8 Million Elderly May Be a Tough Sell for Clinton : Social Security: President’s tax plan could unravel if older Americans oppose it. Some in Congress are wary.

When President Clinton pitches his long-awaited economic program to a watching nation on Wednesday, about 8 million elderly Americans could prove to be particularly tough customers. Don Ryan is one of them.

Ryan, a retired attorney in Kalispell, Mont., is among the top 20% of Social Security recipients who are expected to be asked to pay higher income taxes on their benefits as part of Clinton’s long-term plan to reduce the deficit.

“This idea is garbage,” fumed Ryan, whose annual household income of $45,000 includes $18,000 in Social Security benefits paid to him and his wife. “The people I walk with on the mountains here, when my arthritis is OK, came up from nothing. They saved and scraped and invested in America. They don’t deserve to be taxed more.”

Ryan’s objection reflects the sentiments of many older Americans. And it represents one of the biggest challenges facing Clinton as he attempts to sell an economic package that calls on millions of his countrymen to pay higher taxes or forgo benefits in an effort to tame the deficit. The elderly lobby is among the most powerful interest groups in Washington, and Clinton’s program could quickly unravel if older Americans mobilize against it.

Veteran members of Congress are wary of the potential backlash if they attempt to tinker with Social Security. Many still bear political scars from the 1988 battle over catastrophic-care insurance for Medicare beneficiaries.

Although final details of the President’s economic agenda are still being debated within Clinton’s inner circle, he is widely expected to include a proposal to increase the amount of Social Security benefits subject to taxation. Clinton will unveil his plan in a nationally televised address to a joint session of Congress on Wednesday evening.

Under present law, Social Security recipients pay no income taxes on their benefits unless their total annual income, after adjustments, exceeds $25,000 for individuals and $32,000 for couples. For those recipients, up to 50% of their benefits may be subject to taxation.

Many observers predict Clinton will ask Congress to leave the income thresholds where they are, but to increase the amount of benefits subject to taxation to 85%. That would make the taxation of Social Security benefits roughly comparable to the current tax treatment of private pensions for which employees make contributions.

For those beneficiaries affected by the proposed change, the impact could be substantial. A recipient with total income of about $50,000 and a monthly Social Security check of $1,000, for example, could pay additional federal income taxes of approximately $1,200 a year if the taxable portion is raised to 85%.

Clinton and his advisers are considering the increase because it addresses two critical needs, Administration officials say. First, it would make a significant contribution to deficit reduction by generating an estimated $30 billion in additional tax revenues over five years. The deficit is expected to reach $319 billion by 1997, according to congressional analysts, and the President has pledged to reduce the figure by $145 billion.

Second, the additional burden would fall on Social Security recipients whose incomes exceed the threshold levels. Clinton has accused the Ronald Reagan and George Bush administrations of pursuing policies that favored the rich and has signaled his intent to ask those at the top of the income ladder to contribute their fair share to deficit reduction.

But for Ryan and others like him, that’s the rub. Although their incomes place them within the top 20% of all retirees, many Social Security recipients who would be affected by the change hardly consider themselves affluent.

“I’d like to know what they mean by wealthy,” complained Tom Easterly, a former Illinois state government worker who retired to Hot Springs Village, Ark., partly because of the lower living costs in Clinton’s home state.

Easterly’s household income is just under $30,000, so he would not be immediately affected by the change. But the higher taxes eventually would catch him, too, because the $32,000 threshold is not adjusted for inflation.

In fact, as their income from pensions and savings rise over time, more and more beneficiaries would find themselves subject to the tax, which was imposed in 1983 as part of a congressional compromise designed to ensure the future solvency of the Social Security system. Because incomes have risen while the thresholds remain constant, the portion of beneficiaries affected by the tax has increased to about 20% today, from 10% a decade ago.

Easterly believes the new Administration is sadly mistaken if it thinks the higher tax would only affect Social Security recipients with money to burn. “People will be less able to pay for their medical expenses,” he predicted.

Clinton is by no means singling out Social Security beneficiaries in his economic agenda. Many others will feel the squeeze: The Administration is expected to propose a broad-based tax on energy usage, higher income tax rates for both individuals and corporations, reductions in federal spending and benefit programs and other changes designed to deflate the deficit through a program of “shared sacrifice.”

Still, to even suggest that Social Security beneficiaries should be among the potential targets represents an enormous political risk for the new President. He will be taking on one of the best organized constituencies in American politics. Older Americans vote in higher proportions than other age groups and have the time and energy to flood congressional offices with letters and calls when they feel their interests have been threatened.

Already, objections raised by older Americans and their advocates have exploded one trial balloon floated by the Administration: a proposal to freeze the annual cost-of-living increases received by all Social Security beneficiaries. The plan would have raised much more money than the tax proposal, but it would have hit hard at recipients who are struggling to stay above poverty line.

Instead, raising the amount of benefits subject to taxation to 85% would affect only the most affluent 8 million of the 41 million Americans who receive Social Security.

As a result, an estimated $4 of every $5 raised by the change would come from recipients with incomes above $40,000, according to Ronald Pollack, executive director of Families USA, an advocacy group active on behalf of low-income seniors. Under a cost-of-living freeze, by contrast, $4 of every $5 would have come from persons with incomes below $40,000.

“There is no question one is regressive and one is progressive,” Pollack said. “This exempts the people who are poor or near-poor from contributing a single penny. I don’t think that can be argued as inequitable or unfair.”

But organizations that represent the entire spectrum of senior citizens groups contend the Administration is unfairly penalizing one segment of the population.

“Clinton promised during the campaign, and especially in key primaries in states with large senior populations, that he would not tamper with Social Security,” said Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare, which has 6 million members. “Now, one of his very first ideas to reduce the deficit means tampering with Social Security.”

The expanded tax “certainly has the potential to be discriminatory,” said John Rother, director of legislation and public policy for the American Assn. of Retired Persons, whose 34 million members make it the 800-pound gorilla of groups representing older Americans.

Rother acknowledged that higher taxes might be acceptable to his group, but only if linked to health care reform. The AARP is especially interested in long-term care, because nursing-home expenses can bankrupt all but the most affluent Americans.

“Our members are willing to make trade-offs to get a stronger health care program,” he said.

But it appears that the Administration is not yet ready to make the link to health care. Instead, it is focusing on Social Security as a revenue-raiser because of the budget crisis.

The Social Security fund will have a $54-billion surplus this year, because tax revenues will exceed the outlays for benefits. Expanding the tax would add another $6 billion to the surplus. In calculating the budget, Social Security is combined with other federal programs, and its surplus reduces the size of the overall deficit.

But all of the current surplus, as well as tens of billions of additional dollars, will be needed to pay the pension checks when the huge baby-boom generation reaches retirement age in the next century.

The Administration’s key argument for the expanded tax is expected to focus on fairness: The deficit problem is so overwhelming, Clinton advisers say, it demands sacrifice from all Americans who can afford to contribute. And affluent Social Security beneficiaries should not receive automatic exemptions.

So far, the AARP has refrained from attacking the tax proposal, unwilling to challenge the President directly before he can even present his economic program on Wednesday.

But Rother pointedly noted that older Americans gave Clinton better support at the polls than any other age group. Surveys of voters as they left the polls on Election Day show that 51% of voters over the age of 65 supported Clinton, compared with 38% for Bush and 10% for Perot. By contrast, only 43% of all American voters backed Clinton, with 38% supporting Bush and 19% for Perot.

“Seniors want a plan in which problems are not solved on the backs of the old folks,” said Joseph Boyd, a retiree in Severna Park, Md. “If the seniors perceive the plan as one in which everybody makes a sacrifice, then they will buy it.”

In the background of any debate is the Medicare case of 1988.

Congress that year passed the biggest expansion of Medicare benefits since the program’s creation by providing unlimited days of hospital care, a cap on out-of-pocket payments to doctors and, for the first time, coverage of prescription drug expenses.

The new program would have cost a negligible $5 a month for the 60% of seniors who pay no income taxes. But the other 40% would have paid a bigger tab in the form of higher taxes. They rebelled, flooding Washington with angry calls and letters. Congress panicked and repealed the law in 1989 by huge majorities.

So far, early reports of Clinton’s plans to increase the tax on Social Security benefits have not provoked a similar uprising. But among elderly Americans, including some seniors who supported Clinton at the polls, doubts are beginning to rise.

“I voted for him, but I would be disappointed if he did this,” said an 82-year-old Utah widow who requested anonymity. The woman, who lives in a subsidized apartment in Salt Lake City, receives only $560 a month from Social Security.

“I expected better from him,” she said. “There are other avenues he should pursue to get money.”