The Social Security Advisory Council has voted to recommend making half of Social Security benefits subject to U.S. income tax for the first time since the System was created in 1935.
The proposal, endorsed by the 13-member council by a vote of 10 to 1 two weeks ago and confirmed at a meeting over the weekend, is one of half dozen key changes in Social Security the Council will recommend to Congrss.
They are designed to strengthen and broaden the financing and coverage of the system.
Since most retirees have little or no income excpet Social Security, making half the benefit subject to the tax wouldn't affect them, their incomes would be too low. But staff aides calculated that about 15 to 20 percent of beneficiaries would be affected, and the added revenue to the Treasury would be $1.5 billion to $2 billion yearly.
In most private and many government retirement systems, all or part of monthly benefits already are taxable. The portion of the Social Security benefit that would become taxable is the portion paid for, in effect, by the worker's employer.
Other major changes endorsed by the Council, which meets every four years to consider how to change the Social Security System:
Reducing the current 6.13 percent Social Security payroll tax rate to about 5.6 percent each on employers and employees until 2005, and somewhat slowing the expected rise in the current $22,900 a year taxable wage base. The entire income from the 5.6 percent tax would go to the old-age and disability trust funds. Medicare, which currently shares in the 6.13 percent tax, would be financed out of general Treasury revenues by earmarking a portion of U.S. income taxes and business taxes for medicare.
Increasing benefit levels for the poorest workers -- provided they have been in Social Security-covered employment for at least 30 years -- so their benefits would at least be at the poverty line, and increasing the maximum benefits for young, high-income workers who will retire 20 or 30 years thereafter.
Beginning a small experiment by splitting Social Security credits between husbands and wives, but only for retirement calculation purposes in the case of couples who divorce after 10 years of marriage. More extensive credit-splitting proposals such as for disability benefits, were called "the most promising approach" to boosting protection for women, but have been put aside until various problems are solved.