ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, February 25, 1996 TAG: 9602270020
SECTION: BUSINESS PAGE: G-2 EDITION: METRO
DATELINE: NEW YORK
SOURCE: JOHN CUNNIFF ASSOCIATED PRESS
It wasn't his intention to identify a primary cause of Social Security's financial distress when he declared the economy was ``on track,'' but Alan Greenspan might have done that.
On track? Why, the economy grew only 1.5 percent last year, which isn't half its growth rate between 1946 and 1988. A slow-growing economy means slow growth in payroll tax revenues - insufficient revenue growth, as we now learn.
Faster growth, combined with smaller or delayed benefits, say two former Treasury Department economists, could eliminate much of the problem without radically overhauling the system, as is increasingly suggested.
Gary and Aldona Robbins, husband and wife officers of Fiscal Associates, an Arlington, Va., research firm, contend that increasing the economic growth rate by 1 percentage point would cut projected deficits in half.
Suggestions of that sort, however, run counter to the views of Greenspan, the Federal Reserve chairman, who believes 2 percent to 2.25 percent is the best that can be expected without inducing a return to disruptive inflation.
Such low expectations for 1996 are shared by the Clinton administration, the Congressional Budget Office and many private economists, but not by the Robbinses, who believe that growth is thwarted by high marginal tax rates.
In a report published last year by the Institute for Policy Innovation, a conservative Texas think tank, the Robbinses conclude that increasing growth ``is well within the realm of possibilities.'' They would do it with tax cuts.
Lowering marginal tax rates on labor and capital, through any number of means, they say, ``could easily return the U.S. economy to its long-run path and restore financial health to Social Security.''
While their report was written before news that a federal advisory panel might suggest allowing some Social Security funds to be invested in stocks, they cautioned that such an attempt could cause problems.
The major impediment, they suggested, would be that such action might lower available revenues and endanger current benefits, because Social Security essentially collects payroll taxes from workers to pay beneficiaries.
Others have pointed out that while allowing funds to be invested in stocks might, in the long run, add enormously to benefit packages, it would also introduce variability into pensions that could in themselves create problems.
While stock market returns of 10 percent to 12 percent might be expected, there could be interim periods of below normal returns or even losses.
The Robbinses' study suggests that reliance on tax increases to solve the deficit problems could be self-defeating. By their 1995 estimates, payroll taxes would be at a 75 percent rate by 2020, nullifying real progress.
The sensible approach, they conclude, would be to scale back what they say are ``overgenerous'' benefits - after providing future retirees with plenty of warning and affording protection to existing retiree beneficiaries.
And then, above all else, give the economy a boost by lowering marginal tax rates on labor and capital.
LENGTH: Medium: 60 linesby CNB