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- <text id=90TT0183>
- <title>
- Jan. 22, 1990: Read Those Lips:More Taxes
- </title>
- <history>
- TIME--The Weekly Newsmagazine--1990
- Jan. 22, 1990 A Murder In Boston
- </history>
- <article>
- <source>Time Magazine</source>
- <hdr>
- NATION, Page 26
- Read Those Lips: More Taxes
- </hdr>
- <body>
- <p>Moynihan puts Bush in a bind over Social Security
- </p>
- <p>By Dan Goodgame
- </p>
- <p> 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.
- </p>
- <p> 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.
- </p>
- <p> 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.
- </p>
- <p> 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.
- </p>
- <p> 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."
- </p>
- <p> 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.
- </p>
- <p> 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."
- </p>
- <p> 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.
- </p>
- <p>-- 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."
- </p>
- <p> 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.
- </p>
- <p>-- 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.
- </p>
- <p> 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.
- </p>
-
- </body>
- </article>
- </text>
-
-