Rep. Jack Kemp (R-N.Y.), who has been in the forefront of efforts to cut personal and corporate income tax rates in the last seven years, said yesterday that the time is coming soon to start trimming payroll taxes for Social Security.
Kemp, an unannounced contender for his party's 1988 presidential nomination, told a breakfast group of reporters that the present payroll tax of 7.15 percent on employes and employers "is emphatically too high" and should be reduced "in the next few years."
Kemp said that the tax is a strong disincentive to hiring people and, therefore, hurts "the poor, the unemployed and minorities." He also said that with the present patterns of economic growth and low inflation, "the payroll tax overfunds Social Security for the next 40 years."
The Buffalo congressman was apparently referring to projections by actuarial experts such as Robert J. Myers that the Social Security trust fund could build up a surplus of $7 trillion by 2015, five times the annual benefit payout, and $12 trillion by 2030.
The same projections show that the fund will begin to decline sharply thereafter, as the "baby-boomers" who have swollen the work force move into retirement and become Social Security beneficiaries.
But Kemp said he is skeptical of long-range demographic projections. He emphasized that he was not making a specific proposal for changing Social Security financing and was not calling, as some have done, for injecting general revenues into the system in order to reduce the payroll tax. He said he views Social Security as "a permanent part of the safety net."
Nonetheless, Robert Ball, Social Security commissioner from 1962 to 1973, said in an interview that he thinks that it is "a big mistake" to talk about reducing payroll tax rates. Ball said that even with the scheduled rate increases to 7.51 percent in 1988 and 7.65 percent in 1990, "it will be the middle of the 1990s before you get an adequate contingency reserve -- say 1 1/2 times the annual payout -- to handle a serious recession."
Ball also pointed out that the projected Social Security trust fund surpluses -- which may rise to $60 billion by 1991 -- are "an integral part of meeting the Gramm-Rudman-Hollings target" of a balanced federal budget by that year.
Kemp said he favors taking Social Security out of the unified budget.