Social Security: Up, Up and Away!

"No one likes increases in tax rates," admitted Republican Representative William Ketchum of California. "But it is time that Congress quit fooling people. There is no free lunch."

In this bullet-biting spirit, the House last week voted hefty increases in Social Security taxes for most U.S. workers and their employers, starting next year. Actually, the Congressmen had no choice. Persistently high unemployment rates have meant a loss of billions in revenue for the system. Benefits for the 30 million people now drawing checks from Social Security are depleting its reserves--$46.1 billion in fiscal 1977--at an accelerating rate. The deficit that year was $5.6 billion. Unless something was done, the system was expected to go broke by the early 1980s. To keep it from drowning in red ink, the House approved, by a vote of 275 to 146, legislation that would:

>Boost Social Security taxes in each of the next ten years, with the heaviest increases for those with the highest salaries. At present, the tax is set at a rate of 11.7% on the first $16,500 of an employee's earnings. (No one pays any Social Security tax on earnings above that amount.) Since employer and employee each pay half of the tax, the maximum payment is $965 apiece. The tax rate and the wage base were already scheduled to rise in future years, but the House hiked them much higher and much faster. Someone earning $10,000 a year who now pays $585 for Social Security would pay $710 by 1987; someone making $42,600 and paying $965 today would be shelling out $3,024.60 by that same year (see chart).

> Enable the Social Security Administration to borrow from the Treasury's ordinary tax revenues. This would be permitted only if the system's trust funds for Old Age, Survivors and Disability Insurance fell below 25% of their annual outgo.

> Eliminate so-called double indexing, which would eventually account for half of the system's projected deficit. This problem was the unintended result of a 1972 law that tied increases in benefits --both those being paid now and those that will be paid hi the future--to inflation. Below the maximum benefit (currently $460 per month), the amount a worker will receive from Social Security when he retires increases as his salary rises. Since pay hikes partly reflect inflation, the measure thus inadvertently double-indexed future benefit levels for these workers--about 86% of the people covered by Social Security--to price rises. To eliminate the double boost, the House approved a complex new formula that will keep the average benefit where it is now: at about 43% of the salary that a recipient earned while working.

> Phase out the limit on how much Social Security recipients can earn without sacrificing any of their benefits. At present, if a "retired" person under the age of 72 makes more than $3,000, he loses $1 in Social Security benefits for every $2 he earns above that amount. The House voted to raise that ceiling to $4,000 in 1978, $4,500 in 1979, $5,000 in 1980, $5,500 in 1981. In 1982 it will be abolished. Democrat Al Ullman of Oregon argued against the phaseout. Allowing high-income people like doctors and lawyers to collect both their fees and Social Security benefits, said Ullman, would make the system "an annuity program instead of a retirement program." But California's Ketchum maintained that the limit "deprives society of the skills and ability of many people."

Under the new legislation, 108 million workers and their employers will ante up $112 billion to the Social Security system next year and more in every succeeding year. The House beat back an attempt to bring into the Social Security system about 6 million additional workers (2.4 million federal employees, 3 million state and local government employees and 200,000 workers for nonprofit organizations). The move would have increased the system's revenues by as much as $4 billion a year. It was opposed in particular by federal workers, who are already covered by a retirement program that pays them pensions up to four times Social Security's maximum benefit of $460 a month.

In addition, 45% of the 1 million federal pensioners are "double-dippers" who also collect Social Security checks, for which they qualified by retiring from Government service and taking jobs in private industry. Declared Wisconsin Re publican William Steiger: "This is an appalling use of public funds." The double-dipping would gradually end if the two retirement programs were merged. Nonetheless, the House bowed to intense pressure from lobbyists for the Government workers and shelved the merger for at least two years. That will give the Executive Branch time to search for a way to combine the programs in a manner acceptable to its employees.

The House bill now goes to the Senate, where Russell Long's Finance Committee is bogged down with the energy program and may not take up Social Security until next year. When it does, the committee will tack on an amendment by Wisconsin Democrat Gaylord Nelson that would ease the tax burden on workers by making their employers pay a bigger share of Social Security cost. Under Nelson's proposal, 1978 would be the last year in which both paid the same tax: 6.05% of the first $17,700 earned by the worker. The next year, employers would pay taxes on up to $50,000 of an employee's income; in 1985, they would pay taxes on up to $75,000. For workers, however, the base would rise much more slowly, not reaching $75,000 until the year 2000. The committee also wants to increase the tax rate for both employers and employees in steps, to 9.2% in 2011. At that point, a $20,000-a-year worker would be shelling out $1,840 in Social Security taxes, and anyone earning $75,000 a year would be paying $6,900--on top of federal, state and local taxes.

Businessmen strongly oppose Nelson's scheme. But having them pay the lion's share of the increased taxes until the 21st century meets with the approval of Jimmy Carter--even though the extra costs would doubtless be passed along to consumers in the form of higher prices.

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