The House yesterday approved a bill imposing massive new Social Security taxes over the next decade to save the system from bankruptcy. The final vote was 275 to 146.
Democrats overwhelmingly suported the measure, while Republicans split 2 to 1 against it. The bill would nearly triple Social Security taxes for the highest-income workers by 1987.
The maximum tax is now $965, and by 1986 would be $2,854.
Similar legislation is pending in the Senate Finance Committee, and Congress conceivably could pass a Social Security bill this year.
House Ways and Means Committee Chairman Al Ullman (D-Ore.), who was the bill's floor manager, said the tax increases were large only for the highest-income workers and "I'm happy with passage."
Just before final passage, the House approved an amendment by William M. Ketchum (R-Calif.) eliminating by 1982 all limits on how much a Social Security beneficiary of age 65 or over can earn each year and still receive full benefits. The current limit is $3,000.
Ullman protested that the total removal of the earnings ceiling turned Social Security from a retirement program to an annuity, enabling anyone to keep working and receive security benefits in addition.
Although Republicans like Barber B. Conable (R-N.Y.) had been denouncing the bill as a "staggering additional load on the backs of the working people of this country," Conable and every other Republican but Gary Myers (Pa.) voted with Ketchum and he won, 263 to 149. This added about $3.6 billion a year eventually to the costs of the program and required that much in new taxes. The Ways and Means Committee had recommended an increase in the earnings limit to $4,000 in 1978 and $4,500 in 1979. Ketchum proposed raising this to $5,000 in 1980, $5,500 in 1981 and lifting the limit altogether in 1982.
The bill would also correct a flaw in the long-range benefit formula that was causing prospective future benefit costs to shoot up so fast as to threaten bankruptcy: allow widows to remarry without benefit loss; and permit borrowing from income tax funds in the Treasury - automatically repayable later from special extra Social Security tax increases - if the Social Security reserves fall below 25 per cent of a year's benefits. Actuaries said the final bill will keep the old-age and disability funds in good shape until at least the year 2000. Ullman said it will wipe out four-fifths of the long-range deficit. Almost no Social Security costs are paid from income tax funds now.
The American Association of Retired Persons said it was "delighted" with the Ketchum amendment. Conable, discussing the bill as a whole, called it a bigger tax increase than anything Congress is likely to vote in general or income tax relief next year. The bill is the largest peacetime tax increase of any kind in recent memory.
Conable's GOP alternative proposal - to raise money by bringing federal employees under the system, borrowing employees under the system, borrowing funds from Medicare and repaying Medicare from the Treasury general funds - lost, 363 to 57.
The U.S. Chamber of Commerce called the margin of final passage "unbelievable" in view of the fact that the House tripled the maximum Social Security tax and refused to raise new money by bringing in federal workers. The administration opposed Ketchum but supported most other provisions of the bill as needed to save Social Security.
There is a strong possibility that the Senate will balk at accepting the Ketchum amendment unchanged - it may insist on some earnings cap, though higher than the current $3,000.
The tax boosts in the bill will fall most heavily on the highest-income workers because the new money is to be raised both by raising the tax rate and sharply escalating the ceiling on the amount of wages subject to Social Security tax.
The increases are not as great for lower-income workers who are below the maximum taxable amount. Thus, a person making $10,000 now is paying $585 in Social Security taxes this year. He would pay $710 by 1986. For a worker at that salary this a substantial increase, though not as great as for the highest-income workers.
The heavy tax increases in the bill are required because the Social Security old-age and survivors and disability funds are running out of money. The disability fund may be empty next year unless there is new funding. Inflation, which drivers benefits upward; high unemployment, which robs the system of taxes that would otherwise flow from workers with jobs; and a higher ratio of retirees to workers - all are causing outgo to 33 million beneficiaries to exceed income at an increasingly rapid rate.
Ullman, told reporters after passage, that while the numbers look large because of high wage-base increases for high-income workers, "for 86 per cent of the wage-earners of America there will be no tax increase until 1981," beyond several already scheduled in current law. This is because 86 per cent now make less than the maximum taxable amount, and the tax rate would not rise more than presently scheduled until1981.
He added that because benefits are computed on the basis of taxable wages, high-income workers will be eligible for higher benefits in the future. While the maximum benefit today for a 65-year-old worker retiring at the end of this year is $460 a month (plus an extra 50 per cent for his wife), the maximum by 1986-87 will be about $750 (plus the wife allowance).
At present the Social Security tax rate for employers and employees is 5.85 per cent each, levied on the first $16,500 of a worker's salary each year. If the worker makes less, the tax is levied against the actual amount of earnings.
The bill would lift both the rate and the taxable ceiling. The rate would rise to 6.05 per cent from 1978 to 1980, to 6.55 per cent in 1981, 6.65 per cent in 1982-84, 6.95 per cent in 1985, 7.10 per cent from 1986-89 and 7.65 per cent from 1990 on.
The maximum taxable ceiling, meanwhile, would rise to $19,900 next year, $22,900 in 1979, $25,900 in 1980, $22,700 in 1981 and in stages to $42,600 by 1987 and will go up thereafter in propostion to genral wage rises in the economy.
The version of the bill tentatively approved by the Senate Finance Committee keeps the new tax burden on the middle and upper-income worker lower than the House bill by shifting to employers a heavier portion of the new tax load - thus breaking for the first time the "parity" concept under which workers and their employers pay the same tax for each worker.