The Social Security Pie: Save a Piece for the Kids

March 10, 1995

EVEN if Congress eliminated the entire federal discretionary budget outright - closed the schools and highways, dissolved the military, shut down the national parks and even Congress itself - the ``automatic'' increases in entitlements and payments on the national debt mean that mandatory spending would grow to exceed federal revenues by the year 2012.

This is not some paranoid fantasy. It is the inevitable result of trends certified by the Social Security and Medicare trustees themselves.

By the year 2030, according to their report, Social Security expenses will absorb 17 percent of the national payroll tax base, Medicare HI (health insurance) outlays another 8 percent, and Medicare SMI (supplemental health insurance) another 7 percent. Can you imagine an America in which 30 percent of its national payroll is necessary to support two programs, Social Security and Medicare, alone? If we continue to cry ``hands off'' of not only current benefits in these programs, but even the projected future increases, we will only plunge toward national insolvency - or minimum tax brackets of 40 percent and higher.

Even if we enacted a ``perfect'' health-care reform bill - and wipe out inflation in health care - the cost of health care would still absorb twice as much of the national economy in the year 2030 as it does today, simply because of the aging of the population.

When Social Security was enacted, there were more than 10 Americans working to sustain each one who was collecting from the system. The average projected lifespan was then lower than the age of eligibility. Now there are roughly three workers left to support each collector of benefits and the average lifespan is approaching 78.

The past contributions of current retirees were long-ago insufficient to support the benefits that are being paid out, which is exactly why the system had to be saved from bankruptcy in 1983 with a massive tax hike on younger generations. The benefits that retirees currently receive bear no direct relationship to the sum of what they put in. They represent a transfer of money from the young to the old, regardless of wealth, plain and simple.

To best illustrate this, I include a statement of my own contributions to Social Security as well as my promised benefits. You will see that I stand to get back the entirety of my lifetime contributions in about three years.

Even if you include employer contributions and interest payments, someone contributing the maximum amount payable into Social Security during the years 1950 to 1993 makes a maximum total contribution during this period of $39,856.77, which with interest would equal approximately $109,315.22 This recipient stands to receive it all back in 7.9 years, meaning that he or she is likely to eventually collect it back nearly two times over - and that's including the employer contributions and interest. The situation with lower-income recipients is even more generous.

However, the picture changes dramatically for the younger generation. Not only are younger workers unlikely to ever live long enough to collect back the huge taxes they are paying for retirement benefits, but the entire system itself stands to be insolvent by the year 2029 (according to the system's own trustees) - or, as early as 2014, if the government does not balance its books.

The challenge of controlling government spending, therefore, amounts to the challenge of controlling automatic government spending, which goes out in the form of entitlement payments each year: Social Security, Medicare, Medicaid, and federal retirement. This spending amounted to only 29.6 percent of the budget in 1963. But it grew to 45 percent in 1973, 56.3 percent in 1983, 61.4 percent in 1993, and will increase to 72 percent in 2003 if no action is taken (see pie charts).

I suggest we gradually phase in an upward shift in the normal retirement age, eventually reaching an age of 70 for those 28 and under. No one currently over the age of 50 would be affected by this change. Interestingly, this proposal meets with stern and often rabid opposition from various seniors' groups, but receives support from younger Americans. Small wonder - those currently 28 and under do not now stand to collect anything from Social Security, as it is headed for bankruptcy.

I also proposed reforms in the measurement of the Consumer Price Index to more accurately reflect inflation. The ``market basket'' that is employed to measure the rising cost of living is updated only each decade under current law. In an era of rapid change this results in a seriously inaccurate measure of what people must buy.

Finally, I proposed a ceiling on the amounts of cost-of-living adjustments (COLAs) given to retirees in Social Security (as well as congressional, military, and all other federal retirement). Too often a COLA does not represent a change in the ``cost of living'' so much as ``the cost of living it up.'' I propose that ``needy'' recipients receive their full COLA as granted under current law, but that recipients with greater benefits receive COLAs that are no larger. COLAs were never an original feature of Social Security and so in no way affect the original Social Security ``contract'' with America's workers.

These are my solutions. They are not popular, but I propose them because I believe it is yet possible to deal with this situation without cutting benefits - providing we act soon. That situation will shortly change if we decide instead for inaction.

It's our choice. Either we face the reality that Social Security, Medicare, and Medicaid must be reformed, or we leave posterity holding the sack - and the bounced check for our excesses. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.