Saving social security from itself

When the social security system was first devised in the dark days of the Depression, it was viewed as a national pension to provide for the retirement of workers who had been unable to provide for themselves. Both the worker and his employer would contribute to a fund set up in the worker's name, with benefits to be paid out, upon the worker's retirement, in proportion to the accumulated contributions.

Many of the problems of the social security system today can be traced to departures from this very simple, and very American, correlation between payment and reward.

Clearly to bring the financially hard pressed system back to its philosophical moorings, the principle that guided its formulation -- individual equity -- must be restored. A national pension plan, separate from considerations of social welfare and income redistribution, is needed.

The receipts from payroll taxes should be used to pay for pensions that are directly related to earnings. The relationship between taxation and benefits should be as direct as if the social security system really had an individual bronze vault for each contributor.

Such welfare elements of the system as the weighted benefit formula -- often a crucial weapon in the battle to keep otder Americans above the poverty level -- should not be discouraged. But they should be transferred in gradual phases from funding through the payroll tax to payment form general tax revenue. The burden of approved social welfare goals should be shared by all citizens, not by wage earners alone.

Derivative benefits, to the family of a retired, deceased of disabled worker, should also be separated from pensions. There is no reason, for instance, why the government cannot set up other self-supporting programs, either voluntary or mandatory, financed by additional payroll taxes, so that workers can provided an extra measure of coverage for their families.

Where such benefits are not provided, or are insufficient, they would be supplemented by general welfare provisions.

Following the dictates of good economic sense, the pension system should encourage, not discourage work. Those who continue to work must feel that there is a reward for doing so. A proportional benefit formula that relates benefit awards closely to earnings records and contributions to the system, rather than the present indirect relationship, would contribute to this feeling.

As corollary, the pensions of working wives should be based on their own earnings, rather than on their husbands' work records.

And, perhaps most importantly, the work efforts of those beyond age 65 who choose to remain employed should not be discouraged.

A continued salary is not only the most inflation-proof support for the elderly, it is also a taxable source of revenue for the government. By eliminating the earnings test the government can increase revenues and, potentially, cut down on the increasing need for Supplementary Security Income (SSI) and other transfer payments to older Americans.

Ideally, this new system of retirement insurance would attempt to replace at least 50 to 60 percent of pre-retirement income, in order to allow retirees a standard of living during later years that is comparable to that of their earlier years. This replacement ratio should apply to workers at all income levels.

Given today's economic climate and the less-than-perfect health of the social security system, a 50 percent minimum might seem like an optimistic standard. But with reduced inflation, increased productivity, and some specific improvements in the system itself, it is not an impossible goal.