White House Backs Off Social Security Freeze : Deficit: Idea is dropped after stiff opposition from Congress, elderly. Various proposals are still debated.

The Administration on Monday backed off a controversial proposal to temporarily freeze cost-of-living payments for millions of Social Security recipients as it continued to struggle with the hard choices in putting together President Clinton’s long-awaited economic plan.

Although officials stress that final decisions on Clinton’s agenda have not yet been made, White House Communications Director George Stephanopoulos said it is “highly unlikely” that the package will include a freeze of the annual inflation adjustments, known as COLAs. “That is something he’s never wanted to do,” Stephanopoulos said.

Only nine days remain before Clinton’s first State of the Union message, when he is scheduled to unveil both a short-term jobs program and a long-term investment and deficit-reduction agenda. Yet Clinton and his advisers are continuing to wrangle over competing, and to some extent incompatible, proposals.

Clinton is seeking to spend more money and cut taxes for business to quickly create jobs and stimulate the economy, invest in public projects that enhance long-term growth, and also impose tough new spending cuts and tax hikes that would slash the annual deficit by $145 billion by the end of his first term. Meanwhile, he wants to overhaul the nation’s troubled health care system, which also complicates the budget struggle.

The White House quickly dropped the idea of delaying the annual Social Security increases after it ran into stiff resistance in Congress and from the powerful senior citizens lobby. The cost of living adjustment will cost the federal government $9.3 billion this year. But senior citizens groups warned that the delay would affect 41 million Americans, and that without the increase, 500,000 Americans would fall into poverty within a year.

The chairman of the Senate Finance Committee, Sen. Daniel Patrick Moynihan (D-N.Y.) had also publicly warned that he would block any legislative attempts to delay the annual benefit increase.

But the Administration apparently still has not ruled out an alternate proposal to increase the amount of Social Security benefits subject to taxation from 50% to 85% for individual recipients who earn more than $25,000, and couples who earn more than $32,000.

The Administration also said it was weighing a proposal to increase the corporate income tax, which is now 34%. Clinton has promised to raise the top income tax bracket to 36% from 31% and Stephanopoulos said “it would make sense” in that case to raise the 34% corporate rate as well.

During the campaign, Clinton talked of closing tax loopholes that benefited foreign corporations, but he never proposed higher taxes on domestic companies.

Direct hits on such varied but powerful groups as the middle class, retirees and the business community may be difficult to sell if Clinton doesn’t first show some willingness to cut federal spending. As a result, his Administration plans a series of announcements in the coming days about specific spending reductions, such as small but highly visible payroll cuts at the White House.

The Administration is expected to detail reductions in White House staffing on Tuesday, and the elimination of some official perks--such as the closing of executive dining rooms at some departments--are also expected soon. During the campaign, Clinton promised to slash the White House staff by 25% and to cut 100,000 federal jobs overall.

Meanwhile, Clinton on Monday proposed a seven-month extension in emergency unemployment benefits beyond the current March 6 expiration date and asked Labor Secretary Robert B. Reich to craft legislation that could be sent to Congress soon on the issue. Reich said that, in addition to extending benefits, the legislation would also seek to identify and refer the long-term unemployed to “re-employment” services, such as job training, counseling and job search assistance.

Reich said that, despite the modest upturn in the economy, the employment outlook remains so weak that the Clinton Administration needs to push ahead with jobs programs. “Job creation remains sluggish, and the unemployment rate has been over 7% for 14 consecutive months. . . . Many people are exhausting their unemployment benefits with little hope of finding suitable work in the near future,” Reich said.

Clinton said Monday that he has decided on the “general outlines” of the stimulus package but declined to provide details. It is widely expected that the plan will offer a quick infusion of about $31 billion into the economy, including $15 billion in spending and $16 billion in tax incentives for businesses to invest and create jobs.

Some specifics about the spending programs that will be included in the stimulus plan have begun to emerge, however. Housing and Urban Development Secretary Henry G. Cisneros has said that it is likely that the Community Development Block Grant program will receive a major “bump.” HUD officials have told big city mayors to expect a $2-billion increase--a 50% rise over the current level--in such block grant funding. For Los Angeles, that could mean a $30-million increase over the current $60 million in block grant payments.

A summer jobs program for inner city youth may also be included in the package, and may be tied to funding for the construction and modernization of public housing.

The White House is also considering an increase in the minimum wage, currently $4.25 an hour, spokeswoman Dee Dee Myers said. But it is uncertain whether that will be included as part of Clinton’s emergency jobs and economic stimulus program.

Congressional Republicans said that the economy is recovering fast enough now and that Clinton should hold off on a short-term spending program and instead focus on deficit reduction. In a letter to Clinton, Republican senators, including Senate Minority Leader Bob Dole (R-Kan.), said that Clinton could hold down federal spending by forgoing the stimulus plan.

“Republicans remain concerned that the economy already is experiencing a $320-billion ‘stimulus’ in the form of our annual deficit, and such a package may simply add to that debt load,” they wrote Clinton.

One-Fifth of Federal Spending

Here is the actual and projected costs of Social Security, according to the Bush Administration study released before he left office in January:

1992* 1993 1994 1995 1996 1997 1998 Cost in billions 285 302 319 336 355 375 396 % of total federal spending 21% 20% 21% 21% 22% 21% 21%

*Actual cost. Figures for other years are estimates.

Source: Office of Management and Budget, January, 1993