Proposed Payroll Tax Cut Assailed by Rostenkowski

WASHINGTON — Rep. Dan Rostenkowski, chairman of the House Ways and Means Committee, on Saturday denounced a fellow Democrat’s proposal to cut Social Security payroll taxes by $62 billion over the next two years as “irresponsible” and “political junk food.”

The Chicago Democrat, a veteran of 31 years in Congress and its chief tax writer for almost a decade, also said he may retire in 1992.

Rostenkowski acknowledged in a televised interview that legislation to reduce capital gains taxes and expand tax breaks provided by individual retirement accounts could pass this year, despite his opposition.

But his strong condemnation of the plan by Sen. Daniel Patrick Moynihan (D-N.Y.) to cancel 1990 and 1991 increases in Social Security taxes could slow the proposal’s election-year momentum and demonstrates that congressional Democrats are divided on the issue.

Besides providing a tax break to wage earners, Moynihan contends his plan would force the government to be more fiscally responsible because the current surplus in the Social Security trust fund could no longer be used to reduce the federal deficit.

The proposal is strongly opposed by President Bush, who maintains that it would require the federal government to increase taxes elsewhere to make up the lost revenue.

In the Senate, Finance Committee Chairman Lloyd Bentsen (D-Tex.) has scheduled hearings on Moynihan’s legislation while reserving judgment on its merits.

Rostenkowski said House Democratic leaders have decided to order a study of the Moynihan plan before deciding whether to endorse it or oppose it.

Speaking for himself, however, Rostenkowski said: “I see no reason why we should surrender those revenues. . . . If you’re in the business on Ways and Means of trying to find revenues to keep solvency in programs, and you have them included and then all of a sudden you surrender them, I think that’s irresponsible.”

Appearing on CNN’s “Evans and Novak” show, Rostenkowski described the Moynihan plan and President Bush’s separate proposal to cut taxes on capital gains as “political junk food.”

While House passage of the Moynihan proposal does not appear likely at this time, Rostenkowski said, liberals and conservatives could form a coalition that would be able to push the measure through the Congress.

“I know that the conservative Republicans at first blush suggested they were going to endorse it,” he said. “I understand, however, that George Bush had them down at the woodshed, and the conservatives are becoming more reasonable about what they’re going to do.”

If Social Security taxes are reduced, Rostenkowski said he would favor offsetting the tax cut by raising an equal amount of revenues from other sources.

He renewed his support for an increase in the top-bracket income tax rate from 28% to 33%. Under current law, he noted, taxpayers in the second-highest bracket pay a 33% marginal tax rate, but the rate drops to 28% for those with family incomes above $200,000 a year.

“I think it’s darn unfair,” he said. “I think that’s a glitch and we should correct it.”

Other than that change, however, Rostenkowski said he opposed any “tinkering” with the 1986 Tax Reform Act, which reduced income tax rates while eliminating many deductions, credits and loopholes.

“I don’t like the capital gains cut because in the long run I think it’s going to cost us money,” he said.

Capital gains are profits from the sale of stocks, bonds and other assets. A reduction in the tax rate on such gains is expected to raise revenue in the short term because it would encourage people to sell assets that they might have held otherwise.

Rostenkowski conceded that “there may be some arrangement between Democrats and Republicans and between the Administration that we might see a capital gains cut as well as an expansion of tax-sheltered individual retirement accounts.”

Since the Constitution requires that tax bills originate in the House of Representatives, Rostenkowski’s committee usually plays a strong role in shaping revenue-raising legislation.

But the Senate can add tax legislation to any House-originated revenue measure, thus bypassing the Ways and Means panel.

Rostenkowski, who turned 62 this month, said he is considering leaving Congress after the 1990 congressional reapportionment takes effect. Illinois is expected to lose two seats, he said, and a few members of Congress from his home state with long service records are debating whether it is time to let younger people take their place.

“I really haven’t made up my mind,” he said. “I love the job and I’d like to stay on, but, you know, I owe a little bit to my family.”

Rostenkowski has an added incentive to leave. Under current law, he could take $1 million in unspent campaign contributions with him when he retires and use it for his personal needs.

If he does depart, Rep. Sam Gibbons (D-Fla.), 70, would be next in line for the chairmanship of the Ways and Means Committee, if seniority is the deciding factor.