TIME: Almanac 1993/TIME Almanac 1993.iso/time/012290/0122105.000

Text File | 1992-08-28 | 5.7 KB | 123 lines

                                                                                NATION, Page 26

Read Those Lips: More Taxes


Moynihan puts Bush in a bind over Social Security

By DAN GOODGAME


    Welcome to 1990: millions of American workers have by now
ripped open their first pay envelope and discovered an
unpleasant surprise: their take-home is less than it was in
December. Reason: that line on the check stub labeled FICA,
better known as Social Security, is taking a bigger bite than
ever. A wage earner making $51,300 or more this year will pay
the maximum $3,924 in Social Security taxes -- $320, or nearly
9%, more than in 1989.

    In fact, 3 out of 4 Americans now pay less in federal income
taxes than in Social Security taxes (including their employers'
matching contributions, which indirectly come out of workers'
pay). Since a 1983 "reform" of Social Security, both the tax
rate and the maximum income subject to tax have risen rapidly,
ostensibly to set aside a fund for future retirees. For most
wage earners, these rising FICA deductions have gobbled up more
money than was saved by Ronald Reagan's popular cuts in income
taxes. Since 1980, total federal tax collections remain
virtually unchanged at 19% of national income.

    The latest hike in the Social Security levy is scrambling
Washington's political alignments. Democratic Senator Daniel
Patrick Moynihan, a New York liberal, proposes to roll back the
Social Security tax from the current 7.65% to 6.55% over the
next two years, a plan that would save $600 for workers paying
the maximum amount. Moynihan would return the retirement system
to a pay-as-you-go basis rather than piling up surpluses ($52
billion in 1989) that are diverted to finance other Government
programs and cover up the full size of the federal deficit.

    The Senator's plan has rapidly attracted support among
Republican as well as Democratic lawmakers, business interests
and conservatives. Meanwhile, the President, whose lips usually
read "No new taxes," has come out against the proposal,
claiming that it endangers the Social Security checks of future
retirees -- to say nothing of the $55 billion it would require
Washington to find in spending cuts or new revenues in 1991.

    Bush thus finds himself defending the Social Security tax
increase while getting pummeled by Moynihan and his allies.
Watching this spectacle unfold last week, Bruce Thompson, a
Merrill Lynch executive who helped slash taxes as a senior
Treasury official during the Reagan Administration, chuckled
and noted that "not in ten years have you seen headlines read
WHITE HOUSE REJECTS TAX CUT."

    The President's stance is even shakier, given his campaign
to cut the rate on capital gains, a measure that would mostly
benefit taxpayers earning more than $200,000 a year. The
President, along with probable majorities on Capitol Hill, in
effect proposes to cut taxes on the wealthy while raising them
on wage earners.

    Addressing the Cincinnati Chamber of Commerce last week,
Bush made his usual pitch that lower capital-gains taxes would
encourage investment. He pointedly failed to mention Social
Security taxes. But the Cincinnati group's parent organization,
the U.S. Chamber of Commerce, endorses lower taxes for both
capital gains and Social Security, as do the National
Federation of Independent Businesses and the conservative
Heritage Foundation, Bush's favorite think tank. Says Donald
Leavens, a budget expert for the U.S. Chamber: "How can you go
against such a good idea? It's populist, and it will do a lot
for economic growth."

    Whatever the fate of Moynihan's proposal, it promises to
enliven a long-muddled national debate on who gives and who
gets in the U.S. tax system. Reversing his earlier support of
the 1983 Social Security reform, Moynihan is confronting two
powerful myths perpetrated by Washington tax writers.

    -- Myth No. 1 is that Social Security revenue ($309 billion
this year) is reserved exclusively for Social Security, the
bulk of it in trust for the next generation of retirees. Much
of it is not. The money pays Social Security benefits now due,
and the surplus (projected to reach $75 billion in 1991, rising
to $236 billion in the year 2000) is "borrowed" to finance the
whole gamut of federal spending, from nuclear missiles to
salaries for Head Start teachers. "With or without a payroll
tax cut, there will be no Social Security fund surplus," says
Stephen Moore of the Heritage Foundation. "All that is in the
`fund' is a stack of IOUs from the Treasury."

    When those IOUs come due as the baby boomers retire, the
Government will have to raise income taxes or cut retirement
benefits, regardless of whether surplus FICA taxes were
collected years earlier. The only question is how progressive
a tax system Americans want in the meantime.

    -- Which leads to Myth No. 2: that most Americans have
benefited, at least a little, from the income tax cuts of the
past decade. In fact, as their income tax savings have been
offset by rising Social Security levies, wage earners have been
stuck with an unfair tax that exempts income over a certain
ceiling (now $51,300) and in effect taxes workers at a higher
rate than factory owners.

    In his State of the Union message later this month, Bush
will present his own plan, closely guarded so far, to gradually
stem the Treasury's reliance on Social Security revenue. Still,
some of his senior aides are worried that the White House
proposal will prove no match for Moynihan's scheme, which one
presidential aide described as "artful and attractive by any
standard." As Bush should know, it's tough to beat a tax cut,
especially in an election year.