Prospect fades for letup in '81 payroll-tax hike
The expected rollback of next year's hefty increase in social security taxes looks like another casualty of continuing double-digit inflation and recession. That is the clear consensus emerging here during the opening week of the second session of the 96th Congress.
If this widening support for the new taxes continues -- and it now includes both the Carter administration and the top leadership of Congress -- it will mean an added tax burden for virtually every American wage earner over the next several years.
At the same time, congressional analysts say, it could have an adverse impact on private pension plans, since many firms might be tempted to offset higher social security "costs" by reducing financial commitments to private plans.
Despite mounting calls from taxpayers and business groups for some form of relief from forthcoming increases -- costing taxpayers $15.4 billion in new assessments next year -- many lawmakers are believed to be leaning toward leaving the scheduled increases in effect, pending a comprehensive review of the entire social security system.
Such a reworking of the system, which would come only after a protracted and intensive legislative battle, would presumably address itself to the extent of benefits offered through the system, as well as new forms of tax revenue for the system, including consideration of both VAT (value-added tax) and general revenue. But that could well be a year, or even years, down the political road.
Bolstering the widening feeling that social security taxes might be left intact this year is President Carter's decision, expected to be repeated in tonight's State of the Union message, not to seek a tax cut in 1980.
The President is also expected to argue that if a cut is necessary later in the year, then -- but only then -- should Congress consider a moratorium on the 1981 payroll tax increase. Meantime, he is proposing legislation to allow the various social security trust funds to borrow from each other to protect the financial integrity of the system.
The odds of Congress's reducing the coming tax hike "are now reduced considerably," states Joseph A. Pechman, director of the economic studies program at the Washington- based Brookings Institution.
The reasons are twofold, Dr. Pechman says. "First, for fiscal reasons, Congress will need those revenues." At the same time, he says, there is strong opposition from both conservative and liberal lawmakers against "using general revenues to finance the social security system."
Moreover, using windfall oil profits tax money, which some lawmakers have proposed be used to offset the payroll tax, may be out of the question, since they have already been factored into revenues for next year's budget, Dr. Pechman notes. That budget will now be even higher than originally expected, because of increases in defense spending.
Next year the payroll-tax wage base will jump to $29,700, from $25,900 this year. the tax rate will climb to 6.65 percent, from 6.13 percent this year.
On Jan. 11 the National Commission on Social Security, a special study commission, came out against any rollback of next year's payroll tax. This was in sharp contrast to an analysis by the 1979 Advisory Council on Social Security , another national study team, which in December 1979 recommended that general revenues be used to offset the payroll tax to finance the medicare aspects of social security -- thus delaying the need for the 1981 increases.
Congress, despite support from the Carter administration, has so far refused to tap general revenues for the 44- year-old program, which now pays out monthly cash benefits to 35 million Americans.
The nation's two most politically active business lobbies in Washington, the National Association of Manufacturers (NAM) and the Chamber of the Commerce of the United States, are both seeking a rollback of the wage base to the 1979 level, which was $22,900.
Both groups oppose a rollback of the tax rate.
Eugene Hardy, a top official of the NAM, adds that if Congress were to jump aboard election-year demands for a tax cut, it is assumed that the administration "would not be able to hold the ranks" on Capitol Hill. Analysts say that if that were to happen, there is no telling what steps lawmakers might take this year to rework the system.