A House Ways and Means subcommittee voted 7 to 6 yesterday for a Social Security bailout plan that would nearly double payroll taxes for the highest-paid workers over the next five years.
The plan was sponsored by Reps. Abner Mikva (D.-Ill.) and Jim Guy Tucker (D.-Ark.) and was pushed through the Social Security subcommittee by its Democratic majority with only two defections, Joe D. Waggonner Jr. (La.) and J.J. Pickle (Tex.).
Mikva said the new tax plan, in combination with some longer-range changes voted earlier, "will carry us to 1987" and perhaps beyond without further major crisis for Social Security financing. The system is running short of money because high unemployment has reduced its income from the payroll tax, while the proportion of retired workers grows.
Its disability trust fund will run out of money next year and the old-age fund a few years later unless new financing is provided.
The Mikva-Tucker plan avoids any increase in the Social Security taz rate (which starting next year will be 6.05 per cent each for employers and employees) until 1981. This is in accord with Carter administration concern that an immediate tax-rate increase will stifle economic recovery. In 1981, under the plan, the rate would rise to 6.4 or 6.6 per cent each, depending on whether government employees are brought into the Social Security system by then. In 1985 the rate would rise to 6.7 or 6.9 per cent. There would be further increases in 1986 and 1990, culminating in a potential maximum of 7.65 per cent each on emplopers and employees. A roposal by Ways and Means Chairman Al Ullman (D-Ore.) for an immediate increase in 1978 was beaten over-whelmingly.
While avoiding an immediate tax rate increase, the Mikva-Tucker plan would bring in new money by rapidly boosting the amount of an employee's earnings subject to the tax. The current level, $16,500, is scheduled to rise under existing law to $17,700 next Jan. 1. Mikva and Tucker would raise it to $20,900 in 1979, $24,400 in 1980, $27,900 in 1981, $30,000 in 1982 and in similar steps to $35,400 by 1985 and $39,600 by 1987.
The wage-base level would be set so that 90 per cent of the total potential taxable payroll from all employment would be subject to the tax. The current figure is 86 per cent.
THe Mikva-Tucker rise in the wage base is the fastest of any of the wide variety of plans put forward to improve revenues.
For a worker making an annual salary at or over the ceiling, the 1978 tax would be $1.070, but by 1982 it would rise as a result of the wage-base and tax increases to $1,920 or $1,980, depending which tax rate applied (the rate will be lower if government employees are brought into the system). By 1985 the tax on a worker making the maximum would be around $2,400.
In raising the wage base, the subcommittee rejected an administration proposal to have employers pay the tax on all wages paid, with no cutoff, while raising the cutoffs only gradually for employees. This would have broken the traditional rule of "parity," under which employer and employee each pay the same percentage levied against the same amount of salary.
The Senate Finance Committee, in its own Social Security bill approved last week, would raise the individual wage base on which the employer must pay taxes to $100,000 while raising the individual base for employees only to $33,900 by 1987.
Other parts of the Mikva-Tucker plan divert some health insurance funds to the old-age and disability trusts, increase the contribution rate for the self-employed by 1.5 times the employee rate, and allow borrowing from the Treasury when fund reserves fall below 25 per cent.
Administration spokesman appeared pleased with the plan because it avoids a big tax-rate increase for several years, but Waggonner called it "a Band-Aid" and William A. Steiger (R-Wis.) said the big and rapid inburden on the economic recovery too soon. Steiger proposed phasing in wage-base boosts later and having the government pay for half the costs of Medicare from general revenues, allowing the cash-benefit funds to keep the difference.