Social Security Old Age and Survivors Insurance

Such an arrangement could be adopted without necessarily abandoning the contributory system, but since it would tend to increase existing inequities and to render less favorable the ultimate tax or benefit rates, it is submitted that the burden of proof rests on its proponents. Such a change, moreover, would make more difficult the process of amendment, which is sure to be important in the future and may be as far-reaching as in the past. Every major amendment requires a complex adjustment of equities, and this adjustment will inevitably be easier if such strains as result from the present provisions have not been aggravated by a move to pay-as-you-go financing and will be easier to the extent that a reserve furnishes a source of income other than current contributions. The importance of adequate and fair financial provisions in the present law lies, not primarily in a prospect that our present blueprint will be carried out in the precise form in which we have drawn it or perhaps in anything very like that form, but rather in the desirability of keeping the structure as sound as we can at each stage of its growth, so that its future development may be shaped by the needs of the future and not by the necessity of retrieving errors from the past.

There is one real and obvious argument for pay-as-you-go financing, in that it would keep tax rates somewhat lower for the next few years. But we cannot have social insurance at all unless we are willing to pay for it, and there is no obvious equity in lowering tax rates now at the expense of raising them for future generations, which will in any case have to pay higher social security taxes than we are paying and will probably be no less eager for tax relief. Pay-roll taxes, however, are generally conceded to be deflationary in their effects, and as long as reserves are building up—as long, that is, as more is taken in as taxes than is paid out as benefits—the net effect of the system as a whole may also be deflationary. Whether this is so, and what conclusion should be drawn if it is, are questions that carry far beyond the scope of this discussion. Suffice it to say here that old-age and survivors insurance requires a large measure of stability and continuity in its financing, and that it is not well adapted to serve, by too frequent adjustment of its tax rates, as an offset to short-range fluctuations in our economy.

Social insurance values point to a reserve of substantial size. One ought not to advocate pay-as-you-go financing unless he believes that the deflationary effects of further accumulation hold a threat to our economy so grave as to warrant a sacrifice of these values.

The size of the reserve, like its existence, is a resultant of decisions about many other aspects of the system and ought not in itself to influence those decisions very much. Under the most favorable cost assumptions used by Congress in 1954, the reserve would continue to grow indefinitely and would reach some $280 billion by the year 2020, while under the most unfavorable assumptions it would dwindle and vanish before the turn of the century. Either of these results, of course, could occur only if the

system had proved to be seriously overfinanced or underfinanced and adjustments to bring the system into better financial balance would surely be made long before the fund ever approached either of these extremes.

Discussion is misleading which treats the reserve as either an end in itself or an evil in itself. There is nothing alarming in the prospect of a fund of $50 or $100 billion or even more. If we make wise decisions about other aspects of old-age and survivors insurance, the "reserve problem" need not give us much concern.

Voluntary And Noncontributory Coverage

Voluntary coverage, because of its obvious political appeal, is a continuing danger to old-age and survivors insurance and to its financial integrity. The Senate Finance Committee voted last year to extend such coverage to farmers and the professional self-employed, but reversed itself in the light of estimates that the action might cost the system upwards of $20 billion. The heavily adverse selection to be expected at the outset would be aggravated if, as is likely, it proved impossible to hold the line against later reversal of individual choices that hindsight showed to have been unwise. If the option were granted to these groups, moreover, it would be difficult to explain to others why they must remain subject to compulsion.

Congress did extend voluntary coverage to ministers of the gospel, thereby making obeisance to the separation of church and state. There are not enough ministers to make a serious inroad upon the trust fund, and the unique ground advanced for their immunity from compulsion should negate the otherwise dangerous precedent.

Whereas voluntary coverage risks the payment of many benefits for very small contributions, the plan put forward by the Chamber of Commerce would assure the payment of many benefits for no contributions at all. The plan calls for paying minimum insurance benefits of $25 or $30 a month to the "unprotected aged" (those who are not now eligible under any public retirement system), for putting the insurance system with universal coverage on a pay-as-you-go basis, and for abolishing federal grants for old-age assistance. Nothing need be said here of the effect of this plan on recipients of old-age assistance or on state and local treasuries beyond noting that, as it would probably prove costly to both, it would generate strong pressures to raise the amount of the flat insurance payments. Our question, rather, is whether the contributory insurance system could survive the grafting upon it of a noncontributory adjunct of such size.