Social Security Cuts Risky For Clinton -- Increased Taxes On Benefits Eyed

WASHINGTON - It's the political issue from hell - expensive, complex and full of passionate intensity. It's the hole into which Bill Clinton seems intent upon jumping. It's the idea of tapping Social Security benefits to help close the federal deficit.

Depending on who's talking, President Clinton's willingness to reduce retirees' cost-of-living increases or raise the taxes on their benefits is a measure of his political courage or of his ignorance.

After backing away from a proposal to freeze Social Security cost-of-living adjustments for a year, the White House seems to be leaning toward another tactic: Expanding to 85 percent the taxable Social Security benefits to the wealthiest recipients, up from 50 percent now. These recipients are retired individuals with total earnings above $25,000 and couples who make more than $32,000. Congressional budget analysts say the move would raise an extra $29 billion over five years.

Some means of dipping into Social Security seems inevitable. Even opponents are beginning to discuss how - not whether - to make the shift.

"For all the noise, the fact is that we're actually talking about it, and nobody's been struck by lightning," said Carol Cox Wait, president of the Committee for a Responsible Federal Budget, a Washington group concerned about the federal deficit. At least not yet.

It's easy to understand why people get so worked up about Social Security. Forty-one million Americans - roughly 1 in every 6 - receive benefits every month.

"There's nothing rational about Social Security for Americans. It is a wholly emotional issue," said Stanley E. Collender, director of federal budget policy at the accounting firm Price Waterhouse.

Twenty-nine million recipients are elderly people; most of the others are disabled workers and their relatives. At least half of the recipients depend on their monthly benefit checks for half or more of their income.

"It's incredibly important to these people for their daily bread," said John Rother, legislative director for the American Association of Retired Persons, which is leading the charge against change. "They need their checks."

But more is at work than need. Polls show that Americans think they deserve the Social Security benefits they get. While welfare recipients are often thought to be sponging off the taxpayer, Social Security beneficiaries are seen as simply collecting what they paid for and are due.

Americans' convictions on this point have acted like a protective shield around the program, making it virtually impossible to talk about change without setting off a political uproar.

Indeed, as originally conceived, Social Security was supposed to work on a pay-as-you-go basis. While any one individual might not contribute the cost of the benefits he or she received, each generation was expected to pay for its own retirements.

But almost from the outset, Congress expanded the program so that by now almost no one in the current crop of retirees can be said to have earned his or her benefits. With few exceptions, the most that current recipients can claim is to have contributed about two-thirds of what they will collect.

The options open to Clinton are several:

-- One idea circulating in the Clinton camp early on, but since shot down by lawmakers, was to eliminate the cost-of-living adjustment (COLA) for Social Security that is due next January to cover this year's inflation. According to the Congressional Budget Office (CBO), such a move would save the government $6.6 billion in fiscal 1994 and $41.5 billion over the next five years. It would cost the average Social Security recipient about $250 a year.

However, opponents argue that COLA cuts are neither temporary nor fair and should be dropped. Their arguments seem to be winning the day.

By not increasing the amount that recipients get for one year, opponents say, the cut would permanently lower the base from which all future cost-of-living increases are calculated. Though it would take an equal bite from the benefits of all recipients, it would fall most heavily on the poor, who depend most on Social Security while their richer counterparts have other sources of income, such as private pensions.

-- Eliminating the income limits but keeping the 50 percent figure so that most retirees would pay some taxes, an option the CBO says would raise $3.9 billion next fiscal year and $43.6 billion over five years.

-- Eliminating the income limits and raising the fraction on which taxes are paid to 85 percent, which the CBO says would raise $10.6 billion in fiscal 1994 and $112.5 billion over five years.

Many Democrats inside the administration and out favor expanded taxation of benefits over COLA cuts because its effects would fall most heavily on upper-income retirees.

Currently, with the income limits in place, only the wealthiest 16 percent of retirees pay any taxes on their benefits, according to estimates by the Joint Committee on Taxation.

The issue is far from decided. In the eyes of many people, especially representatives of the elderly, Social Security is off-limits to Clinton as he tries to fix the federal budget.