Pandering to the Notch Babies

July 08, 1992

Voters have indicated in any number of recent polls that they are fed up with the way things are done in Washington, but some members of Congress don't seem to get the message.

The decision by a small group of House members to possibly jeopardize the urban-aid bill and the future solvency of the Social Security system over perceived inequity in benefit payments to a small group of retirees clearly illustrates why the American people are so riled up.

The issue concerns the so-called "Notch Babies" -- retirees who were born between 1917 and 1921 -- and a perceived disparity in their benefits. In 1977, Congress created this "notch" group when it changed the Social Security benefit structure. At the time, the system's cost-of-living formulas were over-compensating for inflation. Had the trend continued, the Social Security system would have been bankrupted.

Congress corrected the formulas by creating three different groups of people -- those born before 1917, those born in 1917 through 1921 and those born after 1921. The intention of Congress was not to reduce existing Social Security payments to retirees but to reduce the size of future increases. One of the unintended results was to create a seeming inequity for the middle, or "notch," group.

A "notch baby's" monthly check is slightly smaller than a retiree born in 1916 with a similar earnings history. Despite their protestations, the notch babies are not being short-changed. The fact is that there is a group of "bonanza babies" that received a windfall.

Led by Massachusetts Democratic Rep. Barney Frank, a few members of Congress propose to correct the problem by increasing the benefits to the "notch babies." The cost to the Social Security system is estimated to be as much as $300 billion -- yes, $300 billion -- over the next 30 years.

Their proposed solution smacks of fiscal irresponsibility of the highest order by jeopardizing the future benefits of the "Baby Boom" generation, which is now paying the benefits of current Social Security recipients.

It is important that people be treated fairly in the Social Security system, but it is not clear that the notch babies are being victimized. Their benefits may not be as great as older retirees, but they are greater than people born after 1921.

If Congress is serious about correcting inequities in the Social Security system, there is a better way to do it: reduce the burgeoning federal deficit by thinking about taxing all Social Security benefits as regular income. Under the U.S. tax code, persons dependent wholly or almost wholly on what they get from Social Security would not be affected. Only the affluent elderly would feel it.

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