Trend of the economy

Mention social security and the political antennas of every elected official in Washington begin to quiver. From the least of them to the greatest, politicians are acutely aware of two things:

* The huge system that helps to sustain more than 35 million Americans must be revised to stay financially afloat.

* Whatever solution a politician endorses will bring forth a flood of irate letters from affected groups.

The plain fact is that the graying of America - the increase in the number of people over 65 relative to those younger -- is a phenomenon for which the social security system, born in the 1930s, was not designed.

Over the years other major functions -- hospital insurance and disability insurance -- were added to the retirement system, all to be financed from the social security, or payroll, tax paid by workers and employers.

In 1945, according to the 1980 report of the social security trustees (the secretaries of Treasury, Labor, and Health and Human Services), nearly 42 workers paid into the system for every retiree drawing benefits.

Today, as the number of beneficiaries mushrooms, that ratio has dropped to 3. 2 workers to one retiree. By the year 2030, the report says, the ratio may be as low as 1.9 to 1.

Clearly benefits cannot continue to grow as projected under current law without imposing an impossible burden on taxpaying workers and their families.

This year a working American -- nine out of 10 wage and salary earners contribute to the system -- pays 6.5 percent of his or her first $29,700 of income to support social security. By 1984 the tax rate will rise to 6.7 percent on a wage base of $36,000.

These taxes, plus equal contributions from employers, are the sole source of income for the three trust funds embraced by the social security system.

Despite rising taxes, social security is in serious financial trouble, with the major trust fund -- Old Age and Survivors Insurance (OASI) -- expected to plunge into the red sometime next year.

The lack of a plan to save the system would mean no monthly checks for millions of America's most vulnerable citizens, because by law the US Treasury cannot borrow form any other source to pay social security benefits.

The government, of course, will not allow this to happen. But this nightmarish prospect impels an agonized search in Congress and at the White House for ways to amend the system that do not thrust unfair burdens on particular segments of society.

President Reagan's initial foray was so inept politically and evoked such a backlash of protest that Republican leaders in Congress would be happy for the White House to leave social security alone for a time, at least until tax and budget problems are out of the way.

Mr. Reagan would have encouraged Americans to continue working until age 65 by sharply reducing the benefits they would received by electing early retirement at 62.

Instead of the present 80 percent of the full benefit that an early retiree now draws, a 62-year-old retiree would have received -- each month for life -- only 55 percent as much money as he would gave gotten by waiting until 65.

The Reagan proposal also would have made it harder for an early retiree to qualify for disability payments, on which many Americans now depend.

Some 70 percent of Americans retire early. For a majority of them, according to former Social Security Commissioner Robert M. Ball, the choice is not elective, but is dictated by illness or inability to find work.

Mr. Reagan's aides ruefully admit that they ill-served the President in the preparation of this proposal, which promptly was shot down by Congress in reaction to a tidal wave of protest from across the land.

Not only did the White House appear to be striking unfairly at early retirees , but the resulting furor alerted Americans to realize that somehow, sometime, social security benefits would be cut, or, to put it more accurately, that a worker's expectation of retirement benefits would have to be scaled back.

So far, debate has centered largely on the efforts of Americans already drawing benefits, or those soon to do so, to preserve the formulas by which payments are computed.

But there is another side to the story. What about the goodwill of millions of working Americans, upon whose payment of ever-higher taxes the future of the system depends?

Social security is not funded; that is, revenues are not banked or invested, with benefits being paid out of earnings.

"For the most part," says the Congressional Budget Office (CBO), "the annual flow of tax revenues into the trust funds is used to pay for the current outflow of benefit payments."

This means, the CBO says, that "expected future payments ae guaranteed solely by the government's power to tax."

This power rests upon the willingness of workers -- expressing themselves through Congress -- to pay the money needed to support an increasing number of retired Americans, many of whom also draw on the hospital and disability trust funds.

Is there a point at which younger workers might rebel against the system -- not so much out of callousness, as because they doubt they will ever get as much out of social security as they put in?

The nub of the problem, as analysts see it, is to amend social security in ways that avoid panic among the elderly, while convincing younger Americans that the changes are fair.

Next week's column will examine various proposals for overhaulin g the social security system.