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Don't Panic Over Social Security


Economic Trends

DON'T PANIC OVER SOCIAL SECURITY

This crisis may be overblown

Popular wisdom says the Social Security system's looming financial problems need fixing now or they will impose a crushing burden on future workers and the economy itself. But a number of experts think it's too soon to press the panic button.

For one thing, the Social Security Administration's projections of future immigration and population gains and economic growth may be far too conservative (BW--Feb. 10). More important, even if current projections prove accurate, many economists believe that the future strain on workers and the economy has been exaggerated. What counts, contends Judith Mackey of Mackey-Baker Associates, is "the overall burden that workers will carry in supporting nonworkers--and that includes children as well as the elderly."

Mackey's focus is the so-called total dependency ratio--the size of the nonworking population under 16 and over 64--relative to the size of the working population. She calculates that this ratio, or the total number of dependents per worker, will rise only moderately in coming decades (chart).

To be sure, the makeup of the dependent population has been changing. In 1995, 35% of this group was over 64 (up from 28% in 1975). And by 2030, when all the baby boomers will be old, the elderly's share will be 45%.

But while the common view is that per capita spending on the elderly vastly exceeds spending on the young, that seems to be true only in terms of government outlays. Families actually spend a bundle on their children--some $145,000 per child through age 18, according to Agriculture Dept. estimates-- and naturally that doesn't include college costs. Weighing both public and private expenditures for children and the elderly, economist James Schulz of Brandeis University discounts the likelihood of a dramatic increase in the total dependency burden in the future.

Thus, the real question facing the nation in the next century may be how to use the private savings accruing from fewer younger dependents to cover the public costs of a larger group of older dependents. Although reform of Social Security and Medicare must be part of the answer, this way of looking at the issue suggests that the current cry for immediate action needs to be replaced by careful, reasoned debate.By GENE KORETZReturn to top

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RAKING IN THE REFUNDS

Taxpayers reap a February bonanza

A year ago, a hefty surge in refunds put some welcome cash in consumers' pockets. This year, it seems to be happening again--and then some.

As William V. Sullivan Jr. of Dean Witter Reynolds Inc. observes, the big season for individual refunds from the Internal Revenue Service starts in February and ends in May, with payments by check or electronic transfer going out weekly on Fridays. But whereas last year the February tally ran some $4 billion over 1995's total, this year it is up almost 50%, or some $6.8 billion.

One reason for the surge may be simply that the IRS is processing more refunds earlier because of a much larger number of early electronic filings. Since total refunds during last year's season ended up only 6.7% higher than in 1995 after starting out with a 40% increase in February, the current pickup could well lose steam in the weeks and months ahead.

"Still," says Sullivan, "the fact that consumers are already holding an extra $7 billion or so in discretionary spending power may help explain why consumption has come in so strong early in the year."By GENE KORETZReturn to top


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