Foley Urges Caution on Payroll Tax Cut : Social Security: ‘I’d say don’t do it,’ the Speaker says of Moynihan plan to pare $55 billion from amount withheld from workers’ wages.

House Speaker Thomas S. Foley (D-Wash.) Sunday urged caution over the proposal by fellow Democrat Sen. Daniel Patrick Moynihan (D-N.Y.) to cut the Social Security payroll tax.

“If I had to make a decision today to do it or not do it, I’d probably say ‘don’t do it,’ ” he said, speaking on NBC-TV’s “Meet the Press.”

Moynihan’s plan, which calls for a reduction of $55 billion in Social Security payroll taxes next year, is intended to return the system to a “pay-as-you go” plan rather than continue to build huge reserves for use in the next century when the huge baby boom generation reaches retirement age.

The reserves have been used to disguise the true size of the federal budget deficit because they are counted as part of total federal revenues each year. The Social Security system made $52 billion more last year than it paid out. The surplus was invested in government bonds. Since the government did not have to enter the credit markets to sell those notes, it reported only a $152-billion deficit rather than a $204-billion shortfall.

The Bush Administration, finding itself in the unique position of opposing a tax cut, has denounced the Moynihan proposal as a “charade” that would result in an increase in income taxes or an eventual reduction in benefits.

Instead of cutting Social Security taxes, Bush is calling for a reduction in the capital gains tax, which many Democrats have attacked as a boon to the wealthy.

Moynihan’s plan is appealing because it could provide 111 million working Americans with a tax cut of up to $600 a year. It would benefit lower- and middle-income Americans most of all, since the payroll tax does not apply at all to earnings above $51,300.

Additional Scrutiny

Foley acknowledged that “we’re misusing Social Security funds in masking the level of the federal deficit, but I’m not sure it’s a good idea to cut taxes.”

Foley said the plan needs additional scrutiny and that first “we have to be sure that nothing that we do discredits the credibility of the system to meet its obligations now and in the future.”

Further, he said, “we have to deal with the fact that rightly or wrongly, these funds are used to meet the costs of the deficit, or part of them, and we’d have a problem, if we cut the tax, of having a very large increase in the federal deficit.”

Moynihan said Sunday he favored a tax on gasoline and a cut in defense spending to help make up for the revenues the government would lose if a Social Security tax cut went through.

Foley’s counterpart in the Senate, Democratic Leader George J. Mitchell (D-Me.), appearing on ABC-TV’s “This Week with David Brinkley,” also called for more study of the Moynihan proposal, but said he was likely to endorse it.

“I think there’s a growing groundswell of support for it in both Democratic and Republican parties in the Congress and around the country,” Mitchell said. “I think it’s the kind of thing that deserves very serious study and, of course, we may well endorse it once we get the details of the plan and, most importantly, determine the impact on the deficit.”

Moynihan, speaking on CBS-TV’s “Face the Nation,” said he was perplexed as to why so few Democrats have rallied behind his idea.

“If we can’t get behind an issue like this, a principle, I’m not sure who needs the Democratic Party,” he said. “If we won’t protect the integrity of the trust funds, well, what are we?”

Senate Minority Leader Bob Dole (R-Kan.), appearing with Mitchell, agreed that Social Security reserves should not be used to artificially lower the deficit, but said of the Moynihan plan: “It’s not going anywhere. It’s not going to pass. I’d be willing to bet this station on it.”

Dole instead predicted that Congress would pass the capital gains cut, and “I don’t think the Moynihan plan makes any difference.”

Budget Director Richard G. Darman, also appearing on the Brinkley program, said Congress should pay more attention to cutting the country’s $3-trillion debt than to trimming Social Security taxes.