Beginnings of social security reform

Last week's meeting of the National Commission on Social Security Reform (NCSSR) began with acrid partisan bickering.

Sen. Daniel P. Moynihan (D) of New York accused Republicans of ''terrorizing older people'' with social security proposals. Sen. William Armstrong (R) of Colorado struck back with charges of Democratic ''demagoguery'' and ''emotionalizing.''

Unfortunately, the argument overshadowed the panel's first piece of substantive work: consideration of a way to help insulate the social security system against fluctuations in the economy.

''Everybody was so excited by the Sturm und Drang (storm and stress) they didn't notice an interesting proposal had been put on the table,'' says Dr. Merton Bernstein, Washington University law professor and principal consultant to the commission.

The 15-member commission, chaired by economist Alan Greenspan and formed last year by President Reagan, is due to hand in its report by year's end. With five members named by the President, five nominated jointly by House Speaker Thomas P. O'Neill Jr. and minority leader Robert Michel, and five by Senate majority leader Howard H. Baker Jr. and minority leader Robert Byrd, reaching a consensus may prove difficult.

The proposal, outlined in an internal memo by the commission's executive director, Robert J. Myers, would alter the basis for cost-of-living adjustments to social security benefits.

Rather than linking such hikes to the consumer price index (CPI), the increases would go up or down according to a national average of wages -- minus 1.5 percent.

Social security's financial framework, as a result of the way it was designed , generally stays solid if wages rise at least 1.5 percent faster than prices. From 1970 to 1980, however, prices increased an average 0.6 percent a year faster than wages, and the system's finances begin to deteriorate. The social security trust funds are expected to run $9.1 billion in the red for 1982.

Mr. Myers's proposal would not, in the long run, reduce the cost of the system. It would, however, ''substantially stabilize the financing position of the social security program,'' says the memo, by neutralizing the effect of unforeseen gyrations in wages and prices.

The effect on current beneficiaries would depend on the performance of the economy. If inflation takes a breather and incomes spring quickly ahead, Myers's proposal could provide a larger monthly check than the present method. If wage gains lag behind inflation, as they have over the past decade, benefits would not increase as fast with Myers's proposal as they would under the current system based on the CPI. If wages increase normally -- 1.5 percent faster than prices -- either the proposed and the current system would produce the same benefit increases.

The proposal's details are relatively new, say commission members, though variations on a benefit-wage increase link have been suggested by previous study panels. Myers's expertise also commands much respect -- he was the system's chief actuary for 23 years.

''In one way or another, it makes a lot of sense to tie increases in benefits to increases in income,'' says Robert M. Ball, commissioner of social security from 1962 to 1973, and a member of the current panel. ''But you certainly wouldn't want to do it until 1990.'' If wage gains continue to lag behind inflation, it would be a clear cut loss to people now on the rolls, he says.

Mr. Ball suggests linking cost-of-living increases to an average of wages and prices.

Senator Armstrong, chairman of the Senate Social Security Subcommittee and another NCRSS member, has yet to pass judgment on Myers's proposal. He says one must study the cost-of-living question from the standpoint of equity.

''Are we going to give retirees something which holds their purchasing power constant,'' he says, ''or are we going to give them a share in increasing productivity?''

Productivity increases boost the nation's overall standard of living. Cost-of-living adjustments hooked to wage hikes would allow social security recipients to share in this good fortune. However, retirees would then risk losing some of their purchasing power if productivity stayed flat and wages did not rise.

Last meeting's spat has raised fears the commission might deadlock along party lines. Despite the wrangling, Armstrong claims a pithy report will be delivered on schedule. ''We are going to have a substantive reform,'' he says.

Others are somewhat less sanguine. ''It's been a slow, educational process so far,'' Robert Ball says of the commission's work. ''Some members are fairly new to the system.''

On May 13, the Senate passed a resolution promising not to vote on social security reforms until the commission finishes its work. Such ''wait for the commission'' pressure is greatly increasing the chances for a substantive compromise, say panel members.

The issue has been further clouded by Republican congressional initiatives to remove social security from the overall government budget process. Such a move would go a long way toward depoliticizing the issue in the current budget-cutting mood, supporters say.

''I think it is a great idea. Now, it stands there as a constant temptation for people to fiddle with to make other programs look better,'' says Dr. Bernstein.