366 July 12, 1984 FIVE QUICK FIXES FOR SOCIAL SECURITY INTRODUCTION A year as political as 1984 is unlikely to witness a full national debate on the structural reform of Social Security. The bitter partisan taste of the last Social Security crisis is still too strong for congressional candidates to risk debating it again, and President Ronald Reagan seems too vulnerable o n this issue to take the initiative. Nevertheless, the evidence shows clearly that Social Security remains in serious trouble, despite the costly 1983 Ilreforms A genuine structural refom package that would rebuild the system has been advanced.2 These ref orms would ease the pressure on Social Security by encouraging the creation of ltsuper-IRAsil to provide the range of benefits currently available under Social Security-but far more efficiently and fairly.

These reforms would require major legislation, implemented over several years. In the meantime, there are five small, and potentially highly popular, quick fixes that would prepare the ground that would be appropriate even for a political year.

These could be embodied now in legislative proposals Peter J. Ferrara, "Rebuilding Social Security, Part 1: The Crisis Con tinues," Heritage Foundation Backgrounder No. 345, April 25, 1984.

Peter J. Ferrara, "Rebuilding Social Security, Part 2: Toward Lasting Reform," Heritage Foundation Backgrounder No. 346, Apri l 25, 1984 2 FIVE QUICK FIXES FOR SOCIAL SECURITY 1) Index permissible IRA contributions dual Retirement Account should be raised to equal the maximum employee contribution to Social Security. This would raise the maximum annual IRA contribution immediate l y from 2,000 per worker to about $2,600--a modest increase. This would mean however, that the maximum limit would increase each year at the rate of the growth of average wages, as does the maximum Social Security taxable income of the IRA deduction The cu r rent maximum tax-deductible contribution to an Indivi Indexing would maintain the real value 2) End the discrimination aqainst homemakers Nonworking spouses currently can contribute only $250 per year to an IRA. This should be increased to the same maximu m as for'working spouses makers, who need retirement protection as much as, if not more than, spouses who work. Congress seemed poised to end this ais crimination in the recent tax bill, but the proposal was removed in confe'rence. It should be reintroduce d The law now discriminates against home i 3) Allow IRA funds for purchase of life, disability, and retire ment health insurance As fears grow about the ability of Social Security and Medi care to handle the rising costs of increased longevity and health c a re for the aged it is time for Congress to take the first step toward relying more on private sector IRAs to shoulder this burden. Congress thus should begin to increase the deduction for an IRA, provided the increase is used for an appropriate mix of lif e, disability, and health insurance to supplement Medicare.

This step would take some pressure off Social Security while ensuring that workers would have more adequate protection just as supplemental IRA benefits do for retirement income It would also enab le workers tqbecome more familiar with IRAs as an alternative to Social Security 4 1 This would educate the public. But the congressional mandate must be carefully crafted to prevent its distortion by the Social Security Administration.

There are at least two reporting requirements that are not easily open to such distortions. First, the Social Security Board-of-Trustees could be required to include each year in its annual report a section comparing the typical rate of return paid by Social Security to th o se retiring in that year with the rate of return likely to be paid to those entering the workforce that year. This would force the government to admit publicly that while the program still offers a good deal to today's retirees it offers little to today's young people. Example: Such a statement issued this year would inform many young workers that they will not even recoup the money they and their employers investt1 in Social Security, let alone obtain any yield on their money.

In addition, the Social Secu rity Administration should be required to send to each worker a "Statement of Account,Il giving the rate of return the worker could expect, under current law, on the contributions made by the employer and employee. This would enable the worker to judge So cial Security accurately against private retirement and insurance plans.

Social Security coveraqe This would help workers understand the full amounts being paid for their Social Security benefits, and enable them to com pare more easily what they could obt ain for the same funds in the private sector. It would also help workers recognize how much they are contributing to various parts of the program for which they can never collect, such as single workers contributing for Social Security survivors insurance .

Prepared for The Heritage Foundation by Peter J. Ferrara a Washington attorney Formerly a senior staff member in the White House Office of Policy Devel opment.