Social Security: A Debt-Threatened Dream

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their pensions are lower, they not only collect benefits for more years, they also pay taxes into the system for fewer years. When Social Security began, only 54% of all men and 62% of all women lived until 65; those who did make it that far could expect to live another 12.8 years. By 1980,68% of all men and 82% of all women could expect to live until 65, and those who reach that age this year will, on average, live—and collect pensions—for more than 16 years.

Besides making ever more people eligible for benefits, Congress, with the approval of the White House, kept raising the payments—eleven times between 1950 and 1972, six of those times during election years. It seemed a safe as well as a wonderfully popular thing for politicians to do; into the early 1970s, tax collections almost without exception ran ahead of benefit payments, and the Social Security trust funds ran surpluses.

In 1972 a fateful moment came. Arkansas Democrat Wilbur Mills, chairman of the House Ways and Means Committee, was in the middle of what turned out to be a brief and futile run for the Democratic presidential nomination. Mills pushed through Congress a bill raising Social Security benefits 20%. More important, the bill decreed that beginning in 1975, Social Security benefits were to be keyed to the Consumer Price Index. If the CPI in the first quarter of any year averages more than 3% higher than it was twelve months earlier, benefits are raised the following July by an amount equal to the full increase.

As a method of protecting the incomes of the aged against inflation, the move was questionable to begin with. The CPI is heavily influenced by increases in housing prices and mortgage interest rates, but relatively few of the elderly buy houses. In any case, the increases were spectacularly mistimed. From 1975 through 1981, the CPI shot up at some of the fastest inflationary rates in American history. Social Security benefits more than kept pace. The maximum annual benefit jumped 200% during the 1970s and has risen 38.5% in the past four years. Although inflation is now cooling, benefits are still being boosted to make up for past price rises. The 7.4% increase due July 1 was dictated by inflation that occurred mostly in 1981. When it goes into effect, monthly checks will average $406 for a single pensioner and $695 for a retired couple; the maximum for a single pensioner will be $729.

Such increases have transformed the Social Security system into exactly what Franklin Roosevelt never intended it to be: the primary source of income for most of the aged. In the early years, Social Security pensions averaged 30% to 34% of a retired person's last monthly paycheck; in 1981 the average was 55%. This is the result not only of indexing benefits to the CPI but of generous formulas for calculating initial benefits, which have been written into the law. Only about 30% of all Social Security beneficiaries receive private pensions, and various surveys indicate that about one-quarter of the retired depend on Social Security checks for 90% of their income. As many as 16% are believed to have no other income at all.

Thanks largely to Social Security, the rate of poverty among the elderly has dropped from 29.5% in 1967 to 15.7% in 1980. Says M.I.T. Economist Lester Thurow: "Social Security was a system designed to move us toward a world where-the elderly were