- The Washington Times - Saturday, September 8, 2001

What is often ignored in the debate over Social Security reform and the financial problems it now faces is why the system has remained solvent for as long as it has. Let's be clear about this. Social Security, and its pay-as-you-go structure, has worked for as long as it has because of the taxes collected on women's wages.

In 1940, about the time Social Security was structured, women made up about 25 percent of the work force. Today women constitute 46 percent that means about 60 percent of women are now working and paying payroll taxes. Even so, the country's demographic changes have led to a looming crisis. In 1940, there were 42 workers per retiree; now there are a little more than three soon there will be only two. Thus, if women had not gone into the work force and paid the taxes, Social Security would have gone broke decades ago.

Nevertheless, the demographic dilemma remains, due in part to the fact that both men and women are living longer and are therefore collecting benefits longer. In 1940, only about 54 percent of males and 61 percent of females even lived to age 65. And on average males could expect to live to collect benefits for only 13 years. For women the number was only slightly better at 15 years. Today, almost 76 percent of males and 86 percent of females live to age 65, and on average men can expect to collect benefits for 16 years and women for 20 years.

Yet while women entering the labor market have helped sustain the current system, they have received little in return. This is largely because Social Security's benefit structure is a relic of a different age. Back in 1940, when the ratio was 42 workers to a single retiree, the traditional household consisted of a husband working for wages and a wife working without compensation at home. Congress knew this household structure well, approved of it, and privileged it when setting up the benefit structure. Spousal benefits, usually for the wife, would amount to 50 percent of the husband's primary insurance amount. Thus a retiring couple would enjoy 150 percent of the single earner's benefit.

How was the system going to be able to sustain a benefit for a person who had never contributed to Social Security? The answer is clear in the records of the committee who recommended the funding structure to Congress. Taxes collected from young women before they married and from the occasional wages of working wives would be captured in the system to pay for these expanded benefits. From the very first, spousal payroll taxes were not connected to spousal benefits.

This calculation has led to other ironies. Now we have the majority of married households consisting of two earners. The return on the taxes contributed by the second earner, usually the wife, is marginal to insignificant. Both earners' wages are taxed from the first dollar to the maximum amount ($80,400 in 2001). Thus the second earner increases the couple's tax liability substantially, while the increase to their combined benefits is minimal. In the case of a high-wage husband and an average-wage wife, the increase in taxes due to the wife's working is about 43 percent, while the increase in the couple's benefits due to her working is only 1 percent.

Public officials 60 years ago could not fathom the major social change of the 20th century women's participation in the work force in unprecedented numbers. The point is that the assumptions upon which Social Security was conceived and its administrative procedures structured are no longer true. In fact, only 22 percent of married couples live in the former idea of a traditional household, in which only the husband works outside the home. What we have is a serious disconnection between this country's social insurance and its social structure.

Unfortunately, we have only a little time to make it right. By every responsible estimate, Social Security will have to begin drawing down on its Trust Fund in 2016. We must seize the opportunity to strengthen and modernize Social Security so we will not be forced to make decisions in the future that will affect current and soon-to-be retirees. It needs to be emphasized that no current retiree, nor anyone retiring before 2016, will be affected if we choose to reform the system.

Conversely, if we do nothing, not only will we face the real possibility of having to raise taxes and cut benefits, but we will also be deciding to continue the inequities and unfairness of the current system.

Celeste Colgan is director of the National Center for Policy Analysis' project on Women in the Economy.


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