Close Call for Social Security

By Susan Tifft

A bipartisan commission hammers out compromise measures

For the bipartisan National Commission on Social Security Reform, the race to meet its Jan. 15 deadline for agreement on proposals to save the ailing Social Security system was a photo finish. "You may be collecting your Social Security before we finish this commission, but I assure you it will be there when the time comes," quipped Democratic Senator Daniel Patrick Moynihan of New York as he entered Blair House, the capital's official guest residence for visiting statesmen, where the eleventh-hour negotiations took place. Administration officials, led by White House Chief of Staff James Baker, conferred on and off with various combinations of commission members throughout the panel's last official day of existence. The group finally reached a compromise agreement that satisfied a majority of the commission's 15 members and had the blessings of the President and Thomas P. O'Neill, Speaker of the Democratic-controlled House, several hours short of midnight. Said a tired but pleased Alan Greenspan, a Republican economist and chairman of the commission: "All of us swallowed hard."

The negotiations had become deadlocked over the proper mix of tax increases (generally favored by Democrats) and benefit cuts (generally favored by Republicans). The final days of deliberation had all the hallmarks of shuttle diplomacy. A coterie of four prominent commission members, Republican Senator Robert Dole of Kansas, Moynihan, Republican Congressman Barber Conable of New York and former Social Security Commissioner Robert Ball, huddled repeatedly with Baker, Budget Director David Stockman and other Administration officials to hammer out a package of compromises. Half a block away, at the commission's offices, five conservative members, headed by Republican Senator William Armstrong of Colorado, chairman of the Senate Social Security Subcommittee, held sessions aimed at countering the emerging accord, which, they charged, relied too heavily on new taxes and too little on spending cuts. Greenspan, who had assumed the role of mediator in the panel's past imbroglios, scurried between the two camps, urging concessions. Armstrong, Republican Congressman Bill Archer of Texas and Democratic former Congressman Joe Waggoner of Louisiana were the only members to oppose the final agreement. "Increased taxes account for 75% of the deficit reductions," fumed Armstrong.

The reform package put together by the commission working group and Administration officials would produce $169 billion in revenue, enough to keep the system solvent through the 1980s. A key provision would accelerate hikes in the 6.7% payroll tax, to 7% in 1984; to 7.15% in 1986; 7.5% in 1988; and 7.65% in 1990. This is expected to raise an additional $40 billion in revenue from 1983 to 1989. Late in the negotiations, however, a major snag developed over a companion provision that would give workers an offsetting income tax credit for these extra payments in 1984. "The tax-credit idea is about the poorest part of this proposal," said Senator Armstrong, who denounced it as deficit deepening.

President Reagan, who as recently as three weeks ago refused to indicate his specific preferences for Social Security reforms, sent the panel a long-awaited, though faint, signal that helped win Republican support for the tax speedup. In a speech to the Commonwealth Club in San Francisco, Chief of Staff Baker said that the President, despite his "abhorrence" of tax increases, "might consider some acceleration" of the already scheduled payroll tax hikes in exchange for a slowdown in benefits. The statement freed congressional Republicans on the commission, who up till then had been in an impossible position: if they recommended tax increases denounced by Reagan, they would have had to defy the President or later repudiate in Congress their own commission proposal.

Other compromise recommendations include a provision to bring all new federal employees into the system starting in 1984; nonprofit organizations, which now may elect not to participate in Social Security, will also be covered. The new contributors are expected to generate $20 billion in revenue. Also starting in 1984, half of Social Security benefits will be treated as taxable income for all individuals whose annual incomes exceed $20,000 or couples above $25,000, a move expected to raise $30 billion. Self-employed people, who now pay into Social Security at a rate of 9.35%, only three-fourths the total assessed for employer and employee combined, will pay the full rate. This will net $18 billion. The self-employed, however, will get an income tax credit. On the benefits side, the commission agreed to delay until Jan. 1, 1984, the cost of living increase scheduled for July 1, 1983, a change that will save the system about $40 billion.

Over the next 75 years, according to commission estimates, Social Security faces a deficit of $1.6 trillion, a byproduct of the "baby boom" generation's reaching its retirement years. One long-term recommendation included in the compromise package would slowly increase the bonus for delaying retirement over a 20-year period, starting in 1990.

The commission's recommendations are expected to be incorporated into the President's fiscal 1984 budget and his State of the Union address, both scheduled for late January. Legislative debate, which begins Feb. 1 in the House Ways and Means Committee, promises to be fierce. The report, says an aide to House Speaker O'Neill, "is not the end of the game by any means. Any scheme will be hotly debated and tested." Federal employee unions have already launched a campaign against the inclusion of Government workers in the Social Security system, which is less generous than their own retirement system. Business and labor lobbies are expected to try to overturn the advanced increases in payroll taxes, contending that employers and workers are already overburdened with taxes. Senior citizens groups may protest the slowdown of benefit increases. Whatever the pressures on Congress, something must be done to salvage the system before July 1, when it is scheduled to go bankrupt in the absence of remedial legislation.

--By Susan Tifft.

Reported by Hays Corey/Washington

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