House OKs tax cut on Social Security

20% of retirees would be affected

July 28, 2000|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - Republicans won easy House approval yesterday for a plan to cut taxes on Social Security benefits, providing relief to retirees with annual incomes above $34,000.

The 265-159 vote did not reflect enough support to overcome a threatened presidential veto, but 52 Democrats joined with the nearly unanimous Republicans to back the latest addition to the GOP election-year tax cut package, thereby boosting its prospects of becoming law.

"We're saying these are good, commonsense tax cuts for the American people, they ought to be signed, there's no excuse," House Speaker Dennis Hastert told a GOP rally as lawmakers prepared to leave town for their five-week summer recess.

The measure would reduce taxes paid by individuals with annual incomes above $34,000 and married couples with annual incomes above $44,000. They would pay taxes on 50 percent of their Social Security benefits - the pre-1993 level - instead of the current 85 percent.

Under the bill, more than 8 million older Americans with incomes above $34,000 - about 20 percent of all beneficiaries - would see an average tax savings of $1,180.

Three of four Maryland Republicans supported the Social Security tax cut. Montgomery County Republican Constance A. Morella voted with the state's four Democrats against it.

Final action on the measure by the Senate, and probably end-of-the year bargaining with President Clinton, is required before it can become law. Meanwhile, the bill - along with GOP efforts to end the estate tax and cut taxes for married couples - is sure to be political fodder at the Republican and Democratic presidential conventions in the next three weeks.

Clinton complained yesterday that the Republican-led Congress has spent much of the year passing "reckless tax cut after reckless tax cut" while failing to act on issues such as a patients' bill of rights or gun control. "We believe the congressional Republican leadership is leaving town with a trunk full of unfinished business," Clinton said at the White House.

"We're here to right a wrong. It's time to repeal this tax," declared House Ways and Means Committee chairman Bill Archer of Texas. "It's unfair, it's unnecessary, and it harms the retirement of millions of seniors now and for years to come."

The GOP bill would repeal the tax increase imposed in 1993 at Clinton's behest to reduce the federal budget deficit. Since 1993, a $255 billion annual deficit has been transformed by the booming economy into a surplus estimated at $233 billion this year, including Social Security revenues. Republicans said the surplus removes the justification for applying taxes on 85 percent of benefits.

Clinton and the House Democrats complained that this latest GOP proposal, like the earlier tax cut measures, is aimed at helping the richest Americans at the expense of other government programs.

They contend that the shortfall in revenue caused by the GOP tax reductions will force the government to use up its budget surplus and risk the return of a federal budget deficit.

"The Republicans have gone on a gambling junket with America's surplus," said House Democratic Whip David Bonior of Michigan.

Clinton has threatened to veto the Social Security tax bill unless it is sent to him as part of a broader budget deal that would use a portion of the budget surplus for some of his priorities.

Democrats offered an alternative proposal that would deny relief to beneficiaries who earn over $80,000 a year. They say their plan would be $40 billion cheaper over ten years than the $117 billion ten-year price tag on the Republican measure.

"We're talking about the most affluent five percent," said Rep. Earl Pomeroy, a North Dakota Democrat, referring to those Social Security beneficiaries who would not be helped by the Democratic proposal. "We don't think they need the break as badly as other areas where we could spend the money."

Republicans fired back that Democrats couldn't bear the idea of giving up a tax source.

"The American people are taxed too much," said Rep. Randy "Duke" Cunningham of California. "We want to give some of their money back. It's not our money."

If enacted, the GOP bill would reduce but not entirely eliminate taxes on Social Security benefits, which have been imposed since 1983. Individuals with incomes in excess of $25,000 a year, and couples with incomes above $32,000, would continue to be taxed on 50 percent of their Social Security benefits.

Republicans argued the extra money was no longer needed to help make up the deficit. They also contended that taxing Social Security benefits is bad policy because it discourages workers from accumulating private savings for retirement and penalizes older Americans for continuing to work because boosting their incomes would increase their tax burden.

"This tax tells Americans not to save, or they will have their Society Security Benefits taxed," said Texas Republican Pete Sessions.

The 1983 tax on Social Security benefits was imposed as part of an effort to shore up the fund that pays the benefits, which was then in danger of going bankrupt. Money from the additional tax imposed in 1993 on more affluent retirees was earmarked for the Medicare program, which has also faced financial difficulties.

Republicans said they had protected Medicare in their bill by making up for money lost from the tax with surplus revenue from other sources.

But Democrats complained that without a guaranteed revenue source Medicare may lose out if the economy takes a downturn and the projected surplus does not materialize.

"These projections may not come true and then where will we be," House Democrat Leader Richard A. Gephardt asked his colleagues. "We can do a big piece of this tax cut if we don't give it to the higher rollers, if we are not so obsessed with giving huge amounts of money to richest people in this country."

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