ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, December 12, 1996 TAG: 9612130031
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
COLUMN: RAY L. GARLAND
DATELINE: RAY L. GARLAND
THE LARGEST political issue of recent years is now on the table: whether to reduce the Consumer Price Index that sets the automatic cost-of-living adjustment that drives a sizable portion of federal spending. Social Security, food stamps, SSI, all federal pensions and veterans' benefits would be affected.
The CPI, computed by the Bureau of Labor Statistics, also plays a large role outside the federal government. And it affects the taxes we pay by taking brackets lower to account for inflation. Thus, a smaller CPI means slightly higher taxes.
The federal panel studying Social Security said either reform the CPI to reflect the contemporary economy of discount stores, improved quality, etc. or reduce COLAs by the amount we think it overstates inflation, which was pegged at 1.1 percent. Thus, the reported increase of 2.9 percent this year would be "adjusted" to 1.8 percent. Under this scenario, the average Social Security benefit for a married couple would go from $1,220 a month now to $1,242 in January, instead of $1,256.
If now in effect, it would save the federal government less than $10 billion this year. But that quickly becomes serious money. It would save that same $10 billion in 1998 - and in all future years - because it never got in the base. Meanwhile, you save all future COLAs on that $10 billion, etc. The compound savings over many years is enormous.
Sen. Charles Robb has more credibility on this issue than most. For years, he has spoken of the need to restrain the COLA. "It is clearly sound public policy," he said the other day, "not to continue an unintended windfall." But Robb also stated the political problem succinctly: "It's something we can't do unless everybody goes over the cliff together."
In both houses last year, budget plans were offered that trimmed the COLA. Robb supported a Senate version and four Virginia Democrats (L.F. Payne, Norman Sisisky, Robert Scott and James Moran) voted for the House version. While Payne did not seek re-election, the others won resoundingly. Moran also hailed the commission's recommendation for a permanent fix. Republicans, led by Sen. John Warner, adopted a posture of "watchful waiting."
In a magazine interview before the election that Bob Dole never used to blunt attacks for "cutting" Medicare, President Clinton said he would consider a reduction in the COLA and an increase in the retirement age. Under legislation passed in 1984 to "save" Social Security, the age for retirement at full benefits will be raised very gradually from 65 to 67 over 21 years, starting in 2000.
When Germany enacted the first social security system more than 100 years ago, it chose 65 as the retirement age. The U.S. Social Security Act of 1935 followed suit, even allowing for early retirement at 62 with reduced benefits, which was retained in the 1984 bill though the differential in benefit levels will increase. Civil-service retirement was set even lower at 55, and full military retirement as low as 48. Modern conditions of longevity and health make these old benchmarks a costly anachronism.
While a higher retirement age should have been phased in more quickly than projected in 1984, I doubt the wisdom of taking it beyond the age 67 now contemplated for 2021. For one thing, a basic issue of fairness is involved.
Those who went on Social Security from 1940 to 1990 have received - or will receive - far more than they paid for, even when total contributions are compounded at 6 percent and nothing charged for the insurance against disability they enjoyed. Presently, those going on will have paid in full for what they get. But younger workers will pay many times over for their benefits.
A young couple with a salaried income of $60,000 pays, with their employer, $9,180 a year in Medicare/Social Security taxes. For this kind of money, they could get a far more generous plan from almost any insurance company and their return of capital would not be taxed, which can't be said now of Social Security. A first step toward a more fair system would be to make their contributions tax-deductible. But that would reduce federal revenues by roughly $60 billion a year.
This raises the much-debated issue of privatizing a portion of Social Security, allowing workers to invest part of what they pay and personally own it. No specific plan has been proposed by the Social Security commission, and members are reported to be deeply divided, both as to the wisdom of doing this at all and what form it would take.
If 125 million workers have private investment accounts, you obviously revolutionize the economic thinking of the country, and maybe its politics as well. People who own things tend to think in conservative terms. And if the stock market performs as it has since 1982, even the humblest may expect to retire a millionaire. But how, exactly, would it be structured, and who would pay if things go sour?
I don't expect much progress on this now. For one thing, the issue is complicated and voters haven't shown much interest. For another, Congress needs the Social Security surplus now exceeding $65 billion a year and rising to mask the true deficit, which people do notice. But adjusting the COLA is a relatively painless way of starting a process of reform that must come.
Only Clinton can make it happen by bringing the Democratic leadership to the trough and making it drink the bitter brew it has so long meted out to Republicans. After being demagogued nearly to death on Medicare, the GOP isn't crazy enough to go first. But the fact Republicans survived the '96 election with their congressional majority slightly enhanced may say voters are more sensible than Democrats gave them credit for. But as St. John reminds us, "That thou doest, do quickly."
Ray L. Garland is a Roanoke Times columnist.
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