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Social Security Freeze, New Taxes Advocated

March 11, 1990

WASHINGTON (AP) _ The chairman of the tax-writing House Ways and Means Committee on Sunday called for a one-year government spending freeze - including Social Security benefits - and new taxes on gasoline, alcohol, tobacco and the wealthy.

Rep. Dan Rostenkowski, D-Ill., said his proposal would reduce the federal deficit by more than half a trillion dollars over the next five years, producing slight government surpluses in 1994 and 1995.

Just in fiscal 1991, which begins next October, Rostenkowski said his package would cut the deficit from $161 billion as projected by the Congressional Budget Office to $106 billion. The next year, the deficit would fall to $39 billion under his proposal, instead of $124 billion as projected by the CBO, he said.

Rostenkowski estimated the 1991 spending freeze alone - including no cost- of-living adjustments, or COLAs, in Social Security and other programs except those covering the very poor - would save $105 billion over five years.

″If we’re all going to share in the responsibility of bringing our deficit down, we’ve all got to participate in it,″ he said, calling his plan ″a blueprint for our future.″

The last time Congress froze Social Security benefits was in 1983, and then it was for only six months.

Interviewed on CBS-TV’s ″Face the Nation″ program, Rostenkowski said he expects a verbal hazing from both Democrats and Republicans for suggesting a freeze now.

″But somebody has to start saying it,″ he said. ″In the silence of the chambers of the House of Representatives and even in the Senate, members will say that these things should be done.″

Rostenkowski suggested the package as an alternative to President Bush’s proposed capital gains tax cut and counterproposals by Democrats to cut Social Security taxes or restore tax breaks for individual savings and retirement accounts.

″The worst thing we need is another class bidding war ... a fiscal popularity contest between Democrats and Republicans,″ he said, outlining his plan in an opinion piece in Sunday editions of The Washington Post.

Bush’s fiscal 1991 budget and the Gramm-Rudman deficit-reduction law call for a balanced budget in fiscal 1993. But the Congressional Budget Office says administration budget-writers adopted unrealistically rosy economic scenarios in making such a prediction.

The Gramm-Rudman law, meanwhile, is almost certain to be revamped again this year. Rostenkowski said Gramm-Rudman should be abolished.

In addition to the spending freeze and new consumer taxes, Rostenkowski would earmark the entire ″peace dividend″ from an annual 3 percent cut in real, unadjusted-for-inflation defense spending for deficit reduction. He estimated the savings from that at $150 billion over five years.

″If we want to spend more on drug-abuse control or aid to Poland or Czechoslovakia, we must find a way to pay for it by cutting other programs or raising new revenues,″ he said.

Rostenkowski also would freeze for one year inflation adjustments in the tax code, including the indexing of personal exemptions and brackets but excluding the earned income tax credit for low-income families.

″The impact on individual taxpayers would be modest,″ he said, ″but the aggregate revenue gain would be substantial - $50 billion over five years.″

Eliminated entirely under his proposal would be the ″bubble″ that enables individuals with incomes above $109,100 and families with incomes over $185,730 to pay an effective tax rate of 28 percent on each additional dollar received. It would raise $44 billion over five years.

Individuals now making between $47,050 and $109,100 and families with incomes between $78,400 and $185,730 now pay an effective tax rate of 33 percent on their marginal income. Rostenkowski’s plan would extend the 33 percent rate to incomes above those amounts.

″It is absolutely ludicrous that people with incomes in the millions now have a lower marginal tax rate and pay lower capital gains taxes than people earning $70,000,″ he said.

Rostenkowski did not specify how much he would raise gasoline, tobacco and alcohol taxes other than to say they could provide a total of $100 billion in new revenues for the government over the next five years.

But he said on the CBS program that he envisioned the federal tax on gasoline rising from current 9 cents a gallon to 20 cents or 25 cents. A federal gasoline tax of 50 cents a gallon would never pass Congress, he said.