SOCIAL SECURITY: No Bankruptcy

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Nearly four decades of half-truths have finally caught up with Social Security. The system is as sound today as it has ever been, but Social Security Administration officials are trying to convince a suddenly skeptical public that the program is not on the edge of bankruptcy. They are having a hard time because for so many years boosters pretended that Social Security is an insurance plan.

The immediate source of concern is the Social Security trust fund, which in the popular mind has become analogous to the reserves insurance companies set aside to make sure that they can pay claims in the future. The Social Security trust fund now stands at $44 billion, but last year it dropped by $1.8 billion as Social Security tax collections fell behind benefits paid out. This year benefit payments of $78.2 billion are expected to run $4.4 billion ahead of income, pulling the trust fund down to less than $40 billion. By 1981, according to projections in the President's budget, the fund will be depleted to $23.4 billion.

Many of the 32 million people who get Social Security checks—15% of the entire U.S. population—are afraid that the fund will become exhausted and their benefits at some future date stopped.

Supporting Strength. There is no such danger; the system is exactly as sound as the U.S. Government itself. Its ability to keep the benefit checks flowing rests not on the amount of money in the trust fund, but on the Government's unquestioned power to collect taxes—and on Social Security's overwhelming political support among the people who pay those taxes. The system does need more money, from somewhere. But no lucid analysis of its requirements is possible so long as the idea that Social Security is insurance, rather than a federal tax, dominates debate.

Under a straight insurance plan, an individual pays premiums and gets in return a policy promising to pay a certain sum to his heirs if he dies early, or to himself if he lives long enough to retire.

The payments are determined strictly by the size of the premiums paid. The original Social Security Act of 1935 set up the system in much the same way:

workers would pay taxes that would be a kind of premium and "earn" the right to receive benefits when they retired.

But in 1939, before the first benefits were paid,* Congress amended the act to base payments partly on need—a concept foreign to true insurance. Low-income workers get retirement benefits that replace a larger proportion of their former earnings than the benefits of high-income workers do. A retired worker with dependents collects more than one without, even if both have paid exactly the same amount of taxes into the system, and there is a minimum level of benefits available to someone who has paid very, very little.