Baker Likes O’Neill’s Idea of Heavier Tax on Benefits

Treasury Secretary James A. Baker III indicated his tentative approval Sunday of a suggestion by House Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.) that Social Security benefits paid to affluent retirees be taxed more heavily to increase government revenues.

Baker, calling the idea advanced by O’Neill 10 days ago “an intriguing proposal,” said in an NBC television interview that, if it is “still on the table,” it is “something the Administration ought to take a careful look at.”

O’Neill brought up the proposal during negotiations designed to break the Senate-House deadlock on the budget for fiscal 1986.

Possibility of Compromise

At the time, the revenue-raising proposal appeared to offer the possibility of a compromise between Democrats committed to a scheduled cost-of-living increase in Social Security benefits and Republicans seeking to freeze such spending as part of a deficit-reduction effort. However, House Budget Committee Chairman William H. Gray III (D-Pa.) backed away from the idea, and the budget conferees adjourned for the Fourth of July holiday with no solution in sight.

O’Neill “yanked back” his proposal after Gray shied away from the idea of increasing the amount of benefits subject to taxation, Baker said, thus leaving the Democrats’ current position unclear.

Earlier, the Speaker had suggested that income taxes could apply to 85% of Social Security benefits received by individuals whose income exceeds $25,000 a year. For the last two years, the tax has been applied to 50% of such benefits.

Although Budget Director David A. Stockman had worked with Senate Republicans on a possible budget compromise incorporating O’Neill’s suggestion, Baker’s comments Sunday were the most direct indication of current Administration interest in the plan.

Baker emphatically rejected a suggestion that President Reagan might amend his pledge, repeated Saturday, to veto any tax increase that reaches his desk “no matter how disguised.”

“I think that the President’s resolve on taxes has been . . . very apparent since 1982. . . . It is very, very firm,” Baker said.

However, an Administration endorsement of O’Neill’s suggestion would appear to conflict with Reagan’s much-repeated pledge to veto a tax hike.

Baker called reports that the White House has sidetracked its tax reform program to press for its budget reduction package “absolutely not true.”

“You’ve got to do both, and we’re going to do both; there’s room to do both,” Baker said, noting that Reagan had given “priorities of equal weight” to the two proposals when he put them forward in his 1985 State of the Union message.

Conceding that recent polls show some slippage in public support for tax reform, Baker attributed it to public preoccupation with the Beirut hostage crisis and to concern felt by some individuals that tax reform means a tax increase for them. He predicted that the numbers will turn around “when the President gets out there again and starts selling the proposal.”

Baker, who managed Vice President George Bush’s campaign for the GOP presidential nomination that went to Reagan in 1980, said he did not know whether Reagan will endorse Bush as his successor in 1988.

Baker refused to endorse Bush on his own. “As long as I am secretary of the Treasury and the President says I am not to take part in a primary, then I am not going to take part in a primary,” he said.

Meanwhile, a Gallup Poll reported Sunday that its mid-June survey found Bush to be his party’s top choice in 1988. He received 53% of Republican nomination votes, contrasted with 22% for former Sen. Howard H. Baker Jr. of Tennessee and 18% for Senate Majority Leader Bob Dole of Kansas.