President Reagan today will propose major benefit reductions for future Social Security recipients who retire before 65. At the same time he will propose changes to reward older Americans for not retiring and working longer.
An administration source said the double-barreled plan will be unveiled at a news conference by Health and Human Services Secretary Richard S. Schweiker in an effort to "protect the solvency of the Social Security system."
A benefit cut would also help the administration reduce future federal deficits.
About 70 percent of workers covered by Social Security accept reduced benefits and retire before age 65, the age full benefits are payable.
To help sell its proposal, the administration will also propose reducing currently scheduled increases in Social Security taxes, beginning in 1985.
Under the administration proposal, persons retiring at 62 would receive 55 percent of their full benefits rather than the current 80 percent. At the same time, the "earnings test" for recipients over age 65, under which benefits are reduced $1 for every $2 earned above $5,500, would be phased out over a three-year period.
This carrot-and-stick approach is expected to encourage Social Security recipients to work at least until 65 and, in some cases, longer. Retirement costs will be less that way, and tax receipts more. The administration's estimate is that the dollar savings will be $17 billion between 1982 and 1986.
Reagan has repeatedly promised that he would not reduce benefits for those already on the Social Security rolls. This is why he opposed a Senate resolution last week to change the formula for calculating cost-of-living increases in benefit levels. But in order to keep this promise, the administration has come up with an alternative that would have an even greater effect on the benefits of future retirees.
The Social Security program was until recently considered politically untouchable, and Reagan was put on the defensive on the issue in both his 1976 and 1980 presidential campaigns.
The administration hopes to mobilize some political support for its proposal by reducing planned increases in Social Security payroll taxes beginning in 1985. The administration source said that payroll taxes would be reduced from current levels by 1990.
A person entering the work force now would save $33,600 over his career in Social Security taxes, the administration claimed.
Another feature of the proposal that will be made today will be to delay a scheduled cost-of-living increase from July until September of next year. This will inded be a cut in benefits of existing recipients, contrary to what the president promised again as recently as his speech to Congress on Feb. 18. But administration officials said this would be "minimal."
This three-month delay would save an estimated $3.6 billion in the first year of operation, according to figures cited in last week's Senate budget debate.
For years Reagan has advocated removal of the earnings limitation for retirees. Critics have resisted, on grounds that most of the benefit would go to the better-off among the elderly. Two-thirds of the benefit would go to people earning more than $17,500, one recent study said.
Reagan's decision on the administration's Social Security plan was made after a lenghty discussion in a Cabinet council meeting where a variety of options were presented.
In that meeting some administration officials expressed the view that Reagan's proposal would attract strong bipartisan support. But there are others in the administration who believe that the plan will instead provoke a major legislative challenge for the president that will divide the coalition he has assembled in behalf of his budget cuts.
Sen. William Armstrong (R-Colo.), one of the central figures in the Social Security battle, predicted last week in an interview that no major restructuring plan can pass unless it has substantial bipartisan backing.
First-year savings from the Reagan proposal are expected to be about $7 billion.
Reagan also tried yesterday to capitalize on last week's budget victory by preserving the coalition of Republicans and conservative Democrats that carried the day for the administration in the House. In the morning Reagan met with GOP leaders in the White House and urged them to resist any efforts to bust the budget ceilings or change the administration's three-year 30 percent income tax cut proposal.
Late in the afternoon he invited all 263 congressmen who voted for the Reagan budget to the White House for a reception that was moved inside from the Rose Garden to the East Room because of the rainy weather.
Speaking to the congressmen, Reagan expresses his gratitude for their support and said, "I think we've made a little history" by showing that federal spending can be cut and "the voice of the people can be heard here in the capital."
The president focused on his pending tax-cut plan in his remarks to the congressmen, saying that his plan is essential to restoring business incentives. The American people, he said, "want to see America return to the can-do spirit that made America an economic and industrial giant."
Reagan and his wife were greeted with loud applause and cheers when they entered the East Room to the strains of "Hail to the Chief." The president jokingly referred to the small gifts he had passed out to House members in the two weeks he had lobbied before the budget vote.
Anyone who hasn't got his cufflinks or tickets for the Kennedy Center," said Reagan, could pick them up from an aide now.