GOP's Social Security Tax Cut Phobia

WITH economic growth declining and inflation rising, new tax cuts are the most effective way to prevent a return to the ``stagflation'' of the 1970s. House GOP whip Newt Gingrich has proposed a bold program of pro-growth tax cuts - including a capital gains tax cut to 15 percent - designed to jump start the economy. Conspicuous for its absence is Sen. Daniel P. Moynihan's plan to cut the Social Security payroll tax.

I've joined with Senator Moynihan (D) of New York in his initiative to return the $60-plus billion Social Security tax surplus to workers and businesses. (In fact, former congressman Jack Kemp, (R) of New York, and I were the first to propose cutting payroll taxes back in 1988.) This measure is pro-family, pro-growth, and pro-jobs.

Most Republicans, however, have kept the payroll tax cut issue at arms length. I can understand their caution. In the past, every time Republicans have tried to improve the Social Security program's efficiency - to achieve some modest deficit savings - Democrats have incited near panic among America's seniors and used it to their advantage in the elections.

However, today the political dynamics have changed. Senator Moynihan, ``Mr. Social Security,'' has created a unique opportunity to cut this regressive tax. Now more than ever, middle-income workers and businesses in this country need tax relief:

Since 1955, the federal tax burden on middle-income families has risen twice as fast as their income. The chief culprit has been the 400 percent increase in the payroll tax since 1955. Today, 74 percent of taxpayers pay more in payroll taxes than they do in income taxes.

Payroll taxes now comprise over 50 percent of all the taxes paid by small businesses. It punishes self-employed individuals who must pay both the employee and employer portions of the tax. Furthermore, the tax isn't based on profitability: New and marginal businesses pay the same rate as established firms. Rising payroll taxes have increased labor costs for small employers, contributing to the recent rise in unemployment.

Under the new Moynihan plan to phase-in the payroll tax cut over five years, couples earning $54,300 would save $1,878 by 1995. It would leave a healthy cushion in the fund to ensure benefits. And according to US Chamber of Commerce, lower taxes on businesses and workers would increase GNP growth by 0.3 percent a year and create 500,000 new jobs by 1995.

Payroll tax cuts would not hinder Congress's efforts to balance the budget. There is wide consensus in Congress to exclude the surplus from the Gramm-Rudman calculation, and reduce the real budget deficit without the mask of the surplus.

Moreover, unless the surplus is returned to the taxpayers, Congress will have a multi-billion-dollar petty cash drawer - free of normal budgetary constraints - that it could use to spend on new programs.

Many GOP lawmakers are pushing a new income tax credit to offset the burden of the payroll tax. While this measure helps working families, a payroll tax cut packs a bigger economic punch. Politically, a cut in the payroll tax is supported by a broad-based coalition including the National Federation of Independent Business, the AFL-CIO, and the National Committee to Preserve Social Security and Medicare.

While the leaders of the Democratic Party in Washington have yet to embrace the Moynihan plan, it has sparked a rising wave of enthusiasm on the grass-roots level. Last May, the Democratic National Committee and the centrist Democratic Leadership Council endorsed the Moynihan plan.

By stimulating investment, a capital gains tax cut is the most important thing that we can do to get the economy moving again. But advocating tax cuts for investors while opposing tax cuts for working families is terrible politics.

If Republicans don't back some reduction in the Social Security payroll tax, we will be in danger of giving ``Reagan Democrats'' back to the Democrats - and worse yet, we will deserve to.