Social Security: A Debt-Threatened Dream

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through June 1983. Extending the permission for OASI to borrow from the disability and Medicare funds would buy a bit of additional time, but probably no more than 18 months.

The three funds together took in $178.2 billion in 1981, or $3.1 billion more than they paid out during the period. Defenders of Social Security benefits sometimes cite this surplus as proof that there is no crisis. But Social Security's trustees* have warned that the disability and Medicare fund reserves are too low to guarantee the timely payment of benefits beyond "sometime during 1984," unless the system is reformed. And if the economy grows vigorously from now through the rest of the 1980s—a fiscal event very few economists are predicting—the funds will barely squeeze by, with no margin to guard against a temporary downturn.

It is true that if the Social Security system can somehow stay afloat through the '80s, it will sail into calmer waters for a long period beginning around 1990. For one thing, a 1% tax increase—half a point each on workers and employers—goes into effect that year. For another, the number of people retiring from 1990 through the rest of the century will be held down by the low birth rates of the Depression and World War II years. Meanwhile, members of the 1946-64 baby-boom generation will be hard at work, presumably earning rising incomes and paying swelling Social Security taxes, even without a further increase. The ratio of workers paying into the system to people drawing benefits, after falling from 16.5 to 1 in 1950 to 3.2 to 1 now, will at last stabilize at about the current level. Says Alicia Munnell, vice president of the Federal Reserve Bank of Boston and a leading Social Security authority: "We go through the '90s in great, great shape." Assuming we can get to the '90s.

There is no excuse for complacency, as Munnell also points out, since the prosperity of the '90s will affect only the pension and disability funds. The Medicare fund could be bare by 1990 and draining reserves out of the other two. At least, that is likely if hospital costs keep climbing as rapidly as they have been doing for the past several decades (in March, while the CPI as a whole went down for the first time in 17 years, its medical-care component went right on increasing at a 12% annual rate).

The real long-range worry is a potential demographic disaster for Social Security, beginning around the year 2010. Then the baby boomers will start to retire, in numbers greater than U.S. society has ever had to cope with. Meanwhile, the working population will have been thinned by the low birth rates of the past 15 years. The ratio of Social Security taxpayers to beneficiaries, after holding at about 3 to 1 into the early 21st century, could drop to as low as 2 to 1 by 2030. According to some projections, the Social Security taxes that those two workers and their employers would have to pay to support one retired person could drain away 25% of American payrolls. That would not only put an all but unbearable strain on the 21st century economy, but could provoke a tax rebellion among the young. Warns Michael J. Boskin, an economist and Social Security expert at Stanford University: "This could cause the greatest polarization in the U.S. since the Civil War. It would be age warfare."

No such doomsday scenario is