Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, March 20, 1991 TAG: 9103200488
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: EVENING
SOURCE: WALTER R. MEARS/ ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium
That may present the White House with a dilemma this spring. An unlikely assortment of Democrats, conservative Republicans and business interests will be pushing for a cut in Social Security payroll taxes, and the administration opposes the move.
For Democratic leaders, the issue may offer an opening to renew the debate over tax fairness. The payroll tax weighs more heavily on low- and middle-income wage earners than on the wealthy because it is imposed at a flat rate on a maximum of $53,400 of income.
And sponsors in both parties are pushing the cut as an anti-recession measure, saying it would stimulate consumer spending and jobs.
Opponents, in and out of the administration, counter that cutting revenues now will force other tax increases later. They also argue that the move could threaten future Social Security benefits.
But Sen. Daniel Patrick Moynihan, D-N.Y., chief sponsor of the tax cut, says the real threat lies in continuing to collect much more than Social Security needs for current beneficiaries and putting the money into other government programs simply by borrowing it.
It is a replay of an argument that began last year, under new ground rules. Along with the tax reduction, Moynihan had proposed that the government stop counting Social Security surpluses as an offset against annual deficits, making the budget shortfalls look smaller than they really are.
The Social Security payroll tax will raise at least $63 billion more than the $266 billion the system is expected to pay out in benefits this year.
The tax cut failed in 1990, but the new budget system does take Social Security revenues out of the deficit arithmetic. There's more to that than bookkeeping - politically, taking Social Security out of the budget and deficit calculations provides extra insurance against attempts to cut or freeze benefits as a way to cut deficits.
It also means that a reduction in the Social Security tax won't show up as an increase in the federal deficit. Under the deficit limits set in the budget agreement, spending increases or tax reductions have to be balanced by program cuts or revenue boosts elsewhere. With one major exception.
"The Social Security tax is the one tax we can cut without offsets," Moynihan said as he introduced his bill to do it. "We don't need the money for Social Security. So let's give it back to the workers who earned it and need it. It's just not fair to keep it for other government expenses."
It goes into other expenses because the surplus goes into the Treasury in exchange for government bonds, becoming part of the national debt. Those IOUs are to be cashed in when Social Security surpluses end and the system needs the money to pay for benefits, in about 2015.
But as a conservative analyst observes, that overlooks the question of where the government will get the money to redeem the bonds 25 years from now." In fact, the only way that the government can provide funds to redeem Social Security IOUs is to cut spending, raise taxes or increase borrowing," says Daniel Mitchell, a tax and budget specialist at the conservative Heritage Foundation.
The Social Security tax is 7.65 percent of the first $54,300 in earnings. That includes 1.45 percent for Medicare. Employers pay at the same rate for each worker.
Republican sponsors of the tax cut plan have issued an economists' appraisal saying that its enactment would lead to the creation of 299,000 new jobs during the next decade.
Moynihan's measure would cut the tax rate by 1 percent on both workers and employers by 1996. At the same time, the wage base subject to the tax would go up annually, to $82,200 in 1996. So wealthier Americans will be paying the lower rate on a bigger portion of their incomes.
GOP co-sponsors are less enthusiastic about the latter feature than about the rate reduction, and hostile to other proposals for even sharper increases in the wage base. "Once again, the pro-envy crowd wants to sock it to the rich," said Sen. Robert Kasten, R-Wis.
Moynihan's measure was blocked on a 54 to 44 Senate vote last Oct. 10; it would have taken 60 votes to waive the budget law requiring action to offset any tax cut.
This time a majority will be enough to approve the cut and push the issue back up the political agenda.
by CNB