The MacNeil/Lehrer Report; The Choice Between Raising Social Security Taxes or Cutting Benefits

ROBERT MacNElL: Good evening. If you had a pay day today, you may already have felt the fresh nibbling at your paycheck by the Social Security System. By the end of a full pay period, it will seem more like a large gulp than a nibble. This year both the percentage of your income payable to Social Security and the amount of income subject to the tax go up substantially. That will raise an estimated $15 or $16 billion this year. The rub is that that whopping increase won`t keep Social Security out of the red. Many factors have raised the amount the system pays out every year to older and disabled people beyond the amount paid in by younger and healthy people. President Carter and the Congress attempted to save the system from going into the red in the short run in 1977 by mandating the tax increases that are still coming into effect each year. But unless another radical change is made in financing or benefits, the system will soon face going into the red again. It`s a crisis that confronts Ronald Reagan with one of the most difficult political choices he`s likely to face in the White House. Tonight, the choice between raising Social Security taxes or cutting benefits. Jim Lehrer is off. Charlayne Hunter-Gault`s in Washington. Charlayne?

CHARLAYNE HUNTER-GAULT: Robin, the Social Security System was established 45 years ago, at a time when there were more people working and paying into it than there were people retiring and taking out of it. That`s still the case, only the numbers have changed drastically. In 1935 there were 11 workers paying in for every one person 65 or older who had retired and was drawing out. Today the ratio is three-to-one, and there are estimates that by the year 2,000 it will be down to two-to-one. The steady tax increases we`ve seen over the past few years have been necessary to make up the difference. This year the payroll tax rate increases from 6.13 to 6.65 percent, and the wage ceiling on which the tax is calculated jumps from $25,900 to $29,700. That means that the maximum tax deducted from an individual paycheck could be as much as $1,975. By 1987 that bite could come to $3,000. Robin?

MacNElL: Mr. Reagan has had a task force working on Social Security, and it recently recommended balancing the books by cutting benefits and raising the retirement age. Heading the task force was Dr. Rita Ricardo-Campbell, a senior fellow at the Hoover Institution at Stanford University. She`s with us tonight in the studios of public television station KQED in San Francisco. Why do you recommend cutting benefits?

Dr. RITA RICARDO-CAMPBELL: May I first state that I am speaking this evening as an economist employed at Hoover Institution, and not as chairman of the Reagan task force? My --

MacNElL: So your opinions are your own, in other words?

Dr. RICARDO-CAMPBELL: The opinions are mine. I`m my own man, you might say, or my own woman. It`s true I headed the task force. It`s also true that the final report has not been released, though somebody released -- ? not I -- to the National Journal in Washington the second draft. And it`s no secret, if you read the newspapers, that it does not propose to increase further the already scheduled tax increases through 1987. And they are, as you have stated, quite substantial. In -- may also state that I have written a book on this, and I was on the advisory council on Social Security in `74-`75, and was an economist for the House Ways and Means Committee earlier, when they investigated the Social Security System.

MacNElL: So, now, what is your rationale for cutting the benefits?

Dr. RICARDO-CAMPBELL: Well, my rationale, and this is all in my book and also in testimony before the Senate Finance Committee, is as follows. Since 1940, which was when the Social Security System became first active, there have been drastic changes, both in the economic and in the demographic and socioeconomic areas. For example, men today, at age 65, have a life expectancy to age 79. This is two years longer than they had in 1940. Women, comparably now can live to 83.4 years, which, again, is several years longer than their life expectancy at age 65 in 1940. And for those that are interested, the differential between life expectancies of black and whites that exists at birth are wiped out by age 65. They are survivors, and the life expectancy is the same. Therefore, to -- in my recommendation, it`s in my book and in my testimony, is to extend the retirement ages under the Social Security entitlement to the reduced benefit to age 64 and to the full benefit to age 67. Other people would do it to 65 and 68.1 prefer 64 and 67. because I think there has to be recognition that the blue-collar worker has worked sometimes 40 or 45 years by that time. The professional has not.

MacNElL: Is it your proposal that people who are presently receiving Social Security would, some time in the near future, start having less -- receiving lower benefits, or not enjoying the same increases they have been?

Dr. RICARDO-CAMPBELL: Everybody that is now receiving a Social Security benefit will continue to receive that same benefit or even more if the cost of living rises. Any proposals that have been made, either about increasing the age for entitlement, changing the computation, or any other one. has a delay period for enactment from five years in some people`s minds to 20 years in another person`s mind. And after that period of time, whether it`s five years or ten years or 20, there would be a phasing in or a phasing out, which means, for example, on increasing the age at which you would be entitled to a benefit, the most popular proposal among economists is one month for one year, and it would be 2000, 2010. Nobody who`s receiving a benefit now would be receiving less.

MacNElL: I see. So they needn`t worry about it. Well, what would you propose to do about the immediate short-term problem of meeting the projected shortfalls over the next few years?

Dr. RICARDO-CAMPBELL: Well, in 1982 the trust fund, by December 31. will have fallen to $1 billion, which is rather laughable as a trust fund terminology. Some time in 1982 there will be less money to use to pay out than what`s coming in, and. as in the past, in 1982 general revenues will make it up. I think that you have a choice. Either you find temporary monies, probably in the disability trust fund, as was found for the last few years, and feed it in. I also, however, would cover government workers. If you cover all government workers you would immediately add $11 billion to the trust fund, and that would take care of it for `83 deficit, a little bit of `84. Admittedly, the potential deficit is estimated by 1986 or `87 to be $55 billion. It will not take care of that, unfortunately. But I think government workers should be taxed.

MacNElL: Finally, you have one other proposal. I believe, which is to eliminate benefits ultimately for spouses and surviving spouses. Would you explain that briefly?

Dr. RICARDO-CAMPBELL: That`s based upon sociodemographic changes. It`s based on the fact that many more women are working than were working when the act was first passed. Today 60 percent of women that are 18 to 65 years are working. If you make it 20 years to 65, it`s 65 percent of women are working. And this is at a point of time. Most women go to work today when - - before their children are born, before they`re married. And after their children start high school they`re back in the labor force. The entitlement requirement is only ten years of covered work. So that if all work were covered, it would be over 90 percent of women who would be entitled to their own primary`- This would save some money, because you would be phasing out, over a 30- and 50-year period, after a lapse at least of five or ten years, so it effects nobody today who is receiving benefits or about to receive them. It would save approximately one half of one percent of the payroll deficit. Now we`re in deficit. In the long run, by the year 2010 you have people living longer. You`re also having fewer people being born to go into the work force, so that the ratio of one worker for all OASDI beneficiaries, not just the aged, but for their dependents, drops from three workers for one, or 3.25 for one, to two for one. That is. you only have two workers for one of the surviving beneficiaries. The widows can be age 60, which in some working women builds an inequity, by the way. There are children, dependent children, receiving. That`s all included in that ratio. In this instance, therefore, you have to do something or you`re going to increase the taxes on our young people today and make them very disaffected with the system. I think you`re going to start driving a wedge between young and old. And I do not think it is fair to the young people of today to tax them as heavily as would have to be taxed in the future in order to accomplish maintaining the financial integrity of the system as it is now written into the law.

MacNElL: Well thank you. We`ll come back. Charlayne?

HUNTER-GAULT: As might be expected, there are those who disagree with the kinds of changes Ms. Ricardo-Campbell advocates for Social Security. Among them is Bert Seidman, director of the Social Security department of the AFL-CIO. Mr. Seidman, in your view do the problems with the Social Security System warrant the kind of proposals Ms. Ricardo-Campbell has just outlined?

BERT SEIDMAN: Not at all. In the first place, the -- while we do have short-term and long-term problems with financing of Social Security, those problems can be met. In the first place, there can be reallocation among the funds. It happens that the disability trust fund and the Medicare fund are in good financial shape. There`s no reason to be having surpluses in one fund and a deficit -- it`s not really a deficit, but not enough money - - in the old age and survivors` fund. It is possible to reallocate.

HUNTER-GAULT: In other words, you`re saying that you can borrow from one fund to the other?

Mr. SEIDMAN: Well, that`s one of the things that can be done. There are other things that can be done, as well, to shore up the financing of the system. But the --

HUNTER-GAULT: Well, but before we go to those, let`s go to what`s wrong, say, with the proposals that she has outlined in some detail. Specifically, like --

Mr. SEIDMAN: Well. I`d like to do that.

HUNTER-GAULT: Okay. Let`s start with the one where she argues that you can extend the retirement age now because the life expectancy of people is longer.

Mr. SEIDMAN: The reason I mentioned the financing, and maybe we can get back to some of this in more specific terms -- but the reason I mentioned the financing was to indicate that the financing is not a reason for the drastic slashes in Social Security benefits that Mrs. Campbell has suggested. Now, let`s take this question of increasing the retirement age. I`m against increasing the retirement age for the very reason that she said that she`s in favor of increasing it only to 64 rather than to 65. If we increase the retirement age to 64 or 65, it means that people who can now get reduced benefits at age 62 will somehow or other have to hang on with no benefits at all until they`re age 64 and age 65. Who are the people -- and there are large numbers of people, because 70 percent of the people go on the rolls now before age 65.

Who are these people, primarily? They`re people who are in ill health. There are people who have lost their jobs and can`t get other employment. They have no source of income other than Social Security. Many of them have these problems before they reach age 62, and they accept these lower benefits at age 62 for the rest of their lives not because they want lower benefits, but because they have no other source to turn to for any income whatsoever. The people who would be hurt most by this are, as Mrs. Campbell said, the blue-collar workers, who have worked all their lives lifting 50- pound boxes or running pneumatic presses or doing other things which debilitate them. And when they retire, they retire because they have to retire, not because they want to retire. These people would have no source of income unless they went on welfare, and they might not be eligible for welfare. Under our present system, you`re not eligible for SSI, supplementary security income, until you`re age 65. So that there would be no source of income for these people whatsoever.

HUNTER-GAULT: And are you saying that this is the vast majority of people - - who would fall into that category, probably?

Mr. SEIDMAN: A very large percentage of people would fall into that category. And they would get reduced benefits at age 64 or 65, whereas now they would get -- if they could hang on to that age, they would get full Social Security benefits. So what this is, and I don`t think the proponents make any bones about it -- this is a slash in benefits. This isn`t just a postponement of the retirement age. This is a slash in benefits.

HUNTER-GAULT: What about her -- and briefly, what about her argument that you could bring all government employees, federal employees, under the Social Security umbrella -- they now are funded in a separate pot -- that this would save, in the short term at least, $11 billion?

Mr. SEIDMAN: I don`t know what she means by the short term. I don`t know anybody who has proposed doing this in one fell swoop all at once, with no announcement of anything, taking in all the people who are now working for the federal government and covering them. If Mrs. Campbell is proposing that, that`s a more radical proposal than any that I`ve heard up until now. The fact of the matter is that we have a civil service retirement program for federal employees. Thirty percent of state and local employees are not under Social Security and they`re covered by some kind of retirement programs. If it is possible to change this situation so that these people are covered by Social Security, while at the same time they do not lose the retirement protection that they now have, that their own fund is able to improve over time and is not destroyed by changes, that they are not required to pay in more without getting increased benefits -- if those kinds of protections can be introduced into some kind of a change which would bring them under Social Security, the AFL-CIO is willing to take a look at such changes. But we insist that there be those protections, and nobody has come up with a plan up until now which will achieve them.

HUNTER-GAULT: All right. We`ll come back. Thank you. One of the more controversial elements of the multifaceted Social Security debate has centered around women. The Reagan task force has recommended ending retirement benefits for non-working women and widows. There are several other national security advisory commissions that have also suggested changes for women. One such group was the advisory council on Social Security, established by the Congress. Former Social Security Commissioner Robert Ball was a member of that group, and is now a senior scholar at the National Academy of Science. Mr. Ball, what`s your reaction to the Reagan task force proposals regarding women?

ROBERT BALL: Well, I think they`re mistaken. It seems to me that because of the fact that more women are working, you can`t leap to the conclusion that down the road all women will have gotten sufficient benefit protection through their own market wages. I think we need a system that equally protects the woman who chooses to work at home.

They both work. And I would like a system that gives improved protection to women, regardless of whether they`re working for market wages or whether they`re working at home. Now, we considered, in the advisory council, a plan that would move in this direction. Now, we weren`t ready to recommend it, because, although it`s simple to state -- I think you`ll agree when I state it that it is simple -- it gets very complicated in application. The idea would be to look on marriage as an economic partnership in which the earnings of the two partners were pooled and then divided in half, and each would have an independent wage record. And then, if there was a divorce, the woman and the man would each carry a wage record away with them to their own earnings or to another marriage. This concept meets most of the specific problems that people have raised about the treatment of women under Social Security, particularly the treatment of women who are divorced, who are homemakers and then divorced. But let me tell you that in application it becomes very complicated. You have to immediately say -- you can`t follow this through in its pure form, or people who became disabled, and were the high earner in their family, would lose a great deal in protection. If a high earner died, the survivor would lose a lot of protection. So you immediately have to modify the fundamental concept.

HUNTER-GAULT: Right. But in general was that proposal adopted?

Mr. BALL: It wasn`t really recommended completely. It said that this looks like the most promising way to go. It urged further study, and we had a specific proposal to examine, but we didn`t recommend it as such. We do think it`s a promising thing for the country to debate, but I might -- must say this, that the immediate, pressing problem in Social Security is to finance the protection that people now have. And a proposal like this does cost more money. And I would think it should be postponed until we have the present protection adequately financed.

HUNTER-GAULT: Well, how do you -- what kind of adjustments do you think should -- could be made at the moment to protect the group of women we`re talking about?

Mr. BALL: Well, the -- to me, the group of women that are the worst off under Social Security today are women who in their older years are living alone. They may be widows, or formerly married, or, in some instances, single women who worked for market wages on their own. They have lower benefits. They`re more in jeopardy of being in poverty than are couples or are single men. And the main difficulty for women in Social Security is that their benefits are too low. That`s the main problem.

HUNTER-GAULT: And, would you say -- now, these are older women living alone. Would you say that -- because you don`t have the kind of protections that you`ve just described -- something similar would apply to non-working women at the moment?

Mr. BALL: Well, I think the most important thing probably would be to improve the protection for widows under Social Security. The National Commission on Social Security that hasn`t yet been mentioned, which will be reporting later this year, is going to recommend that the wages which form the basis for a widow`s benefits be updated to current wages, just as is true for workers. We have a system today that is a very, very good Social Security system, that keeps protection right up to date with current wages, that once you retire, the benefits are kept up to date with prices, and they`re tax-free. But widows are discriminated against in this respect. Their benefits may be based on their husband`s wages that were earned a long time ago, if that husband died, say, at 45 or 50. This proposal is to update those wages to current wages, just as is done for the retired worker.

HUNTER-GAULT: All right. Thank you. Robin?

MacNElL: Another view, now, from Judith Finn, who has given testimony on Social Security matters to Congress. Mrs. Finn formerly taught political science at Kenyon College in Ohio, and she also engaged in public policy research. She`s now a homemaker and a member of the Eagle Forum, a conservative women`s organization. Mrs. Finn, what`s your reaction, first of all, to Dr. Ricardo-Campbell`s proposal to phase out benefits entirely for non-working spouses, wives or husbands, and surviving spouses?

JUDITH FINN: Well, I`m largely in agreement with Dr. Campbell`s task force recommendations that we have to cut benefits. But we -- I object to the elimination of the wife`s benefit as the only social adequacy benefit which is being singled out. This causes the homemaker and the one-income family, traditional families, to bear the cost, the total cost, of this kind of reduction.

MacNElL: What does "social adequacy benefit" mean?

Mrs. FINN: Well, I`m -- in the sense that the social adequacy benefit is what is -- what makes our Social Security system a social system -- a system of social insurance as opposed to a private insurance scheme of retirement, a retirement scheme. Those departures from equity are the things which make it mandatory to have a Social Security system in the first place. And one of those is the 1939 benefit, which was given to wives and survivors. I don`t want to see that eliminated because -- especially on the grounds of just cost-cutting, just eliminating it. I think that if you want to eliminate a social adequacy benefit from Social Security, that you must do that on the basis of an evaluation of that benefit. What was its purpose, is it still serving that purpose, and is it worth the cost? And I think that -- I have done a study, which is being published now by the Free Congress Research and Education Foundation in Washington, and I think -- I`ve tried to provide this part to raise the level of public discourse about this question. And I think I`ve found that it is performing its original function. It is -- provides the function of a minimum benefit for wives whether they work inside or outside the home. It recognizes the social value of mothering. And it recognizes the family as the basic unit of our society. So I think it would be a mistake to eliminate the benefit just to save money, and to artificially encourage more mothers to enter the labor force, when they`ve already demonstrated that they would prefer to be at home. The benefit presently costs us 6.6 [percent] of total OASDI benefits, and is declining. And every indication that I was able to come up with, both from child development literature, the human capital theory, people in economics, indicate that there is a positive relationship between parenting, parental time, and further child development. And so you`re going to save a little bit, and you`re spending billions on other kinds of child development programs. And that just doesn`t seem to make sense to me. So it`s not that I don`t want to cut benefits.

MacNElL: Right. What do you think of Mr. Ball`s earnings sharing proposal?

Mrs. FINN: Well, earnings sharing, as he said, has the problem that if you make it voluntary it`s just prohibitively expensive, if you give people the choice. And if you don`t, if you take the HEW proposal, for example, to eliminate -- it`s just another word for eliminating the wife`s benefit, and the traditional family would then share one primary benefit rather than one and a half, as they presently do. So you, again, put all the cost of this reform onto one kind of family, and that is the traditional family with the homemaker, a dependent spouse. This is completely sex-neutral. But, you know, the dependent spouse, which is usually a wife.

MacNElL: Well, finally, what do you think of the -- what do you see as the purpose of Social Security today. Is it to be an adequate retirement income in itself, or a supplement to something else?

Mrs. FINN: No, I think it was -- I think that it has been made more of a- - - you know, people talk about being able to live on Social Security. But I would like to see it returned to its original conception, and that is, being a, as Reagan described it, a, you know, a safety net for people. If they- if their own savings, their own private retirement fund are inadequate, or something happens - you lose your farm in a depression, this sort of thing -- that it`s a safety net. and that the benefits should be at that level.

MacNElL: But it isn`t that any longer for a lot of people.

Mrs FINN` No it isn`t. But I think we need to scale down the benefits. But we have to do this in an equitable way. And I like Dr. Campbell`s and the task force`s proposal to raise the retirement age. because that spreads the cost of this cost-cutting --

MacNElL: I`m going to have to stop you there. You can see that this is an extremely complicated issue so complicated that in four simple interviews we`ve run out o .me and haven`t got time to pursue it any further, which we II have to do on another. Ricardo Campbell in San Francisco, thank you for joining us tonight. And Mr. Seidman. Mr. Ball in Washington. Good night. Charlayne.

HUNTER-GAULT: Good night. Robin.

MacNElL: And Mrs. Finn here. That`s all for tonight. We will be back on Monday night. I`m Robert MacNeil. Good night.