He and Dole Move to Break Impasse, Offer Compromises : O’Neill Asks Tax Hike for High-Income Social Security Recipients

House and Senate leaders, under pressure from both the White House and business leaders to bring budget conferees back to the negotiating table, moved quickly Wednesday to break an impasse over Social Security, offering several possible compromises.

House Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.) suggested that Congress might increase taxes on the Social Security benefits of recipients who have large outside incomes. He referred to such pensioners--about 9% of the nation’s Social Security recipients--as “freeloaders.”

O’Neill, who receives Social Security as well as his $97,900 Speaker’s salary, later retracted the label, calling it “inappropriate.”

‘A Crack in the Dike’

Senate Majority Leader Bob Dole (R-Kan.), while expressing reservations about O’Neill’s proposal, said it represented “a crack in the dike. It opens up another little possibility (for agreement). We’re busy at our Ouija boards.”

Dole summoned Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) and White House Budget Director David A. Stockman to his office to discuss other potential compromises, including forcing state and local government workers to join and contribute to the Social Security and Medicare programs.

Until Wednesday, neither Dole nor O’Neill had been directly involved in the talks, which had broken up in disarray a day earlier. While neither proposal was new, they reflected the two leaders’ determination to quickly put the negotiations back on track.

Speakes Applies Pressure

Presidential spokesman Larry Speakes applied pressure at the White House, saying President Reagan “wants the conferees to go back to the table, get down to work, resolve the budget and give him a budget he can operate on.”

With next year’s federal deficit expected to approach $230 billion, Speakes said: “The deficit question is far too important for the nation to let it go by the wayside simply because the conferees are not willing to put their heads together and work.”

Chairman Paul A. Volcker of the Federal Reserve Board, who has said the deficit needs to be cut by $50 billion to keep the economy on track, appealed to Congress and the White House to “make every effort” to resume the negotiations.

The Business Roundtable, an organization of top executives of the nation’s largest corporations, called the conference breakup “very disappointing.”

‘A Time Bomb Ticking’

“It leaves a time bomb ticking on the doorstep of the U.S. economy,” said the group’s chairman, Robert Beck, chairman of Prudential Insurance Co. of America. “The deficit is the most crucial economic problem facing our nation.”

Moreover, the stalemate over the budget also threatens to jam the congressional calendar, making it harder for lawmakers to proceed on other proposals, including President Reagan’s tax proposal.

Dole has insisted repeatedly that Congress must put a significant dent in the deficit before it begins work on the tax reform proposal. The tax plan aims to lower rates overall by eliminating many widely used deductions.

The House-Senate conference broke up Tuesday after two weeks of fruitless negotiations when House members refused to accept any cut in next year’s cost-of-living increases for Social Security recipients and other federal pensioners. The freeze had been a key element of the budget plan endorsed by the Republican-led Senate.

O’Neill Against Freeze

O’Neill continued to rule out a freeze Wednesday, saying: “I’d say we’re in cement on that.”

Similarly, House Majority Leader Jim Wright (D-Tex.), one of the budget negotiators, said the House “is determined to keep our government’s legal and moral commitments to the nation’s elderly while at the same time achieving real and appreciable reductions in Mr. Reagan’s deficits.”

Opposition to the Senate proposal had been overwhelming in the House, even among Republicans. “Domenici should forget Social Security in my opinion,” said Rep. Trent Lott (R-Miss.), the House’s second-ranking Republican. “It ain’t going to happen.”

The proposals suggested by Dole and O’Neill both represent an extension of the changes Congress made in Social Security two years ago to put the bankruptcy-threatened system back on stable financial ground.

For the first time, federal workers were forced to join the system and high-income Social Security recipients--those with incomes above $25,000 and couples earning more than $32,000--were taxed on 50% of their benefits.

Speaker’s Proposal

O’Neill suggested that the conferees consider a plan to make 85% of those benefits taxable, which would raise an estimated $8.5 billion over three years.

“Those people (with large outside incomes) are freeloaders, to be perfectly frank,” he said. “If (any change in Social Security) only reaches the higher brackets, I’d be happy to go along with that.”

O’Neill later issued a statement saying that “freeloaders” was “an inappropriate term . . . to describe people like myself who retire with high incomes and escape paying a fair tax on our Social Security income.”

The 74-year-old Speaker declined Social Security benefits when he became 65 years old, but he automatically began receiving full benefits when he reached 70.

Dole said Senate leaders were discussing a plan that would require newly hired state and local government employees to participate in Social Security and all of those workers to be covered by Medicare.

An estimated 70% of state and local workers now participate in the two programs voluntarily. Forcing the remainder to join would reduce the deficit by $8.3 billion over the next three years.