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News & Views |Clinton Vows to Reserve 62 Percent of Surplus for Social Security FixTuesday, January 19, 19998 Deloitte & Touche OnLine President Bill Clinton in his State of the Union address late January 19 will propose setting aside about 62 percent of the federal budget surplus to save Social Security. "The president is saying through his plan that by saving instead of squandering the surpluses brought on by our discipline and prosperity, we can address much of our long-term retirement challenge in a way that lifts that burden off our children and grandchildren," said White House economic adviser Gene Sperling. Beginning in 2013, Social Security expenditures will be higher than payroll tax income, so something will have to be done to maintain the system’s solvency, actuaries warn. The rest of the surplus should be set aside for saving Medicare, and improving defense readiness and domestic programs, according to Clinton. Surplus funds also should be set aside for setting up 401(k) style retirement plans that allow investment in the securities and bond markets through an independent board, Clinton said. GOP leaders expressed concern about how Clinton will propose structuring the new retirement plans. House Ways and Means Committee Chairman Bill Archer, R-Texas, does not like the government directing how to allocate the funds invested in securities. "No. No. A thousand times no," he said in a statement. The President does not propose using the surplus to fund tax cuts. This puts him in opposition to House and Senate Republicans who favor large tax cuts that would be funded partially by the surplus. The debate over how to use the surplus repeats the battle that Clinton and congressional Republicans fought last year. In the State of the Union address, Clinton also is expected to renew his call for
tax-incentives for long-term health care. He also will propose about $10 billion in tax
credits for school construction bonds; an increase in the sales tax on cigarettes by 55
cents a pack; new tax credits for disabled Americans; and more money for environmental tax
initiatives. |
GOP Calls for Tax Cuts: Senate Republicans called for a 10 percent income tax for individuals. The projected $700 billion surplus over the next ten years provides the opportunity for such a large tax cut, the GOP senators said. "A 10 percent across the board tax cut will be the simplest, fairest, and -- I believe -- most productive way to give the money back, and to see that the economic growth our nation is enjoying continues well into the future," said Senate Finance Committee Chairman Senator Bill Roth, R-Del. The across-the-board tax cut proposed by Senate GOP leaders will face stiff competition
from other tax-cut proposals offered by House Republicans and other GOP senators. Sen. Kay Bailey
Hutchison, R-Texas, plans to introduce legislation to eliminate the marriage
penalty, an idea that is supported by many House GOP leaders. Roth also is proposing a bill that would provide that companies can give participants in 401(k) and 403(b) retirement plans the opportunity to contribute to these plans on an after-tax basis, with the earnings on such contributions being tax-free when distributed, as under the Roth individual retirement account. The bill would increase the annual contribution limits on all IRAs from $2,000 to
$5,000. It also would increase the annual contribution limits for 401(k) and 403(b)
retirement plans to $15,000, and the limits for retirement plans for small businesses to
$10,000. |
Senate Democrats Offer Plan: Senate Democrats also offered their own tax-cut bill (S. 8) that would link marriage penalty relief and other tax cuts with an increase in the minimum wage. The bill also would simplify pension rules, would increase portability of pension benefits, and level the playing field so that women would receive similar retirement benefits as men. The measure also would strengthen the current pay-as-you-go rule that requires tax cuts
to be paid for with spending cuts or tax increases. The measure would restrict the
Senate’s ability to consider changes to the rule. Republicans favor relaxing the
pay-as-you-go rule. |
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