COLUMN RIGHT/ MARTIN FELDSTEIN/ KATHLEEN FELDSTEIN : Read His Lips: Time to Tax Social Security : Clinton should be able to get Democrats in Congress to agree by using part of the proceeds on social programs like Head Start.

During the final presidential debate, President-elect Clinton revealed he would help pay for his spending programs by cutting Social Security benefits of people who have received more than they contributed in Social Security taxes.

In Clinton’s own words: “Should they pay more for Social Security if they get more out of it than they’ve paid in and they’re upper-income people? Yes.” Now Clinton must persuade the Democrats in Congress.

One reason that liberal Democrats can agree to cut Social Security benefits is that those payments are not based on need. On the contrary, retirees who had higher earnings during their working years get more in Social Security benefits even though they are likely to have higher private pensions and more accumulated personal assets.

True, higher-income individuals also pay more in taxes for Social Security each year that they work, but they typically start work later in life (because they are more likely to go to college) and they generally collect benefits for more years because they live longer. As a result, over a lifetime, higher-income individuals pay in less and get back more in benefits.

With the rise of private pensions and the high level of home ownership, the average senior citizen these days is relatively well off. A greater proportion of children are poor. That’s another reason for liberals to support a Clinton plan to reduce the Social Security benefits.

The first change that the new President should make is to include in taxable income all benefits in excess of payroll taxes the individual paid in. This was introduced in a modest way in the bipartisan 1983 Social Security legislation. Couples with incomes over $30,000 now pay tax on half of their benefits. Since the $30,000 threshold is not indexed for inflation, each year more and more individuals pay tax on their benefits.

There is no reason to restrict this principle of taxation to those with income over $30,000. If Social Security income should be taxed, it should be taxed for everyone whose income is high enough to pay taxes.

The aged who are poor are helped by a separate program, the Supplemental Security Income program, which is financed out of general tax revenue. SSI guarantees minimum levels of income for those whose Social Security benefits and other incomes are too low to provide the basic needs of an older person.

But just taxing excess benefits would still leave net benefits much greater than previously paid taxes. How much more do people get in benefits than they pay in Social Security taxes?

Consider a person who retired at age 65 in 1988 after paying the maximum Social Security tax each year for 45 years. That individual would have paid total lifetime Social Security taxes of $68,000. Annual benefits for that person started in 1989 at $11,500 and increased over time; with a dependent spouse, the 1989 benefit was more than $20,000.

In less than four years, the benefits for this retiree would equal all of his previously paid taxes. After 10 years, benefits would be more than three times previously paid taxes. And a retiree who achieves the average life expectancy would receive benefits of more than five times his contributions.

For someone who paid less than the maximum tax in each year, the benefits would be lower, but the ratio of benefits to previously paid taxes would be even higher.

A sudden cut in benefits for existing retirees could upset lifestyles in an unacceptable way. One way of gradually adjusting benefits is to modify the inflation indexing. Instead of raising benefits each year by the full inflation rate, why not make it the excess over 2%? If inflation is 3%, benefits would rise by 1%.

The combination of taxing benefits and slowing the rate of increase would soon reduce the net cost of the Social Security program by 15% of the current outlays. That would reduce the 1996 government deficit by more than $50 billion.

We understand the President-elect’s desire to fund new programs. Using some of the Social Security dollars to expand programs like Head Start and general welfare reform might be both good social policy and a way to get political support from a Democratic Congress. But a substantial part of the savings from restructuring Social Security should be used to reduce the budget deficit. That’s the surest way to create better jobs and raise standards of living over the years ahead.