Clinton weighs extending tax on Social Security Outside income limits benefits

January 30, 1993|By Karen Hosler | Karen Hosler,Washington Bureau

WASHINGTON -- As President Clinton's economic program begins to take shape, it appears increasingly likely that he will call for higher taxes on Social Security benefits received by the 8 million Americans who have outside incomes.

The proposal is considered by many of the congressional leaders Mr. Clinton has consulted to be among the best of a bad lot of options for addressing the nation's deficit crisis, and it is on the short list of alternatives the president took with him this weekend for a economic strategy session at Camp David, Md.

Although raising taxes on Social Security benefits would spark an immediate outcry from the influential advocates for elderly Americans, it holds the dual appeal of fitting Mr. Clinton's theme of balanced sacrifice while also offering a substantial source of new revenue.

Currently, Social Security recipients who draw more than $25,000 a year in outside income -- or $32,000 for a couple -- pay income taxes on 50 percent of the Social Security payments they receive. If the amount of the benefits subject to taxation is raised to 85 percent, the government would collect an additional $6 billion in taxes a year, according to the Congressional Budget Office.

Rep. Steny H. Hoyer, the Marylander who chaired a two-day gathering of House Democrats in Baltimore that ended yesterday, said his colleagues much preferred this proposal to another alternative Mr. Clinton is considering: delaying for at least one year the annual cost-of-living increase for Social Security recipients.

"That would affect everybody, including people who have no other income and don't even pay taxes," Mr. Hoyer said of withholding the cost-of-living increase. "Increasing the amount of benefits subject to taxes would affect those best able to afford it."

Sen. Daniel P. Moynihan of New York, who chairs the Senate Finance Committee, served notice Thursday night that he regarded any attempt to freeze cost-of-living increases on Social Security benefits as "unacceptable." He said it would "push more than 300,000 persons into poverty next year."

But the senator recently indicated he was willing to consider an increase on the level of taxation on Social Security benefits.

Democratic Rep. Benjamin L. Cardin of Baltimore, who serves on the House Ways and Means Committee, said he thought it would be easier politically to raise money from the Social Security system on the tax side. He said discussions with constituents had shown that people expect to pay taxes on income, even though Social Security benefits come from a fund financed by contributions from workers and employers.

The notion of raising taxes on Social Security benefits has been floating around Capitol Hill for years. Both Mr. Clinton and Texas billionaire Ross Perot proposed it during the presidential campaign as a way to reduce the deficit.

But it has picked up greater momentum now because of the pressure on Mr. Clinton to find ways to cut the deficit at the same time that he is trying to stimulate economic growth.

The strong backing of Mr. Clinton's budget chief, Leon E. Panetta, is thought to have propelled the idea to the top of the president's options list.

"We know Panetta is very fond of this, always has been and never made any secret of it," said Evelyn Morton, a lobbyist for the American Association of Retired Persons. "Whether Congress will enact it, or whether it will even be in the president's package, we'll have to wait and see."

Ms. Morton's group takes the position that the Social Security system should not be part of Mr. Clinton's solution for the economy because it isn't part of the problem. The payroll tax that finances Social Security benefits is taking more in for the government than the benefits are taking out, she noted.

"If they want to raise taxes on rich, old people, why don't they just do that?" she said.

They will. Administration officials say Mr. Clinton's economic plan is virtually certain to include proposals he advanced during his campaign to raise income tax rates on couples earning more than $200,000 a year and add on a surplus tax for millionaires.

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