SOCIAL SECURITY TAX BREAK HAS ITS MERITS

So eager is federal government to mine our pocketbooks that it taxes some income twice - once for Social Security taxes, and a second time for income tax.

U.S. Rep. George Nethercutt proposes to change that, by giving Americans an income tax deduction for the amount they shell out for the Social Security payroll tax.

It's an attractive proposal. It would make the tax code more equitable, help the economy grow and boost the take-home pay of average working stiffs at a time of stagnant wages.

Nethercutt estimates 77 million to 100 million Americans, those with incomes between $25,000 and $62,500, would benefit. (That's considerably more than the 1.9 million who would benefit from the ballyhooed proposal to increase the minimum wage.) The average two-income household, he says, would get to keep an additional $1,770 a year in earnings. That is a noticeable boost in family spending power.

At a time when corporations seem to get a warmer reception and nicer goodies from Congress than individuals do, this proposal is refreshing. What's more, it's fair. Employers already can deduct from federal taxes the amount they spend on their half of the 15.3 percent Social Security payroll tax. Employees, and the self-employed, should be able to do the same.

Nethercutt's proposal would have no effect on revenues to Social Security.

But it would remove money now going to the general treasury and leave it in taxpayers' pockets, instead. What would this do to the federal budget deficit? The answer to that question is not clear, but it certainly is the most important issue for Nethercutt to address.

He acknowledges that if his proposal had no impact on the economy, it would reduce federal revenue (and boost the deficit) by $30 billion a year. That's a lot, and that's a problem.

However, as he and other Republicans tend to believe, there is evidence that well-aimed tax cuts may stimulate the economy and boost federal tax revenue. Tax cuts of the Kennedy and Reagan administrations were followed by growth in the economy and in federal revenue. Yes, during the Reagan years federal spending grew even faster than revenues did, leading to huge deficits; but that should not obscure the benefit some tax cuts can have.

In theory it seems beneficial to place more money in the hands of middle-income Americans, whose discretionary spending fuels today's economy. Yet theory isn't good enough. Nethercutt and others who back his bill will have to offer credible revenue forecasts - a tall order, given the extent to which such forecasts usually are colored by politics and wishful thinking.

Congress must continue to reduce the deficit, and Nethercutt is among those who've made that a priority. Tax cuts, even cuts as attractive as this one, are a risky tactic. If Nethercutt's proposal is to become more than election-year posturing, he'll have to back up his economic arguments. We hope he can.

Copyright 1996 Cowles Publishing Company
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