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Raising the Retirement Age

June 28, 1988

Charles Krauthammer's proposal should be taken seriously and the reasons for doing so are much more compelling than he outlines.

The plain truth is that the huge reserve expected to be built up in the next generation and a half during which time the income of the Social Security Trust Fund will far exceed benefits paid is purely a bookkeeping fiction. There is no surplus being stored. No "chestnuts" to be frittered away as Krauthammer suggests. The assets of the trust fund will consist entirely of IOUs in the form of United States government bonds--a promise somehow to come up with the funds when needed by the Social Security program.

So long as the federal budget is in a deficit position the surplus income of the trust fund (estimated at $40 billion this year) will actually be spent immediately on other government programs. In the unlikely event the budget were to be balanced, the surplus funds would serve to retire a portion of the presently existing federal debt. Nothing sinister. This is the way the system must operate.

In either event a decision must be made somewhere along the way as to the method of financing the gap when the much larger scheduled benefit outgo begins to exceed trust fund income. At that time, about 30 years hence, the federal government can make good on its IOUs by new borrowing from the public. Alternately it could be budgeted from other tax revenues (if such were available) or from higher Social Security taxes. If the latter, the Social Security tax rate would more than double over a period of time.

Therefore it is important that the possibility of raising the normal retirement age to 70 or 71 from the presently scheduled 67 be considered as another of the somewhat painful alternatives. To go this route would require an early decision so that the change could be phased in gradually. There are, of course, negatives to this approach in terms of equity to the younger people paying the present high payroll taxes. Perhaps eventually we will begin to think of Social Security taxes as merely another surtax on the federal income tax.

R. W. LAXSON

Lake San Marcos

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