Bracket Creep Is Proposed to Bolster Social Security

A group of lawmakers on Thursday proposed raising new money for Social Security by raising taxes through reduced inflation adjustments in the tax code.

The plan seeks to strike a compromise between Republican desires to replace some Social Security benefits with a new system of personal retirement accounts and Democrats’ concerns about the risks of that proposal to low-income workers and women.

Income taxes raised from trimming back inflation adjustments would help pay for the new programs, including subsidies to boost the personal retirement accounts of low earners and new benefits for women who left the work force to rear children.

Supporters said they hope their plan can help jump-start congressional action stalled by political tensions.

“It is precisely because of the growing skepticism that Social Security reform will not happen this year that we are pushing,” said Sen. John B. Breaux (D-La.).

Others endorsing the proposal include Sens. Judd Gregg (R-N.H.), Bob Kerrey (D-Neb.), Fred Thompson (R-Tenn.), Craig Thomas (R-Wyo.), Charles E. Grassley (R-Iowa), and Charles S. Robb (D-Va.) and Reps. Jim Kolbe (R-Ariz.) and Charles W. Stenholm (D-Texas).

Some economists argue that the government’s traditional measure of changes in the cost of living--the consumer price index--overstates inflation.

Making the measure more conservative is one option President Clinton and Republican leaders in Congress have said could be part of a solution to the cash shortfall Social Security is expected to face when baby boomers retire.

Previous proposals have focused on the money that could be saved by reducing the yearly cost-of-living raises senior citizens get in their retirement checks. The plan introduced Thursday would go further by also capturing for Social Security any increases in income taxes resulting from a partial restoration of so-called bracket creep.

Americans pay income taxes at different rates based on what income level, or bracket, they fall into. People in higher brackets pay a larger percentage of their income in taxes.

Every year the Internal Revenue Service adjusts the income brackets to account for inflation. A more conservative measure of inflation would tend to widen the higher tax-rate brackets over time.

Supporters say the money that would be raised for Social Security over the next 75 years if the CPI’s measure of inflation were trimmed by one-half of 1% could be expected to be about the same as if there were a 0.78% increase in the special payroll taxes now used to finance the retirement program.

Outright tax hikes, likely to be unpopular, have been sworn off by both political parties as a possible solution to Social Security’s looming problems.