Pointing The Way To Social Security Reform

Nation's Business, Oct, 1998

                   Trends Driving Social Security Reform

          [1] Total Number Of Beneficiaries, In [Millions.sup.*]

                  [2] Years Of Life Expectancy At Age 65

                    [3] Beneficiaries Per 100 Workers.

               [1]  [2]       [3]

                    Men Women

1960          13.7 12.9  15.9  20

1970          22.6 13.1  17.1  27

1980          30.4 14.0  18.4  31

1990          35.2 15.0  19.0  30

[2000.sup.**] 38.6 15.8  19.3  30

2010          44.5 16.3  19.5  34

2020          57.6 16.7  19.9  42

2030          69.9 17.1  20.4  49

It has long been apparent that demographics are driving the Social Security retirement program toward bankruptcy.

The accompanying chart depicts those forces. Social Security taxes to finance retirement benefits will fall below outgo in about 2015, and the U.S. Treasury is committed to covering the gap only until 2034.

The board of trustees of the Social Security program that pays retirement benefits to workers says in its 1998 report: "It is important to address the financing [situation] soon to allow time for phasing in any necessary changes and for workers to adjust their retirement plans to take account of those changes. ... The impact of the changes in the current program will be minimized if they are enacted soon."

Congress and the White House agree. Each is in the early stages of developing proposals for long-range reform of the system adopted in 1936--which seems like eons ago when one considers the economic, social, and demographic changes that have occurred since then.

The challenge is to design a system for 21st-century America. Although achieving that goal will involve a multiyear debate over specifics, an excellent set of guidelines for reaching workable solutions is already in place.

Developed by the U.S. Chamber of Commerce, the guidelines offer basic principles for reforms equitable to Social Security beneficiaries and to the taxpayers who provide their benefits.

The guidelines are based on the assumption, the Chamber says, that "the current pay-as-you-go system is unsustainable."

Reform proposals, the Chamber says, should:

* Address the system's long-term financing problems without burdening future generations with excessive debt or taxes to pay for the benefits of the current generation.

* Use capital-market efficiencies to provide advance funding of Social Security obligations and to encourage long-term investments.

* Require that employees, employers, and the government play roles in ensuring retirement-income security.

* Avoid significant reduction in Social Security retirement income and benefits.

* Encourage continuation of the voluntary, employer-sponsored retirement system.

* Prohibit government control of the investment of Social Security contributions.

* Require that benefit adjustments made for inflation reflect actual increases and decreases in the cost of living.

* Require that any increase in the retirement age reflect actual trends in age and health at retirement.

* Prohibit increasing payroll taxes to bring the system into balance.

* Reject means-testing for benefits.

These points touch on virtually all the reform suggestions that have been offered.

The effort to preserve the Social Security retirement system should be a program that recognizes the interests of beneficiaries and taxpayers while enhancing the national economic growth critical to the long-range survival of the system.

The many parties involved in this effort can make their jobs easier by starting with the blueprint prepared by a business organization with a long record of advancing economic policies that serve the national interest.

(*.) Recipients of refirement or survivor benefits; figures do not reflect payments for disability or, medical care. (**.) Figures listed for this and subsequent years are estimated. SOURCE: 1998 REPORT, BOARD OF TRUSTEES, OLD AGE AND SURVIVORS INSURANCE AND DISABILIIY INSURANCE TRUST FUNDS