House-Senate conferees agreed yesterday on the biggest peacetime tax increase in history - more than $200 billion over the next decade to replenish the sagging Social Security trust funds.
But the big tax bill, whose passage the Carter administration has anxiously sought, remained hung up last night by a dispute over a secondary issue a special tax credit of $250 for college tuition that the Senate had tacked on but the House conferees were stoutly resisting.
The higher taxes, to be paid equally by workers and employers, would more than triple the payroll payment by highest salaried workers by 1987. The lowest paid workers would pay 20 per cent more, because of an increase in the wage rate paid by all.
The maximum paid by a worker into the fund this year is $965, a tax of 5.85 per cent on the first $16,500 of income.
The bill makes no change in 1978 payments, but under existing law that maximum will go to $1,071, a tax of 6.05 per cent on the first $17,700 of income.
By 1987 the maximum payment under the pending bill would go to $3,046, derived from a tax of 7.15 per cent on the first $42,600.
The enormous new levy is needed to prevent the Social Security trust funds from dipping perilously close to a point where they could not pay all benefits due. The intention is to assure that the trust funds never fall as low as 25 per cent of the previous year's payout.
Social Security has been self-supporting during its 40 years, financed by the tax paid by workers and their employers. But as the level of benefits and the number of retirees has risen, its income has not kept pace.
President Carter proposed using some general Treasury funds to help bail out the Social Security funds. The House had approved a standby loan provision to be triggered when the fund fell to a specified level, but the Senate refused to open the door to general-fund financing, and that was dropped yesterday.
The President also proposed imposing a greater Social Security tax load on employer than employee. The Senate had agreed to require the employer to pay a tax on salaries up to $75,000 a year, but the House insisted that parity be maintained and the Senate agreed.
To meet Carter's objections to benefits added by one house or the other that could cost the government up to $10 billion a year, the conferees dropped some and compromised on others.
The House had proposed eliminating the ceiling on income that a retiree can earn without losing part of his Social Security benefits. That would have cost more than $3 billion annually by 1983. The conferees agreed to raise the present $3,000 ceiling to $4,000 for 1978, to $4,500 for 1979 and to $6,000 by 1982. After that, automatic increases would keep up with inflation.
A $324 million one shot package of welfare aid to states and local governments added by the Senate was cut to $187 million, with a prospect for getting the rest next year. House conferees were leery of voting the money, for fear the Senate would decide it wouldn't need to do any more for welfare revision next year.
Dropped from the bill was a Senate provision that would have given a 10 per cent payroll tax reduction to state and local governments and nonprofit organizations whose employees are covered by Social Security. It would cost over $1 billion a year. Supporters said it was justified because these employers paid no federal income taxes and could not deduct Social Security taxes as a business expense. The House thought they were treated well enough by not paying taxes.
Added benefits for the blind costing more than $1 billion a year by 1983 were scaled down so that extra costs would be negligible. The program was tied to the earnings ceiling and would permit a blind person to earn up to $6,000 a year without losing disability benefits.
Dropped was a Senate provision for semiannual rather than annual cost of living benefit adjustments in times of high inflation.
A compromise provided that widows over the age of 60 who remarry shall not lose any benefits. But this socalled living in sin repealer was not extended to others.
The conferees spent more time arguing over the Senate's $250 annual tax credit to help pay for college tuition than anything else in the bill.
This has been an issue for more than a decade, with supporters arguing that the government ought to do something to help middle-class Americans who pay most of the taxes and get little back in visible returns.
"We've been debating this for 14 years." said Senate Finance Committee Chairman Russell B. Long (D-La.). "At some point the incubation period ought to end."
Chairman Al Ullman (D-Ore.) of the House Ways and Means Committee fired back: "The people who hollered the loudest for a balanced budget were the first to get in line for this." Its principal sponsor was Sen. William V. Roth (R-Del.).
Long said that if Ullman would just take the issue to the House floor for a vote he would abide by the outcome. Ullman refused, knowing that if such a lovely Christmas present were put to a record vote it would pass overwhelmingly.
Ullman said the issue was too important to accept without careful consideration. He promised committee hearings on this and alternative proposals, such as tax deferrals while children are in college.