The chairman of the House Ways and Means Committee said for the first time yesterday that he is willing to consider limited use of income and excise taxes -- and not just the Social Security tax -- to help finance the Social Security system.
Rep. Dan Rostenkowski (D-Ill.), in a letter to members of the incoming 98th Congress that spells out his intentions on the volatile Social Security issue, said Ways and Means will open hearings on a "refinancing package" on Feb. 1 in hopes of "bringing a balanced bill to the floor of the House in late March."
He said he regards July 1 as Congress' "deadline for putting into effect a better-balanced tax/benefit formula" for the system. July 1 is when the giant old-age trust fund runs out of authority to borrow from the better-off disability and Medicare funds; without further action the old-age fund will then dry up.
Social Security benefits have been financed almost entirely from the Social Security tax in the past. Conservatives generally want to keep it that way, as a discipline on the system. Labor and liberal groups have called for supplementing the Social Security tax with other federal revenues if necessary to keep the system whole.
Rostenkowski said the federal budget deficits over the next several years will be too large to permit use of great dollops of "general-fund revenues" for Social Security.
But, he said, "We must be willing to at least discuss new sources of revenue," and he mentioned two: excise taxes of the sort the govern- ment now levies on products as varied as crude oil, cigarettes and liquor, and "taxing cash benefits." Under that system, at least some Social Security benefits would become subject to income tax; these limited income tax revenues would then be put back into the Social Security trust fund.
Rostenkowski's letter was released as the president's Social Security advisory commission continued to meet here on ways to shore up the system; it must make its recommendations by Dec. 31.
Last week Sen. Robert J. Dole (R-Kan.), chairman of the Finance Committee, urged the Republican-controlled commission to hold back on recommendations until congressional Democrats said how they would fix the system. He said he was tired of the Democrats criticizing the Republicans for proposing changes, while proposing none themselves. Rostenkowski's letter may have been in partial reply.
Rostenkowski urged members of Congress to hold their fire on the subject while the commission and relevant congressional committees do their work.
He also said "radical adjustments to the system are not warranted" since the system is "fundamentally sound" and has been jeopardized only by "a weak economy."
He also seemed to be urging a mix of tax increases and benefit curtailments to save the system, saying, "We must balance the interest of retirees now receiving benefits with those presently paying into the system. We must carefully weigh the effects of large payroll tax increases on a work force already staggering under the highest unemployment rates since the Depression. We must also measure the effect of any change in the cost of living adjustment (COLA) to maintain the elderly's protection against extreme economic fluctuations."
Commission leaders, meanwhile, were trying to negotiate just such a mix of cuts and increases to help raise the $150 billion to $200 billion needed to keep the system solvent over the next seven years.
A combination under discussion last night would involve advancing, perhaps to 1984, some tax increases scheduled to take effect in later years; delaying by three months, from July to October of each year, all future cost-of-living increases, and requiring new federal employes, but not those now working for the government, to pay into the Social Security system.
It would also, in the longer run, involve reduction of Social Security benefits from the levels that future retirees would receive under current law.
The commission also agreed yesterday to create what Chairman Alan Greenspan called an economic stabilizer that would keep income closer to costs in both good times and bad.
No specific stabilizer was agreed to, but one proposal has been to peg the annual cost-of-living increase in benefits to the percentage increase in wages each year, instead of to the increase in prices, as now. One reason the system is in trouble is that benefits are based on prices and taxes are based on wages; prices have been rising faster than wages in most recent years.
AFL-CIO President Lane Kirkland strongly objected yesterday to the proposal that federal employes be brought into the system.
However, other members of the commission, including Rep. Barber B. Conable Jr. (R-N.Y.), Sen. John Heinz (R-Pa.) and Robert Beck, president of Prudential Life Insurance, said such a step probably would not threaten federal employes who already have substantial investments in the current civil service retirement system.
They said it would probably affect only those hired after enactment of the provision or those with less than the five years of federal service needed to vest in the federal retirement plan.
For all those workers, the commission members said, Social Security could be made applicable and supplementary plans, equivalent to a private pension in private industry, could be developed to supplement the basic Social Security benefit. But for those with five or more years of service the current system would continue and all benefits under current formulas would be assured.