Saving Social Security

To do it, Americans mil pay $227 billion by 1987

House Republican Whip Robert Michel of Illinois exclaimed last week: "This is the biggest tax bill we've ever passed--bar anything! People out in the country are disturbed and incensed." Confided Illinois Republican Representative John Anderson: "A lot of fellows are worried about defending this bill in the fall campaigns."

But despite the concern about political consequences, there was considerable satisfaction among Republicans as well as Democrats that Congress had finally agreed on legislation to restore the Social Security system's financial health. The cure--tax increases amounting to $227 billion over the next ten years--passed the Senate by a vote of 56 to 21 and the House by 189 to 163. Declared a pleased Jimmy Carter: "It's a good resolution of a very serious problem."

The alternative to passing the bill was letting Social Security go bust. Billions in revenue have been draining out of the system since 1975, primarily because of high unemployment and increases in benefits to keep up with inflation. In fiscal 1977 the deficit ran to $5.6 billion, v. system reserves of $46.1 billion. Without new revenues, the system was expected to go bankrupt in the early 1980s.

To take some sting out of the bill, Congress postponed the big tax increases until 1979. This year the Social Security tax rate was 5.85% on the first $16,500 of an employee's wages (earnings above that are not taxed for Social Security). This meant that the maximum payment for workers and bosses was $965 each. Under the old law, the maximum tax was already scheduled to rise next year to $1,071. The bite under the new law will begin in 1979, when the maximum payment will be $1,404 on a salary of $22,900. By 1987 it will be $3,046 on a salary of $42,600. Workers earning $10,000 this year paid $585 in Social Security taxes; by 1987, they will pay $715. People who earned $20,000 this year paid $965 to Social Security, but will shell out $1,430 in 1987.

To get the bill passed and themselves home for Christmas, Senators dropped an amendment sponsored by Delaware Republican William Roth to give parents a $250 tax credit for each son or daughter enrolled in college. Roth finally bowed to intense pressure, much to the relief of Republican Leader Howard Baker, Democratic Leader Robert Byrd and Senate Finance Committee Chairman Russell Long. Said Roth: "I fought the good fight, but there will be another day."

Many economists fear the legislation could be a staggering blow to the economy, which is already burdened with an unemployment rate of 6.9% and inflation of 6.5%, and is expected to face some trouble in 1979. Said Thomas Dernburg, senior economist for the Congressional Joint Economic Committee: "The vote was an amazing mental flipflop. No one would consider raising the income tax with the economy in this state."

The Social Security increases could be a major barrier to bringing down the unemployment rate. The new taxes will add enormously to the cost of hiring additional workers, especially for jobs paying close to the minimum wage (which will reach $2.90 an hour by 1979). Certainly consumers will have to pick up at least part of the employer's share of the new taxes in the form of higher prices. By 1981 the additional Social Security taxes will amount to almost $20 billion annually --just about the size of the tax cut that President Carter will recommend next year as a spur to the economy.

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