Public outcry: 'Don't touch our social security'; But without change, system will go broke, so hunt is on for alternatives

A firestorm of protest against President Reagan's social security proposals is descending on the White House and Congress, as the public for the first time deserts Mr. Reagan on a major issue.

Mail to the White House is running "90 percent against the President," said an administration official. "Congressmen," said Rep. James R. Jones (D) of Oklahoma, "are getting an overwhelmingly negative response from constituents."

Top Democratic leaders -- House Speaker Thomas P. O'Neill Jr. of Massachusetts and Senate minority leader Robert C. Byrd of West Virginia -- vow to fight the President's plan, which hits hardest at Americans who want to retire before age 65.

But the great social security system -- covering almost all working and retired Americans -- is in financial trouble and changes must be made.

Mr. Reagan has fired the opening gun in a national debate, sure to sharpen in the months ahead, over how to spread the burden of change most equitably among Americans, while assuring the solvency of social security into the next century.

"We are trying to sort out comparative disadvantages," says Rep. Barber B. Conable Jr. (R) of New York, "not advantages."

No longer, in other words, can the mushrooming growth of social security go unchecked. Millions of Americans may find their retirement expectations scaled back.

By early 1983 the largest of social security's three trust funds -- Old Age and Survivors Insurance (OASI) -- will run out of money, according to projections made by the Congressional Budget Office and by Social Security Administration actuaries.

By the end of fiscal 1983, says the budget office, OASI will be $8.2 billion in the red, with the deficit mounting rapidly to $63.5 billion by the end of fiscal 1986.

High inflation in recent years has boosted outlays -- monthly benefit checks to more than 35 million Americans -- while high unemployment has reduced payroll tax revenues flowing into the system.

Also, when Congress revamped the system in 1977, it apparently allocated too large a share of the payroll tax to the other two social security trust funds -- Hospital Insurance (HI) and Disability Insurance (DI).

These two funds will remain comfortably in the black under present law, with HI (which pays medicare) boasting a balance of $40.1 billion at the end of fiscal 1986 and DI an even larger surplus of $47.7 billion.

Working Americans currently pay 6.65 percent of the first $29,700 of their income in payroll taxes to social security. Employers pay an equal amount and self-employed Americans pay 9.3 percent, roughly three-fourths of the combined employer and employee rate.

These taxes are the system's sole source of income and are due to rise year by year. In 1984, for example, the tax will be 6.7 percent of the first $36,000 of income.

This year's 6.65 percent tax is broken down as follows -- 4.7 percent to OASI , 0.65 percent to DI, and 1.3 percent to HI.

Benefits for each of the social security programs can be paid only from the specific trust fund of that program. Under current law, OASI cannot borrow from HI or DI to make up its deficit, even though the latter funds have plenty of cash.

Nor can the US Treasury allocate money from general revenues, except for a part of physicians' fees paid under medicare.

Unless something is done, in other words, elderly Americans would find no green checks in their mailboxes by early 1983 -- less than two years from now.

Obviously, something will be done -- first to solve the immediate cash-flow problem, then to readjust the system for the long term.

"We can patch up the program for the next year or two" without cutting benefits, said Sen. Robert Dole (R) of Kansas Sunday on "Face the Nation" (CBS-TV), "then we can work out something [long-term] on a bipartisan basis."

Several things could be done by Congress to ease OASI over the next few years , without cutting anyone's benefits:

* Interfund borrowing: Congress could authorize OASI to borrow from one or both of the other social security trust funds.

Borrowing from both HI and DI, according to budget office projections, would give all three funds sufficient cash until the start of 1985, when other measures would be needed.

* Realign payroll taxes: Congress could allocate more payroll tax revenue to OASI and less to HI and DI.

* Borrow from general revenues: Social security might be allowed to borrow from general US Treasury revenues, thus avoiding the need to cut benefits or increase social security taxes. This would, however, either enlarge the government's budget deficit or force spending cuts elsewhere.

* Increase Payroll Tax: If scheduled social security tax rates were increased by 1 percent, says the budget office, the system would have a "quite ample cushion."

This would, of course, increase the overall tax burden on working Americans.

As the US population ages, the ratio of people paying into the system declines in relation to the number receiving benefits.

In 1945, for example, nearly 42 workers paid into the system for each retiree. Now the ratio of workers to beneficiaries is dramatically lower -- 3.2 to 1.

Over the next 25 years, says Robert M. Ball, former commissioner of social security, demographics are favorable to the system, because the post World War II baby boom now provides a bulge of workers.

But the period from 2005 to 2035 will see a big increase in the elderly, as the wave of postwar babies moves into retirement. By the year 2030, if today's lower birthrates prevail, fewer than two workers will pay into the system for each retiree.

President Reagan's proposals were designed to counteract this long-range problem, as well as the short-term lack of cash. Briefly, Reagan suggests that Americans should be encouraged to work until age 65 by significantly reducing the benefits they receive under early retirement.

Beginning next year, under the White House scheme, a worker retiring at 62 would receive only 55 percent of his full age 65 benefit, instead of the present 80 percent. This would lower his wife's benefit from 40 percent to 27.5 percent. Dependent children would be stripped of benefits.

At the same time, Reagan would make it harder for retirees to qualify for disability payments, on which many early retirees partly depend.

About 70 percent of Americans now retire early. But to say that they "elect" early retirement, says Mr. Ball, is "just wrong. With most people it is not a voluntary act."

Fifty-seven percent of those retiring early, says Ball -- who served 11 years as commissioner of social security -- are too ill to work longer. Another 14 percent have lost their jobs and cannot find work.

These Americans, under the President's plan, would be locked into sharply reduced retirement incomes.

Objections to these proposals lie at the heart of the storm clouds of protest gathering over the White House. Senator Dole says such a reduction for early retirees "probably is not going to happen."

"Those who are going to turn 62 in the next few years," he says, "don't have much to worry about."

Penalties for early retirement, according to current thinking in Congress, should be postponed for a number of years, then phased in gradually.

Another White House proposal would lower future benefits for almost all Americans now paying into the system by reducing the average initial social security payment from 42 percent of the last wage to 38 percent.

Ball calls this provision a "9 to 10 percent cut in protection" for future retirees.

Except for postponing the date of the annual increase in benefit payments from July 1 to Oct. 1 beginning next year, Reagan spared those now receiving benefits from any cuts.

Also, he would phase out limitations on outside earnings and expresses hope that -- if his measures are adopted -- the payroll tax might be lowered in future.

A different approach, recently passed by the Senate (though not in binding form), would cut growth in outlays by reducing the annual cost of living adjustment for retirees.

Still another way to raise revenue would be to tax part of the social security benefits of retirees with substantial total incomes.