An ‘A’ for a Good Idea, an ‘F’ for Clarity : Social Security: A sound case can be made for cutting the tax. Moynihan’s refusal to be candid, however, makes this look like a silly giveaway.

Until we discard common myths about Social Security, budget debates will become increasingly confused. Sen. Daniel Patrick Moynihan (D-N.Y.) is the latest to prove the point. He’s made a sensible suggestion. Social Security taxes should be cut to prevent surpluses from accumulating in the Social Security trust fund. But because Moynihan hasn’t discussed Social Security candidly, he’s made a good idea look like a silly giveaway.

Moynihan talks of a federal “operating budget” (the total budget minus Social Security) as if it’s a legitimate concept. In fact, it’s economically meaningless. The government’s deficit or surplus is the gap between total revenues and spending. Chopping the budget into different parts and plastering different labels on them doesn’t change that. It merely causes confusion.

And politically, the distinction is undesirable. The major issue of domestic spending is how much to aid the elderly. In fiscal 1990, federal spending on the elderly will total $332 billion, the Congressional Budget Office estimates. Social Security and Medicare dominate. That’s 28% of total spending and 45% of non-defense and non-interest spending. Social Security should be a part of the larger debate of how much--and precisely how--to help the elderly.

Until recently, Social Security was on a pay-as-you-go basis. This is no longer true. In 1990, the trust fund will take in an estimated $322 billion and spend $253 billion.

In 1983, the trust fund was going broke. A bipartisan commission proposed--and Congress passed--tax increases. But in the rush to solve this problem, almost no one foresaw that the higher taxes would create big surpluses by the 1990s. These surpluses are now predicted to accumulate in the Social Security trust fund until it has a $12-trillion reserve by 2030.

These surpluses should be prevented for two reasons. First, they result in using a bad tax to pay for non-Social Security spending. The Social Security surpluses are invested in Treasury bonds and, therefore, finance other spending. The trouble is that the Social Security tax falls heaviest on lower-income workers, because the tax is the same rate for all income groups. The second flaw is that the surpluses create the illusion that Social Security is somehow “saving” for the baby boom’s retirement in the 21st Century. This is a fraud.

Government shouldn’t make promises it can’t keep. Restoring Social Security to pay-as-you-go is honest bookkeeping. It acknowledges an enduring truth: Congress constantly tinkers with the system, depending on the political and economic climate. But this truth confounds another popular myth: that Social Security is a pension. People like to think they’ve “earned” their benefits, that their past contributions are being returned and that there’s a firm contract between the government and retirees.

All this is rhetoric. Social Security is more like welfare. This isn’t meant to demean a hugely successful program but merely to describe it. Consider:

--Benefits are only loosely connected to past wages. In 1988, a retiring low-income worker received Social Security payments equal to about 70% of pre-retirement wages. For high-income workers, the comparable proportion was 23%.

--Benefits for today’s retirees come from the payroll taxes of today’s workers. Even if retirees’ Social Security contributions had been saved--and they weren’t--they would typically cover, including interest, only about a third of actual benefits.

--Congress has repeatedly changed benefits, up and down, depending on the circumstances of the moment. In 1950, the average new retiree got 20% of his pre-retirement wages. This “replacement rate” was 31% in 1969, 51% in 1980 and 41% in 1988.

One test of political leadership is the ability to clarify complex issues. Moynihan has flunked this test. A sound case can be made for cutting Social Security taxes, but he didn’t make it. To do so would have required saying unconventional things. It would have required proposals to offset the revenues lost from lower payroll taxes. There are ways. One is an energy tax, which would also curb pollution. Another is more reductions in income-tax preferences (credits, deductions and income exclusions). All this demanded more political courage than Moynihan could muster.

The best way to prepare for the future is to take care of the present. Balancing the overall budget ought to be our basic goal.