The Democratic majority on the Joint Economic Committee recommended yesterday that Congress scrap President Carter's plan to cut income taxes $33 billion, and instead cut Social Security taxes the same amount.
In their annual report to Congress on the economy, the Democrats argued that a reduction in Social Security taxes would stimulate the economy more forcefully than Carter's plan and also would help fight inflation by lowering business' labor costs.
To make up the revenue the Social Security system would lose, the Democrats proposed that Medicare and disability insurance benefits be financed from now on with income tax revenues rather than Social Security collections.
The Democrats' proposal would constitute a reversal of the action Congress took last December, when it voted big increases in Social Security taxes starting next year to keep the social insurance system solvent. Members have been hearing complaints from voters ever since. The White House doesn't want Congress to retreat from what it did last winter.
Republicans on the Joint Economic Committee also bemoaned rising Social Security taxes yesterday, but recommended no specific way of dealing with them. But several leading Republican members of Congress have already endorsed a Social Security rollback, and one now seems likely this year.
The Social Security recommendation was only one the Democrats had to deal with unemployment and inflation.
They also called on the Federal Reserve Board to ease its money and credit policies enough to reverse the recent rise in short-term interest rates - a step that would mark a turnabout from the Fed's gradual tightening of monetary policy over the past few years.
And they recommended toughening the administration's anti-inflation program by requiring business and labor to notify the government in advance of major wage-price increases that could prove inflationary. The White House considered that in 1976, but scrapped it amid opposition.
As the joint committee made its recommendations, Sen. Gaylord Nelson (D-Wis.), chairman of the Senate Finance subcommittee on Social Security, called for a three-year postponement of the tax increases enacted in 1977, with the difference to be financed from income tax revenues.
Nelson's plan would let stand the payroll tax increases already scheduled for this eyar and the next two years under previous legislation, and only forestall the additional tax increases voted by Congress last December. The lawmakers then would have three years to rethink the issue.
The churning over the Social Security tax issue has caught both Congress and the administration in embarrassing turnabouts. The White House proposed last year averting a large payroll tax increase by turning to income-tax revenues, but Congress rejected the idea.
Now, following complaints from hard-hit constituents, Congress wants to roll back December's action and turn to income tax revenues. But the White House is opposing any such action, contending that Congress may wreak further havoc if it acts too hastily.
The effect of the joint committee's recommendations is expected to be primarily psychological. The panel has no formal legislative authority, and often is regarded as decidedly liberal in outlook. But the criticism of the payroll tax increase came from Democrats and Republicans.
The Democrats also condemned with faint praise President Carter's economic program, calling the White House policies "responsible," but arguing that the economy "can do better" with a little more stimulus than the President proposed. It also called his budget conservative.
In arguing for a more expansionary monetary policy, the Democrats warned that continued tightening by the Fed - eventually leading to even higher interest rates - would have a "serious impact" on economic growth in 1979.
Significantly, they also urged the Fed to roll back the recent increase it approved in its discount rate to help stabilize the dollar. The Democrats argued that the domestic economic recovery was "too important an objective" to risk by raising interest rates, no matter what the reason.
The discount rate is the interest the Fed charges on loans to member banks.
Republicans on the panel disagreed sharply with the call for an easier monetary policy, and called instead for a large tax cut designed primarily to spur needed business investment. They warned that too rapid a growth in the nation's money supply might be inflationary.
The Democrats also renewed their previous calls for a series of measures to deal with "structural" problems in the economy, from manpower bottle-necks to investment. They also reiterated their support of the Humphrey-Hawkins "full employment" bill now pending in the Senate.