|squandered the money he paid into
Social Security and saying that's the cause for the whole mess. But Social
Security payments are not kept in something resembling a savings account.
They never have been. At any given time there is a net balance or "reserve"
in the Social Security trust fund, but only an amount equal to several
months of benefits. Money paid in today by workers soon goes out tomorrow
In that sense, Social Security is less a "trust
fund" and more a "trust agreement" between the generations. Until lately,
at least, it has worked well. Forty-eight years ago, when the Social Security
system was established, it was based on the best economic principles of
the day: it would be financed by a gradually growing Gross National Product,
an ever-increasing rate of productivity, and most importantly an expanding
work force. If everything worked according to plan, there would always
be enough payroll tax receipts to pay current beneficiaries.
So what happened?
In part what happened is that the economy faltered.
It did not perform to the expectations of Social Security planners. And
when that happens, it can pull apart the best intentions -- or predictions.
Washington didn't squander Social Security, but high unemployment and shrinking
payroll tax receipts undermined it badly.
When Congress in 1977 passed the last adjustments
in Social Security payroll tax rates it was assumed that unemployment would
decline to 5 percent by 1982. At the time, that seemed like a pretty good
bet. That was about the average for the preceding ten years. But it didn't
work out that way. Unemployment last year averaged nearly 10 percent. As
unemployment rates rose, payroll tax receipts fell. In fact, they fell
so far as to threaten the solvency of the system. We were told that, if
we did nothing to correct the situation, benefits would have to be cut
or benefit checks delayed by the summer of 1983.
But that wasn't the only problem. There was a
longer-term problem as well. We were told that if the economy performed
well the retirement fund would accumulate some reserves between the years
1990 and 2015.
That's because the small "depression-era" generation will
reach retirement during those years and the large "baby
|boom" generation will be reaching
its peak earning years and helping to support the system. The good news,
however, would turn into bad news between the years 2015 and 2050 when
the baby boom generation reached retirement. The system would go in the
At the present time, there are 116 million workers
paying into the system and 36 million retirees drawing benefits. That's
a ratio of 3-1. (When the Social Security system first started, the ratio
was 12-1). But by early in the next century, the ratio of contributors
to retirees is expected to fall to 2-1. That posed real problems. If the
retirement age remained unchanged and benefit levels were maintained, payroll
tax rates would have to be nearly doubled by the year 2015 in order to
keep the system solvent. But no one expects that to happen. That's why
some young people began to doubt whether Social Security would be there
when they retired. Many asked, "Why should I pay Social Security taxes
now, if the whole system is going to collapse by the time I retire?" The
trust agreement" between the generations was about to fall apart.
That's why it was important that Congress act
this year to solve both the short and the long-term financing problems.
And I think we succeeded. It required a lot of compromise. And a lot of
sacrifice. Everyone had to give up something. But I am happy to say that
the package is a fair one. Not the fairest perhaps. But a fair one. Let
me explain what Congress did to clear up the short and long-term problems
and how the solutions affect you as a retiree or worker.
In addressing the short-term problem, Congress
had to come up with $155 billion in "savings" to keep the system solvent
through the year 1999. We did slightly better than that, we came up with
$165 billion in prospective savings -- enough to provide a margin of safety
in case our economic projections were too optimistic. Here's how we came
up with the money:
||Beginning Jan. 1, 1984, all new federal employees
will be required to participate in Social Security, including Members of
Congress, the President and Vice President and employees of the legislative
and judicial branches