THE LAST TIME Congress dealt with the fairness issue was in structuring the Gramm-Rudman amendment late last year. Panicky senators moved to exempt Social Security benefits from the deficit-reduction process. House Democrats countered by insisting on exempting the main forms of federal aid to the poor as well. The two exemptions are probably a pretty good measure of the congressional state of mind. Members can bring themselves to do neither less for the elderly nor more for the poor. In the upcoming budget -- for fairness' sake -- they should consider both.
Without either adding to poverty or weakening the social insurance principle, Congress can reduce the net cost of Social Security and in the process narrow the deficit by billions of dollars a year. It needs only to subject a greater share of the benefits of more recipients to the income tax. For the most part, those who can't afford to pay won't owe (and the House-passed tax reform bill would raise the income tax thresholds). Those who can afford it ought to pay, on this as on all other income.
The latest poverty figures, for 1984, showed the rate for the elderly to be 12.4 percent, below the 14.2 percent for the population as a whole. That is thanks to Social Security, whose benefits were indexed to the inflation of the last 13 years. Benefits kept up with prices even as wages fell behind. Congress in 1983, to help shore up the Social Security system, imposed the income tax on up to half the benefits of recipients over certain income cutoffs. The proceeds were credited to the Social Security trust fund. These should be credited to the general fund. In a single act Congress could greatly strengthen fiscal policy and drill a basic inequity out of the federal tax and benefit structure. What mainly holds it back is fear of the old folks at the polls. The parties could minimize this backlash.
To remove another basic source of inequity in the system, Congress should raise the federal contribution to Aid to Families with Dependent Children. The federal government now pays roughly half the cost, the states the rest. More than 10 million people are on AFDC, including disproportionate numbers of blacks and black children. Benefits, which are set by the states and not indexed, have lost about a third of their purchasing power to inflation over the past 15 years. That is one of the reasons that, contrary to the trend for the elderly, poverty rates for blacks and children remain high. The rate for blacks last year was 33.8 percent, for children 21.3 percent, for black children 46.5 percent.
A broader tax on Social Security benefits could easily raise in the neighborhood of $8 billion a year. The federal share of AFDC could be sharply increased for perhaps a fourth of this, leaving the rest to apply to the deficit. Congressional aides say an AFDC increase could be structured in such a way as to stimulate the states to raise benefits, in part by splitting the extra federal dollars between the states and the AFDC recipients. The idea has implications for federalism as well as fairness. The federal role in welfare would be strengthened. There would be an easing of the burden on the states as well as on the families involved.
Congress in its decisions this year ought to be governed by the deficit. It doesn't have to be paralyzed by it.