Moynihan Tax Cut Plan Gets Boost From Party : Politics: Democrats on leadership council and national committee praise proposal to trim levy for Social Security. Backers see campaign advantages.

NEW ORLEANS —  Democratic leaders acted on two fronts Friday to seize the initiative in the national economic policy debate with President Bush by promoting a controversial proposal to cut the Social Security payroll tax.

In New Orleans, the Democratic Leadership Council, a group of centrist elected officials, gave a warm reception to Sen. Daniel Patrick Moynihan (D-N.Y.), author of the controversial proposal to reduce the payroll tax from the current 6.2% to 5.1%.

Moynihan, whose appearance highlighted the opening session of the council’s two-day policy conference, charged that the Bush Administration was “looting” the Social Security trust fund to help reduce the federal deficit.

“You could go to jail in other walks of life for doing that,” Moynihan said.

Moynihan’s proposed rate cut would provide workers who earn the Social Security maximum--$54,300 in 1991--with a tax savings of $600 a year. It would put Social Security on more of a pay-as-you-go basis, eliminating the surpluses now being used to defray the deficit.

Rep. Timothy J. Penny (D-Minn.) praised the Moynihan approach for reducing the tax burden on middle-income taxpayers and for protecting the trust fund. “If we (Democrats) don’t stand for those principles, what do we stand for?” Penny demanded.

Meanwhile, in Indianapolis, the Democratic National Committee moved toward adoption of a resolution endorsing the Moynihan proposal.

The resolution, submitted by New York state party chairman John Marino at the instigation of Gov. Mario M. Cuomo, was taken up Friday by the DNC executive committee. It was expected to receive the backing of the full DNC, the party’s governing body, at today’s’s session.

Flying to New Orleans from Indianapolis for a brief visit, Democratic National Committee Chairman Ron Brown called the Moynihan plan “a stroke of genius.” Brown said that Moynihan “has touched a real nerve by daring the Administration to come clean and admit to what they’ve been up to.”

As Brown and other backers of the Moynihan plan pointed out, the New York senator’s proposal offers Democrats several political advantages.

First, it focuses attention on the Bush Administration’s use of the Social Security trust fund, which has been growing steadily in recent years, to reduce the size of the deficit.

Second, it helps Democrats shed their traditional reputation as tax boosters by casting them as tax cutters instead.

Finally, it could strengthen the appeal of the Democrats among lower- and middle-income wage earners, who Moynihan contends bear an unfair share of the nation’s tax burden and who have defected from the Democratic Party in large numbers in the past three presidential elections.

“I’d love to have a floor debate on cutting Social Security versus cutting capital gains,” said Democratic House Whip William H. Gray III of Pennsylvania, referring to Bush’s proposal to reduce capital gains taxes to spur economic growth.

Gray predicted that if Moynihan’s proposal reaches the House floor it would pass overwhelmingly. “This is good policy, and it’s good politics, too,” he said.

Not all participants in the Democratic Leadership Council session were enthusiastic about the Moynihan plan.

Rep. J. J. Pickle (D-Tex.) cautioned Democrats that “we should be careful in our glee and excitement” until a way has been devised to offset the decline in general revenues, which would significantly widen the deficit.

By Moynihan’s calculations, his proposal would cause a loss of $62 billion in tax revenues over the next two years.

Another objection was raised by Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee, who worried that enactment of the Moynihan plan would touch off “a tax cut bidding war” between Democrats and Republicans in Congress.

Nevertheless, Friday’s developments represented the biggest boost for Moynihan’s proposal since he introduced it late last year to the surprise and consternation of many Republicans and some Democrats.

Even those who voiced objections to specific aspects of the Moynihan plan indicated they would be willing to consider a modified form of the proposal.

Bentsen, for example, said he would study the possibility of simply rolling back the payroll tax increase that went into effect this year, when the payroll tax rate jumped from 6.06% to 6.2%.

Rep. Richard A. Gephardt (D-Mo.), the House majority leader who is heading a task force to develop a Democratic tax strategy, said he could not predict whether the Moynihan proposal would receive widespread support.

But Gephardt said Moynihan had “tapped two very important issues,” by focusing attention on the use of the Social Security trust fund and the tax burden on middle-class wage earners. “Democrats are going to try to embody these themes in the positions they take,” he said.

The generally positive reaction to the Moynihan plan at the New Orleans meeting contrasted with a lack of visible interest in a deficit reduction plan offered two weeks ago by House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.).

Rostenkowski proposed freezing most government spending programs, including cost of living increases for Social Security beneficiaries, while raising taxes on oil, pollutants, alcohol and tobacco. Many Democrats regard the proposal as politically risky, particularly in the absence of strong backing from the Administration.

The Moynihan proposal has been sharply criticized by the Bush Administration. Budget Director Richard G. Darman has contended that by increasing the budget deficit, the plan risks “fiscal policy havoc.”

Bush has labeled the plan “a charade” designed to get him to raise income taxes to meet the increased burden on the deficit.