Social Security Failure Could Be Deferred

WASHINGTON â€”  Social Security’s threatened financial collapse could be postponed by 23 years--until the year 2052--by reducing the annual cost-of-living increase in benefits by the 1.1 percentage points recommended by a federal advisory commission, according to calculations by Social Security actuaries.

Average beneficiaries would get $8 a month less in 1998 than they would receive under the current calculation, a figure that would compound annually to $108 a month in 2006. The impact on the Social Security system would be enormous: a cumulative savings of $166 billion over the next decade and a substantial easing of the pressures on the vast retirement program, the actuaries found.

The actuaries, who analyzed the recent recommendation by a Senate commission headed by Stanford University economist Michael Boskin, produced the first hard numbers for what promises to be a lengthy and complex debate over two key issues: the best way to balance the federal budget and the most effective steps to secure the future of Social Security.

The commission found that the consumer price index, which is used to calculate annual increases in Social Security, now overstates actual inflation by 1.1 percentage points a year. The analysis by Social Security Adminstration actuaries of the impact of implementing the curtailment of benefits each year was made available to The Times.

Despite the commission’s report, congressional action to change the benefit formula is highly uncertain because the nation’s influential seniors lobby has signaled that it will bitterly oppose any such change in their benefits.

The Social Security trustees reported this year that the system’s problems will reach a crunch point in the year 2029, when projected revenues would be sufficient to pay just 75% of benefits promised to the huge cadre of Baby Boomer retirees.

A reduction in the CPI also could have other economic impacts, however. If employers chose to give workers smaller raises in the private sector because of the lower reported inflation rate, that might slow the growth of Social Security tax revenues somewhat.

Social Security raises have helped many senior citizens achieve economic security. The poverty rate of those over 65, more than 35% in 1960, was 10.5% last year.

“We would fight� any effort to change the formula for figuring benefits, said Lisa Davis, senior policy analyst for the 5-million-member National Committee to Preserve Social Security and Medicare. The proposal by the Boskin commission was a “smoke screen to generate money,� she said.

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Because the plan would extend the life of the Social Security trust fund “so dramatically, it means that there is a substantial hit on beneficiaries,� said Evelyn Morton, Social Security expert with the American Assn. of Retired Persons, the largest senior lobbying group with 32 million members.

Beneficiaries, whose government checks would be smaller than under the current system, would be restricted in their financial “ability to keep up with the price of goods and services,� she said.

Current law links the CPI not only to Social Security increases but to civilian and military pensions and the size of federal tax brackets and exemptions.

Still, such a cutback would be a hard sell, predicted Stanley Collender, a budget expert with Burson-Marsteller, a Washington-based consulting and public relations firm. “What you need is an education process to explain to the average person that they are not being denied anything but are only getting what they are entitled to.�

The current average Social Security beneficiary gets $724 a month this year. A 2.9% cost-of-living increase, based on the index, would produce a check of $745 a month beginning in January.

The average benefit is projected to rise to $768 a month in 1998, with Social Security assuming that the CPI would increase 3.2%. If the Boskin commission formula were used instead, the increase would be 2.1%, producing a check of $760 a month.