Clinton's Test of Courage On Tax Policy Comes Early

POLITICAL operatives commonly refer to the subject as the "third rail" of American politics, in reference to the dangerous electric current-carrying subway track.

Sen. Daniel Patrick Moynihan (D) of New York called it a "death wish" on television Sunday.

But President Clinton and his aides have telegraphed that one deficit-control option they are studying is cutting benefits or raising taxes on Social Security benefits. The economic package Mr. Clinton will announce Feb. 17 is shaping up as a test of courage, followed by a similar test of salesmanship.

But Clinton needs to find some money somewhere. The economic package Clinton will announce is expected to include $31 billion to stimulate growth and investment, and to repair roads and bridges. But it will also include a plan to reduce the deficit.

That translates into some Americans either paying more money, receiving less, or both. He telegraphed this in his inaugural address by warning of the need for sacrifice.

Entitlements - payments that automatically go out to the poor or the elderly every year - are the biggest ticket items in the federal budget. Medicare for the elderly and Medicaid for the poor are the fastest-growing budget categories. Together they will surpass defense spending a few budgets hence.

Social Security spending is close to surpassing the defense budget. But it stands separate from other spending. Social Security taxes go into a trust fund from which benefits are paid.

Unlike the federal budget, the Social Security Trust Fund is in surplus. Although most Americans draw out far more from Social Security than they ever contribute, a growing economy and mushrooming work force keep the fund sound.

The two major options that have leaked from Clinton administration councils are freezing or reducing cost-of-living adjustments for Social Security benefits and raising taxes on benefits for high-income retirees.

Clinton is caught in strong political crosscurrents. The primary issue for people who voted for Ross Perot - 19 percent of those who voted in the latest presidential election - is cutting the deficit. Yet domestic spending cuts, and entitlement cuts in particular, are not popular with Clinton's constituency, the 43 percent of the vote that he carried.

"The real political question is whether he can hold his core Democratic base vote," says Mark Siegel, a Democratic consultant and former executive director of the party's national committee.

While Clinton's call for sacrifice will almost certainly be unpopular when he makes it specific, says Mr. Siegel, it can potentially become an inspiring case of leadership if Clinton makes a persuasive and principled case.

The key to whether his supporters accept sacrifice is whether they see it as fairly and widely shared among groups, Siegel says, and that "those who can most afford it are sacrificing most."

In this role, Clinton will need to play against type a bit. He has a reputation as a skilled conciliator, but not as a tough decisionmaker. If he decides to wring some significant savings from Social Security or Medicare, he will face "a lot of gnashing and wailing," as Progressive Policy Institute president Will Marshall puts it.

Celinda Lake, a pollster who advised the Clinton campaign last year, says that cutting cost-of-living adjustments would be a hard sell. People see those adjustments as fair and cuts as harmful to the elderly.

But the public might be more receptive to raising taxes on the elderly, she says, "if you restrict it to the upper incomes, and you have to be very clear about what upper incomes are."

Those with retirement incomes at least as low as $50,000 are seen as well-off by middle-class voters, she says, and Clinton could probably reach that low with a tax hike without major political damage. More than 1 in 10 Social Security recipients have incomes above $50,000.

That group already pays taxes on their Social Security benefits amounting to about 12 percent of their benefits, which contributes less than $5 billion into the treasury. The current annual budget deficit is $327 billion.