Hasty Retreat

Congress fears a tax revolt courageous act," declared Jimmy Carter last December when Congress voted to hike Social Security taxes by $227 billion over the next ten years, the largest peacetime tax increase in U.S. history. Said House Speaker Tip O'Neill approvingly. "If I've ever seen an issue that's a Democratic issue, this is it."

Since then, angry constituents have deluged Congressmen and Senators with phone calls and mail, and now the legislators' courage is running out, particularly among those up for re-election this fall. Last week, in a sudden about-face, the House Speaker became the leader of the retreat. Observed a Democratic House aide: "I've never seen O'Neill run so fast. He simply panicked."

The tax increase was needed to rescue the Social Security system, which was rapidly going bankrupt. But the boost outraged many Americans, especially those who pay the maximum levy for Social Security ($1,071 this year) and resent the fact that they are paying an increasingly large share of the nation's taxes. According to the Treasury Department, the most affluent households--those with annual earnings of $17,000 or more--received half of the nation's personal income in 1976 but paid 70% of all federal, state and local taxes, up from 68% in 1970. Next year the maximum Social Security tax paid by both employers and employees is scheduled to jump $333, to a total of $1,404 apiece, and will be followed by hefty additional jumps each year, to a total of $3,046 for each in 1987.

Carter's proposed $25 billion cut in income taxes would offset next year's Social Security increase. But anxious Congressmen and Senators feel they cannot wait until the bill reaches the floor of the House, probably by June. Last week O'Neill urged the White House to take the initiative in rolling back the Social Security tax boost. Said he: "They had better move, because if they don't, Congress will." Afterward, Presidential Aide Stuart Eizenstat asked the Treasury Department to submit a list of alternative revenue sources to Carter this week. Said a Treasury official: "The issue is in his lap now. It would be foolish to ignore the obvious political signs." Nonetheless, Carter last week was resisting the pressure from O'Neill. The President told reporters that he wanted to prevent "opening the entire issue again."

One of the approaches being considered in Congress is a Democratic proposal to stop using Social Security revenues to finance Medicare and federal disability insurance. Their budgets total $36 billion a year, about one-third of Social Security tax collections, and these benefits have been shooting up in cost. The Democrats, led by Wisconsin Senator Gaylord Nelson and Illinois Representative Abner Mikva, would pay for these programs from general federal revenues. Massachusetts Congressman James Burke, the chairman of a House subcommittee on Social Security, has proposed that one-third of the Social Security system's cost be paid from general revenues. This change would lessen the tax bite on most Americans" paychecks. The reason is that the Government's general revenues come chiefly from income taxes, which are assessed more broadly than Social Security taxes. For instance, most Government workers do not participate in the Social Security system; nor are taxes for it levied on income from investments. Whatever approach is finally adopted, change seems inevitable. Even House Ways and Means Chairman Al Ullman, a supporter of the Social Security tax hike, concedes that a share of the increase scheduled to begin next year is as good as dead.

This file is automatically generated by a robot program, so viewer discretion is required.