Will Social Security reform remain the third rail in American politics?
In recent months, national politicians have begun to flirt yet again with Social Security reform. These politicians are convinced the political climate has changed significantly enough that they believe they will not be committing political suicide by proposing changes to Social Security. Many NSA members are likely to say "We have heard all that before; we don't believe Social Security reform can ever happen."
However, there does appear to be a significant change in the political climate towards Social Security reform. The primary driving force behind such talk is the fact the federal budget is now roughly in balance for the first time in nearly 30 years. In 1997, the federal government collected about $447 billion in Social Security taxes and paid out $365 billion in benefits. The excess $81 billion collected was used to finance other federal programs. Now with the federal budget moving into balance, Congressmen have the luxury of considering how to spend these "surplus" Social Security taxes on different initiatives - perhaps, even for a purpose like reforming the Social Security system itself.
Representative Bill Archer (R-TX), Chairman of the House Ways and Means Committee, has introduced H.R. 3546, the National Dialogue on Social Security Act of 1998. The legislation sets up a National Dialogue on Social Security through the use of regional conferences and Internet websites. This dialogue would serve to help Americans understand the current Social Security program and the problems it faces. H.R. 3546 calls for the principals involved with the National Dialogue to submit a report with recommendations for reform to a bipartisan panel on long-term Social Security reform. The legislation terminates the National Dialogue on January 1, 1999.
Under the provisions of H.R. 3546, the bipartisan panel would then develop a "single set of legislative and administrative recommendations for long-range reforms for restoring the solvency of the social security system and maintaining retirement income security in the United States." H.R. 3546 calls for the bipartisan panel to wind up its affairs by March 31, 1999.
While Representative Archer's bill does not make any specific recommendations to reform Social Security, Senator Daniel Patrick Moynihan (D-NY) has introduced legislation which does offer solutions to the problem. Senator Moynihan has introduced S. 1792, the Social Security Solvency Act of 1998. Under the legislation, the Social Security payroll tax is reduced from the combined 12.4% level to 10.4% between 2001 and 2024, and after that the rate would generally stay at or below the 12.4% level until 2045. By 2060, the combined Social Security rate would increase to 13.4%. Further, beginning in 2001, the bill permits workers to utilize the 2% cut in the Social Security rate to fund personal savings accounts.
As a tradeoff for the positive features contained in S. 1792, Moynihan increases the Social Security wage base from $68,400 in 1998 to $97,500 by 2003. Moynihan's bill also "corrects" the yearly cost of living adjustment for Social Security by subtracting 1 percentage point from the index. According to some commentators, the consumer price index is overstated by .4% to 1.5% on a yearly basis. S. 1792 provides for a number of other reforms in the Social Security system, including an increase in the retirement age and repeal of the Social Security earnings test.
Social Security reform is not likely to be enacted in 1998. Nevertheless, with the federal budget now roughly in balance, members of Congress seem to have more courage to discuss the so-called third rail in American politics. Stay tuned.
Electronic Federal Tax Payment System
The small business community has lobbied Congress successfully during the last two years for successive delays in the effective date for the Electronic Tax Payment System (EFTPS). Under the more recent of these legislative delays, businesses with $50,000 or more in yearly federal tax deposits were generally not subject to a 10% EFTPS penalty to the extent the firm began transmitting its tax deposits electronically by July 1, 1998.
According to IR-98-28, the IRS has recently announced that businesses with $50,000 in yearly payroll tax deposits will now have until January 1, 1999, to start using the EFTPS program. To the extent these businesses continue to use the paper coupon system after January 1, 1999, IR-98-28 states the IRS will begin imposing a 10% penalty on such firms.
Many small business people were pleasantly surprised that the IRS has voluntarily delayed (yet again) implementation of the 10% EFTPS penalty. NSA members should counsel small businesses subject to EFTPS to begin using the EFTPS program. Congress is not likely to step in again and mandate any further delays in the EFTPS program or its penalty provisions.
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|Publication:||The National Public Accountant|
|Date:||Jun 1, 1998|
|Previous Article:||A review of proposed tax penalty relief.|
|Next Article:||Testimony of Roger Harris, vice chair, Federal Taxation Committee, National Society of Accountants.|
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