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GOP Plan to Recast Social Security: Break for the Elderly or Wealthy?

Bill encourages seniors to work, taxes lower percentage of benefits

RICHARD THAU is 29 years old, but he already spends a lot of time worrying about his retirement.

Mr. Thau is president of Third Millennium: Advocates for the Future. Based in New York City, the group promotes timely action on brewing domestic problems. One such problem is the Social Security system's projected bankruptcy by 2029.

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The system is now running surpluses. But it faces a rapid depletion of funds as more and more baby boomers reach retirement early in the next century.

``The system will hit deficit spending in 2012 and run out of money in 2029,'' Thau says. ``This means my children and grandchildren will have to bail out the system just at the point that I'm retiring.''

But for all his concerns about Social Security, Thau is skeptical about changes that the new Republican majority is committed to adopting in the first 100 days of the 104th Congress.

Republicans say that tax cuts and other provisions of the ``Senior Citizens Fairness Act,'' the seventh of 10 planks in their ``Contract With America,'' will ease older Americans' financial burdens and encourage those who wish to continue working.

The act is projected to cost about $25 billion over five years in lost tax revenues and higher benefits. But Republicans have not said how they will fund the bill, shrink the federal deficit, and achieve a balanced budget by 2002.

Nor does the act address Social Security's long-term solvency. House Speaker-to-be Newt Gingrich (R) of Georgia says a debate on how to avert a crisis in the system will not be held for at least five years. The Clinton administration also appears to have opted for delay.

Republican leaders assert that their plan will help seniors, while stimulating the economy and reducing the federal government's power. Thau and other opponents say it will just deepen the deficit and force cuts in Medicare, which is funded by one of the Social Security trust funds, while helping only a relative handful of well-off seniors.

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``This has less to do with senior citizens than it has to do with helping the wealthy,'' says Patrick Burns, a spokesman for the National Council of Senior Citizens, which has major reservations on the proposal.

Critics charge that the plan is aimed at securing support for the 1996 GOP presidential campaign among a section of the citizenry that votes in large numbers.

Indeed, the measure could pose a political bind for Democrats. If they oppose the tax cut, they might lose votes. But supporting it could hurt their own deficit-reduction efforts and expose them to charges of deserting lower-income seniors.

The centerpiece of the GOP proposal is the repeal of a 1993 Clinton administration measure that raised the amount of Social Security benefits on which higher-income seniors are taxed.

The measure required that couples with annual incomes of $44,000 or more and individuals with annual incomes at or above $34,000 pay taxes on 85 percent of their Social Security benefits. The GOP plan would return over five years to the 1983 tax level of 50 percent - a move with an estimated cost of $17.2 billion in lost revenues by 2000.

Another provision of the proposal would raise from $11,000 to $30,000 over five years the annual income that seniors aged 65 to 69 could earn without a Social Security benefit reduction.

The provision aims to encourage continued employment among fixed-income seniors who drop out of the labor force. A new Congressional Budget Office estimate says the provision would cost Social Security almost $5 billion more in benefits by 1999.

But Rep. Dennis Hastert (R) of Illinois, the provision's chief advocate, disputes that forecast.

``If we took the earnings test off, we find that there are 700,000 people who would go back to work; they create $15 billion in economic activity and the accrual back to the federal government is $3.2 billion net,'' Mr. Halstert told the Monitor.

A third provision of the GOP plan is designed to help people over age 59 to purchase long-term private health care. It would allow tax-free withdrawals from Individual Retirement Accounts and other pension plans for the purchase of long-term insurance.

Republicans contend that this would help seniors meet any heavy costs of care. But opponents say it would help only upper-income elderly and directly benefit private health insurers and care providers.

Under the act's final provision, a community could be designated a ``retirement community'' if 80 percent of its dwellings were occupied by at least one person aged 55 or older. The designation would permit the community to exclude children and adults without breaking fair-housing laws.

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