Congress' own special advisory committee on Social Security yesterday recommended a financing proposal that Congress has resisted for 45 years: using income tax revenues to help fund the Social Security system.
The National Commission on Social Security, set up by Congress in 1977, also proposed that the normal retirement age for benefits be raised from 65 to 68 gradually after the turn of the century.
In addition, it said that to save money in times of very high inflation, benefits should not automatically be increased exactly as much as the cost of living, as they are now. This concept and a retirement age increase have already been discussed on Capitol Hill as possible ways to cut system costs.
The commission said in its report to Congress yesterday that half of Medicare hospital costs should be financed from income tax revenues starting in 1983. It said that this, combined with a few benefit adjustments, would allow a slight decrease in scheduled payroll taxes and still keep the system on a sound financial footing for the next 40 years.
If half hospital costs under Medicare came from income tax revenues, the commission said, the overall Social Security payroll tax, which has just risen to 6.65 percent each on employers and employes and is scheduled to rise to 7.65 percent each in stages by 1990 and stay at that level, could be held slightly lower. The commission estimated that, with help from income taxes, rates could range from 6.3 percent to about 7 percent at various times from 1990 to 2020. However, after 2024 it would have to go up to 9 percent each to maintain solvency.
The commission also made these recommendations to help strengthen the system:
Social Security coverage should be made compulsory in 1982 for all federal, state and local government employes not now covered by any retirement system, and for the president, vice president, Cabinet members, Social Security commissioner and members of Congress and employes of nonprofit organizations. In 1985, all new government employes joining civil service should be included on a mandatory basis. But persons already in jobs covered by civil service retirement could stay in that program.
Congress should retain the rule that reduces benefits if the retiree earns more than $5,500 a year, but should grant a small tax credit to help compensate for benefits lost. The earnings limit has been criticized by some, including President-elect Ronald Reagan.
Congress should repeal reductions in disability benefits voted in the last Congress. It should write catastrophic insurance into Medicare, limiting total out-of-pocket health payments by a Medicare client to $2,000 a year.
Congress should boost the welfare payment for the aged, blind and disabled under the supplemental security income program, now $238 for a single person and $358 for a couple, by 25 percent, eliminate food stamps for this group, and eliminate the assets test for benefits. It should also require all states to extend Medicaid to anyone with income under two-thirds of the poverty line or whose medical outlays reduced income to that level or lower.