The $12 Trillion Temptation

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The idea takes some getting used to at first. Social Security is in trouble again. Only this time the problem is not too little money but too much. Thanks to a series of increases in payroll taxes that began in 1984, the retirement trust fund currently takes in $109 million more each day than it pays out in benefits. Federal officials expect the accumulated surplus to exceed $100 billion by December and, in the next 40 years, to mushroom to $12 trillion. Every penny will be needed to pay for the future retirement of today's 24- to 42-year-olds, the budget-busting baby boomers. But as the stockpile grows, so does the urge to raid the reserves. After all, the 21st century seems so far away.

By law, the surplus can be invested only in Government-insured securities. So far the trust fund has been used to buy Treasury issues -- in effect, financing part of the federal budget deficit. Legislators, however, have proposed using the money for everything from expanding current Social Security benefits to paying for housing for the homeless. Others clamor for a tax cut. Many Washington watchers fear that the Government will simply fritter away the reserve, leaving nothing to the future. Says Geoffrey Carliner, executive director of the National Bureau of Economic Research in Cambridge, Mass.: "As politicians see the trust fund build up, the temptation to spend it on today's recipients or to reduce payroll taxes will only grow."

Congress overhauled the retirement program in 1983, after dire predictions that the Golden Age for the post-World War II generation would bring on the Dark Ages for Social Security. Before the reforms, the trust fund had worked more like a chain letter than a pension plan. Each current retiree's benefit check required payroll taxes from four current employees. But so many children were born right after the war and so few after 1964 that the pay-as-you-go system threatened to collapse when the boomers retired. In the first half of the next century there will be only two workers to pay benefits for every retired person. The solution: create a reserve by raising the payroll bite for Social Security from 5.4% in 1983 to 6.06% in 1988. Thus, for the first time, today's workers will pay part of their own retirement as well as that of their parents.

What to do with the money until it is needed? Democratic Senator Terry Sanford of North Carolina has introduced a bill that would require the trust fund to make loans for education and economic development. Republican Congressman Bill Green of New York wants to invest the fund in public works like housing projects. Says he: "The future, albeit temporary, riches of the Social Security system offer us a genuine opportunity to deal with some pressing national needs." But critics charge that using the surplus for general governmental programs creates a demand that is hard to turn off once the need for the retirement funds is at hand.