In the nine years since the Moynihan debate, the discussion of Social Security has changed beyond recognition. The dreaded day when benefit payments will exceed payroll taxes is nine years closer; it lies beyond the year 2000, but even dodos can now relate to the year 2000. Everyone is mulling over the question: "Oh, sinner man, where ya gonna run to?" There’s no dodging the arithmetic: revenue will have to increase, or benefits will have to fall, or both.
Many members of the generation following the "baby boomers" don’t see much to choose from. Whether they’re gouged by taxation or deprived of benefits, they figure, they’re going to wind up at the losing end of a Ponzi scheme. Already the discussion is getting ugly. Listen to Ted Dimig, a government major at Lehigh University:
"My topic is Social Security, a system for which my elders are happy to tax me to the max, but will not be there when I retire unless the older generation starts acting responsibly. As for being uptight, I wish some of the old folks were more so, not less. Then, maybe, there would be enough worry and concern to do what is needed before the entire Social Security system collapses, leaving me and other ‘Generation Xers’ holding the bag." [17]
After proposing privatization as a solution, he goes on to declare that it isn’t being done because "politicians still are afraid to take political heat from the old fogies lobby for trying to change the system". Speaking as an old fogy, I could think of retorts in kind, but this is exactly the sort of tone we need to avoid. Recriminations won’t put one thin dime into the kitty. Neither will wishful thinking.
There is no painless solution, but as between "growing revenue" and "pruning benefits", growing revenue at least has some constructive variants. Most people wince when they hear of "growing revenue", because they associate it, more or less reflexively, with "raising taxes". That is not to be taken for granted. With tax rates unchanged, we might also raise greater revenue out of a greater economy. It won’t happen, of course, without a redirection of our current expenditures towards activities which actually grow the economy, and even then it can’t happen immediately. That’s why there’s no painless solution. But it’s what we need to focus upon.
We can assume that most people would prefer to grow our way out of the problem, if we can, rather than limit anyone’s benefits (least of all their own, some day). Nonetheless, there’s one benefits question which looks, at first glance, like a real show-stopper. In "Retooling Social Security for the 21st Century", a long and information-packed book about Social Security, the most dismaying passage has got to be the following:
Although economic growth is almost always advantageous, one should not be misled regarding what it would achieve. Even very high rates of economic growth would not automatically solve the problems of imbalance in the Social Security system. Initially, higher-than-expected economic growth rates would increase Social Security tax receipts (which are based on wages), but not payments to those already retired (which are adjusted only for price changes). Benefit levels for each new generation of retirees, however, are tied to wage levels. As a result, benefit increases would gradually work their way into the system and would eventually force payouts from the trust funds that offset much of the gain in tax revenues. [18]
Say, what? The benefits will outstrip the revenues, even if we do grow the economy, and no matter how much? It’s true: the system as presently designed prevents any solution. The built-in catch is this: the Social Security benefits of new retirees are indexed to average wages at the moment of retirement -- not to any definite "market basket" of goods and services. Average wages, however, measure more than just inflation: they also reflect any productivity gains which have occurred in the economy. Thus, each new crop of retirees is being given a share of whatever economic growth has occurred during their lifetime, in proportion to their numbers, and out of the proceeds of labor. On this basis, the retirees must indeed ride on the shoulders of later workers; whatever economic growth has done to make earning a living easier, the retirees get that much more. The burden grows right along with the relief, and then some.
That’s the bad news. The good news is that it rests only upon the system as currently defined. The system as currently defined is financed by a payroll tax. Not all of the benefits of economic growth, however, accrue to future workers in the form of wages and salaries. They also accrue as return on capital, growth in "public goods" provided through government, and prospective inheritances. Given any level of Social Security benefits dictated by the "replacement wage" which is paid to new retirees, reflecting growth in wages, there is in principle some rate of growth in the non-wage component of income which would make the situation tolerable to the successor generation, provided …
And, it goes without saying, provided the growth actually takes place.
None of this precludes some revision of Social Security benefits; there are some options that would help the situation without much pain. The point, though, is that our first concern should be to enlist Social Security in the production as well as the rewards of increasing prosperity. A little attention to this would avoid a whole lot of scratching and biting.
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