A Slash at Social Security

By James Kelly

The beefs are loud as budget cutters attack a "sacred cow "

In crafting his delicate package of budget cuts, Ronald Reagan carefully corralled a herd of "sacred cows"--Veterans Administration disability benefits and Medicare payments for the elderly, among other programs--that he vowed not to touch. Last week, in a move that ensured debate for months to come, the President proposed to chop away at perhaps the most sacred of all cows: Social Security benefits. The plan not only ignited protests from senior citizens' groups around the nation, but finally gave the badly bruised Democrats in Congress a battle they could enthusiastically join--and perhaps stand a good chance of winning. Proclaimed House Speaker Tip O'Neill: "I will be fighting this every inch of the way, and I hope that will be the position of every member of my party."

The proposals, as unveiled by Secretary of Health and Human Services Richard S. Schweiker at a press conference, would entail little reduction in monthly payments for the 36 million Americans already on the rolls or for those who join them before Dec. 31. Administration officials nevertheless calculate that the program of adjustments could save the Treasury about $9 billion in fiscal 1982 and an accumulated total of about $46 billion by 1987. Highlights of the plan:

> Workers who choose early retirement (between the ages of 62 and 65) after 1981 would get only 55% of the benefits they would have received at age 65, rather than the 80% mandated by current law. Those who retire at 62 next year, for example, would receive an average of $126 a month less than the $372 currently collected. Benefits would also be scrapped for children of early retirees (offspring under 18, or under 22 if they are still in school, are now eligible for payments).

> The formula for calculating initial benefits for those who retire at 65 or over after 1982 would be jiggered downward over the next five years. The average worker retiring in 1987, for example, would get $719 a month under the present law, but would receive only $691.90 under Reagan's proposal.

> Beginning in 1982, the annual cost of living increase in benefits, which is based on the Consumer Price Index, would be paid out in October rather than July each year. Based on a projected inflation rate of approximately 8%, this three-month delay would save the Government about $3 billion in fiscal 1982.

> Under present law those who still work after 65 have their benefits cut by $1 for every $2 they earn over $5,500 a year. To encourage people to work longer, the Administration proposes lifting the ceiling to $10,000 in 1983, $15,000 in 1984, $20,000 in 1985 and then abolishing it completely in 1986.

> Federal and some state employees who are not covered by Social Security are now permitted to retire from their government jobs, work in positions covered by Social Security for a few years and then draw these benefits as well as their government pensions. The Administration proposes reducing Social Security benefits for these "double dippers" by taking their pensions into account.

> Disabled workers would be declared eligible for benefits only for strictly defined medical reasons; age, education and work experience would not be considered.

Workers would also have to prove they had not been able to hold a job for 24 months prior to receiving payments rather than just twelve months, and would have to wait six months instead of five before collecting benefits.

To sweeten the medicine of the benefit cuts, Schweiker pointed out that the savings might eventually snip the payroll tax rate levied on employers and employees alike from a projected 7.15% in 1986 to 7.05%. A worker in his 20s might thus shave about $33,600 off his contribution to the Social Security system by the time he retires at age 65.

Administration officials insisted that the proposals are needed to salvage a system that is teetering on bankruptcy. Created in 1935, the Social Security Administration originally paid benefits only to workers who retired at age 65; coverage was gradually broadened to include wives, children, the disabled and early retirees. In addition, payments were hiked by cost of living increases. With a negligible inflation rate and a high ratio of taxpaying workers to beneficiaries, the system hummed along smoothly and solvently for decades. In the 1970s, however, prices (which determine the level of payments) rose at a faster clip than wages (which determine how much money is paid into the system). As a result, Social Security funds were depleted at a much faster rate than ever anticipated.

Without some kind of immediate reform, the system could run out of money as early as 1982. Contrary to popular assumption, the Social Security system was never constructed on the basis that what a worker paid in over his lifetime financed his own retirement checks; those working are instead paying for those who have retired. That design will suffer worse strains to come. In the early years of the 21st century, actuaries estimate, there will be only three American workers for every retired person, compared with five for every retiree today; so the system could go bust all over again. Declared Schweiker: "We're trying to stop the old lady from having no check at all."

But those words were of small comfort to the elderly and their supporters across the country. "I think it's outrageous," said Lillian Pasquale, 75, of Miami. "Reagan is picking on the elderly. We're all going to end up in the poorhouse." Both the 50,000-member Gray Panthers and the American Association of Retired Persons have denounced the plan, and local groups are mobilizing to stage rallies and letter-writing campaigns. Said Frank Manning, director of the Massachusetts Legislative Council for Older Americans: "We feel that now that they have started to amend Social Security they won't stop. We have an uneasy feeling they have tasted blood."

Many fear that the cuts will most deeply hurt those who can least afford them. "Over 50% of all the people who retire on Social Security do not have private pensions," argues Frank Cassell, 64, a professor of industrial relations at Northwestern University. "That means whatever cuts turn out to be made, these people cannot make up in any way."

For those already on the Social Security rolls, the only trimming in benefits will be the delay of the cost of living increase by three months each year. Warns Professor Robert H. Binstock, 45, director of the National Aging Policy Center on Income Maintenance at Brandeis University: "The Oct. 1 delay will impose real hardship on millions of people next summer. The difference of $25 a month can put between 2 million and 3 million people below the poverty line."

Of great concern to many is the planned slash in benefits to those who choose early retirement. Some 70% of those who retire do so now before they reach 65--and obviously many who had been planning to do so in 1982 will have to think twice about leaving their jobs. Others point out that many retire early for health reasons, and they will be unfairly penalized.

The real battle over Reagan's proposed cuts will, of course, be waged in Congress, and the perception there among members of both parties is that the Administration has blundered. "They threw a life rope to Tip O'Neill," quipped Republican Senator Robert Dole of Kansas. The Democrats lost no time in launching their verbal offensive. "We'll find a way to make absolutely certain that the [Social Security] trust fund is actuarially sound, but we're not going to cut benefits," vowed House Democratic Majority Leader Jim Wright of Texas. "That's sneaky."

Many Republicans are also unhappy with Reagan's proposals, if only because they now draw attention away from the President's tax bill. "This ought to have come about the time we finished the tax package, so as not to stir up all the bees at once," complains Dole. But others in the Administration have hopes that some sort of bipartisan approach toward salvaging the Social Security system can be worked out -- and that now is the best time to do so. Though White House Chief of Staff James Baker initially opposed pushing for the reforms until after the tax bill was voted upon, OMB Director David Stockman, Schweiker and others argued convincingly that the best time to tackle a program as politically sensitive as Social Security was when the President was riding high in the polls, as Reagan is now.

The timing of the announcement was based on a promise that Schweiker had made to Democratic Representative J.J. Pickle of Texas, chairman of the House Ways and Means subcommittee that oversees Social Security. The Secretary had pledged that the Administration would make public its proposals before Pickle's subcommittee began work this week on its own bill to reform the system. Pickle, in turn, sounds remarkably receptive to striking a deal. "I'm taking the attitude that the President has made his proposal," he says. "Let's look at it and see if there might be some compromise. The important thing is we must pass a bill."

To be sure, the Administration probably acted too swiftly in putting together and announcing its recommendations. Reagan had less than one day to review and approve the proposals before Schweiker announced them at his press conference. No advance briefings were held, no public relations work was done to prepare the public for the cuts, and the Republican leaders of the House and Senate learned of the recommendations only hours before Schweiker's conference. The aura of haste surrounding the announcement was heightened by reports that Stockman wanted to delay the cost of living increases from July to October this year, rather than in fiscal 1982, as Schweiker had announced.

Administration officials now say they are willing to listen to alternative ideas. Presidential Counsellor Edwin Meese, for example, acknowledged last week at a White House meeting that the Administration should consider phasing in the penalties against early retirees over several years, rather than imposing them at once. Yet the Reaganauts also remain steadfast in their commitment to achieve long-term solvency for the Social Security system and believe they will succeed. "The politics of Social Security have changed," says one White House aide. Just what changes are actually acceptable will be revealed in the months ahead as the debate over how to reform the system heats up. --By James Kelly. Reported by Douglas Brew and Neil

With reporting by Douglas Brew, Neil MacNeil

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