House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) predicted yesterday that the House will reverse itself this election year and vote to rescind part of Social Security tax increase it passed in December.
President Carter opposes such a step, but O'Neill told reporters he has urged the White House to start drafting a proposal of its own so it will not be left out of the action.
Presumably, a Social Security tax reversal would come in the same bill as the income-tax cut the president has proposed for this year. It could mean a smaller income-tax cut; otherwise, the two steps together would increase next year's projected federal deficit. A Social Security tax reversal might also require use of some income-tax funds to help finance Social Security and Medicare benefits.
O'Neill statement was one more indication that Congress, facing rising clamor over the Social Security tax increases it voted only last year, now may reverse itself.
Only two weeks ago, O'Neill said he told the administration it could probably stop a Social Security tax cut, but he said he had changed his mind. He said members were telling him the public pressure for a cut is terrific - although he hadn't seen it in his district.
While prospects of House action thus appeared to be rising, the outlook remained unclear in the Senate, where Finance Committee Chairman Russell B. Long (D-La.) yesterday repeated that he opposes using income-tax funds to finance Social Security.
In the past few days, Democratic members of the House have demanded a caucus with the object of "requesting" the Ways and Means Committee to approve a bill cutting Social Security Taxes. Caucus action could come today or next week.
Yesterday, House minority leader John J. Rhodes (R-Ariz.) and Ways and Means senior Republican Barber B. Conable Jr. (N.Y.) said they had warned the Democrats last year that the big tax increases voted in the Social Security bill would be inflationary, oppressive and unacceptable to voters.
They said the best way to avert scheduled tax increases would be a GOP plan to divert 25 percent of the Medicare trust fund income in fiscal 1979 and 50 per cent thereafter to Social Security (old-age) and disability funds, and replace the money lost to Medicare with general revenues from income taxes.
Rhodes said this would be easier for working people because the income tax is a "progressive tax," levied on everyone, and it obtains money from profits on investments and salaries of employes not under Social Security, such as federal workers. Thus, the Social Security tax burdens, falling heavily on low- and middle-income workers, could be eased. Conable said the GOP plan would divert $3.6 billion from the health fund to the other funds the first year and $7.2 billion the second.
At present, the Social Security tax is 6.05 percent each for employers and employes on the first $17,700 of an employe's earnings. Next Jan. 1, under last year's legislation, it will rise to 6.13 percent on the first $22,900.
Only two weeks ago, O'Neill said, he told Treasury Secretary W. Michael Blumenthal "I think we ought to hold" against proposals to cut Social Security taxes.
But he said pressure for a cut had risen so fast that he told Blumenthal last Thursday "as I read the Congress . . . there's no way we're going to hold this."
He said on Monday he told the White House that it should draft a proposal it would find acceptable.
Up to now, the White House has said it opposes cutting Social Security taxes this year but favors personal income-tax cuts that would, in effect, offset the hardship on individuals. Since last week, officials in both the White House and the Department of Health, Education and Welfare have been drafting fallback Social Security tax-cut proposals of various types.
One source said that if the administration does eventually accede to a Social Security tax cut, it doesn't want the cut to exceed about $5 billion or $6 billion. It might substitute for part of the $25 billion income-tax cut proposed by Carter.
Rep. Abner J. Mikva (D-Ill), one of the leaders of the Democrats seeking a cut, has introduced a bill to remove the funding of all medicare and disability benefits from Social Security and put it in the Treasury - a change that would mean taking about $38 billion a year from the income-tax revenues while cutting Social Security taxes correspondingly.
Mikva said yesterday such a large cut would obviously have difficulties this year, but a smaller one such as proposed by the AFL-CIO, of about $5 billion to $6 billion, would have tremendous strength.
In the Senate, Chairman Gaylord Nelson (D-Wis.) of the Social Security Subcommittee also sponsored the $38 billion cut, but is drafting a trimmed-down version on the order of $10 billion.
While it appears to be developing considerable steam in the House, where every seat is up for grabs in the fall elections, the Social Security tax-cut idea may be weaker in the Senate.
"There might be some way to avoid a Social Security increase," Finance Chairman Long said in an interview. "But I don't want to be fiscally irresponsible." He said that if the disability insurance program benefits could be brought under control, Social Security costs would be lower.