Sen. Pat Moynihan ostensibly has applied the ointment of compromise to the abrasions caused by the budget unpleasantness. But he actually could be creating, from the unpromising material of his fellow Democrats, a serious opposition party.
Moynihan, the Senate's Sisyphus, recently applied his sore shoulder yet again to the rock that he has been trying to roll up hill. Many months ago he proposed cutting, in just two years, Social Security taxes, putting the system on a pay-as-you-go basis. This would have quickly shut the spigot from which now gush surpluses generated by the increases put in place in 1983.
Those increases were supposed to build ''reserves'' for when, around 2020, baby boomers retire. The ''reserves,'' now flowing in at $1 billion a week, are scheduled to rise to $3 billion a week in 1997 and even more after that. But they are being used to finance government operations, thereby masking the real size of the deficit. (The real deficit is forecast to be $241.8 billion in fiscal 1991, not counting the cost of the S&L shambles.)
Moynihan's aim was -- is -- to force honesty in budgeting and equity in taxation. However, his party, the conservative (meaning resistant to change) party, flinched from Moynihan's radicalism and from the need to think (about equitable taxes to replace the Social Security revenues). But now comes Moynihan's compromise: phase the rate cuts over five years.
For someone earning the maximum income taxable for Social Security purposes (about $54,300 next year), the savings during 1991-1995 would be $1,900. In 1996, the wage earner would be saved $708. The tax rate would not rise again until 2010 and would not reach today's rate until 2015. Moynihan says 132 million Americans are paying a rate that is a quarter of a century premature, on a tax that is inequitable in its current use -- financing the government's general operations.
This tax, which for 74 percent of taxpayers is a bigger burden than the income tax, is regressive: It has a flat rate and is not applicable on income above $51,300. Because of the 15.3 percent Social Security tax on earnings (including the employer's portion), most workers in the 15 percent income-tax bracket pay a total tax rate higher than paid by the richest Americans. The richest are in the 28 percent bracket, but any income in excess of $51,300 is exempt from Social Security taxes.
C. Eugene Steuerle of the Urban Institute notes that if fringe benefits, such as employer-paid health insurance, are thought of (as they should be) as income, then two workers with equal incomes can havesignificantly unequal Social Security tax burdens. A worker with $30,000 cash wages will pay $1,200 per year more than a worker whose $30,000 in earnings include $8,000 in fringe benefits. That means a five-year difference of $6,000 in taxbills.
If this regressive tax is not cut, by the end of this decade it will slurp up $200 billion a year more than Social Security will pay out that year. Moynihan says the money is not needed now for Social Security, so leave it with the workers who do need it: ''The soul of the Democratic Party is at stake.''
Talking about that party's soul is what philosophers call a category mistake, like talking about the wit of Brussels sprouts. But consider the political consequences if Moynihan's tax cut for 132 million Americans were to pass in September with the support of most Democratic senators and opposed by most Republicans.
For a quarter of a century, since George Wallace got their attention, Republicans have celebrated Joe Sixpack, a fellow of hearty but simple appetites -- beer, not scotch. The courtship of Joe Sixpack is going to be complicated enough if Republicans, busy campaigning for a capital-gains tax cut, vote against the cut in Social Security taxes. And that might not be Joe's only grievance.
Consider the surrealism of Washington these days. The estimate of the number of S&Ls that will fail has been doubled from 500 to (so far) 1,000. The Bush administration cannot say, within half a trillion dollars, the eventual cost of this black hole for money. Guesses range between $400 billion and $1 trillion, depending on the interest-rate assumptions. And while these big numbers are bandied about, Republicans have floated an itsy-bitsy idea for helping to reduce the deficit by just $50 billion this year.
(Perspective: $50 billion is less than the deficit number will be increased by removing Social Security surpluses from the budget for deficit calculations. And $50 billion is just half of the additional sum sought last week just for this year's S&L spending.)
The Republicans' bright little idea for nibbling at the deficit? A new tax adding 75 cents to a sixpack of beer.