some remedies have merit. These include making retirees pay income tax on half of their benefits. Extending Social Security coverage to new government employees is also a needed reform. But a major part of the savings would still have to come from limiting cost-of-living increases for all retirees. Even with inflation down, this last alternative would not be popular. But Social Security beneficiaries have been better protected against inflation than the average worker and taxpayer in recent years. Now, with so many workers facing unemployment, limiting benefit increases would be fairer than adding greatly to the payroll burden.