Soak the rich, not the elderly

Jim Sasser

February 09, 1993|By Jim Sasser

THE Clinton administration has hit the ground with a couple of pardonable stumbles, but in considering a freeze on cost-of-living adjustments for Social Security recipients it appears headed for a serious fall.

Yes, the deficit must be addressed and, yes, it will require sacrifice.

But no logic of equity or history dictates that sacrifice fall equally on the rich and poor alike.

Equity, in fact, says the reverse. And so does the sorry fiscal history that got us into the mess we're in.

The 1981 Reagan tax cut not only cost the federal Treasury $2 trillion to date, it also distributed its benefits disproportionately among the rich and the very rich.

Recently, the Congressional Budget Office confirmed that the wealthiest 1 percent of Americans today pay an effective tax rate that is 5.3 percent below what they paid in 1979.

An individual earning $1 million in 1979 would have sent $337,000 to the Treasury. In 1993 the same individual sends only $284,000.

Certainly, that's paying plenty. But keep in mind what happened the other 99 percent after the 1981 tax cut radically reduced the progressiveness of our income tax code.

Presumably to sustain the benefit structure of the threatened Social Security Trust Fund, we had a massive payroll tax increase in 1982 an increase that disproportionately affected those workers making less than the FICA tax ceiling of $52,000.

So, the 1980s gave us income-tax cuts largely at the top and payroll tax increases at the bottom.

The higher payroll tax was justified on the grounds that the Social Security benefits it finances are strongly weighted toward helping middle-income and poor workers.

But now we get a proposal that would close the story on a perverse note: to cure a deficit hemorrhage partly caused by the '80s shift from progressive income taxes to regressive payroll taxes, we are contemplating a freeze on the progressive Social Security benefits that purportedly helped correct income disparities.

In the '80s we cut income taxes on the rich and raised payroll taxes on the middle class. Now we are proposing to make up the difference by punishing elderly people on fixed incomes.

Such a policy violates the "new covenant" that brought the president to office.

I won't support the cost-of-living freeze and I don't believe we should be considering it or middle-income tax increases until we have first restored the tax share paid by those most able to afford it.

The Congressional Budget Office has calculated that, if the 1979 effective tax rate of 33.7 percent were still in place on the top 1 percent of Americans, we would be getting an additional $32.6 billion in 1993 revenue.

Over five years we could expect roughly $181 billion more in revenue if we restored the 1979 effective tax rate.

Let's be clear about what group we're discussing: The top 1 percent begins with single individuals making $161,364, families two making $206,492 and families of four making $324,083.

President Clinton has already proposed raising the cumulative tax rate on this group to 36 percent, but that would not get us back to equity.

The marginal rate could go higher but there are other ways to achieve our goal. For example, the wage cap on the Medicare tax could be eliminated. Right now only wages below about $130,000 are taxed. Why not above $130,000?

The nation has an almost sacred tradition of encouraging home ownership. But allowing interest deductions for mortgages of up to $1 million goes too far.

Mr. Clinton has proposed a 10 percent surtax on taxable income over $1 million. Why not lower it to $750,000?

All of these are rational, fair and effective alternative revenue sources.

Restoring the rich to their 1979 tax rate would bring in nearly four times as much as a freeze on Social Security cost-of-living adjustments, which would push roughly 500,000 senior citizens below the poverty level.

+ The choice should be clear.

Jim Sasser, Democrat of Tennessee, is chairman of the Senate 1/2 Budget Committee.

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