FOR BOTH practical and symbolic reasons, Social Security has emerged as one of the major sticking points in current budget negotiations. The Republican-controlled Senate has already voted to cut the purchasing power of Social Security benefits by about $8 billion a year. The Democratic-controlled House Budget Committee has rejected any reduction. How can the two positions best be reconciled?
This newspaper has supported some restraint on cost-of-living adjustments for Social Security as part of a comparable freeze on other direct and indirect federal spending. We came to that position because Social Security is such a large part of the domestic budget that it is hard to ignore, and because we believed that the burden of reducing the federal deficit should e broadly distributed. As we've learned more about the consequences -- and about better alternatives -- we've changed our mind.
Like President Reagan, we have always recognized that the substantive case for cutting Social Security benefits is, at best, weak. Thanks to the 1983 reforms, the payroll taxes that finance retirement and disability benefits are currently building up a surplus expected to grow to many billions of dollars in the coming decade. Those surpluses do help reduce the deficit -- which is simply the difference between federal income from all sources and federal spending for all purposes. But the payroll tax, because it doesn't tax high earnings or investment income, claims a much higher proportion of the income of low and moderate-income families than of wealthy families. Adding to surpluses in the trust funds in order to offset the costs of defense and other national benefits is poor policy.
Even more important are the practical consequences of the Senate-proposed cut. Although Social Security benefits are, properly, available to everyone who contributes to the system, the great majority of current beneficiaries have very limited private resources. Eliminating Social Security cost- of-living adjustments even for one year would push about 600,000 old people into poverty and add to the deprivation of many already poor. Those losses would be permanent even if Congress resisted the temptation to extend the COLA cut to other years.
Why take benefits away from people who need them when simple mechanisms exist for focusing losses on those who can more easily bear them? The best way to do that would be to extend the progressive income tax to Social Security benefits on more nearly the same basis that applies to other private and public pensions. Now only retirees with incomes above $25,000 ($32,000 for a couple) must pay income tax on half of their benefits. Leaving the income thresholds in place, but excluding only 15 percent of benefits from taxation -- no retirees have contributed more than that to the cost of their expected benefits -- would cut the deficit by almost $20 billion over five years.
Further savings could come from eliminating the income tax double exemption for the elderly -- a benefit of little if any value to low-and moderate- income people -- and extending Medicare coverage to all state and local government workers, many of whom now receive benefits without paying for them. When sacrifices are needed for the future good of the country, there is no reason to excuse people from contributing just because they are elderly. But there is equally no case for burdening those who are already in need.