Growth of Retiree Benefits Targeted : Social Security: Treasury aide says Clinton will propose reductions in the rate of increase. Moynihan, head of finance panel, calls it a political ‘death wish.’

WASHINGTON — A senior Treasury official said Sunday that the Clinton Administration will propose reductions in the rate of growth of Social Security benefits, but a powerful Democratic senator warned that it would be a political “death wish” to seek any cutback in cost-of-living increases for Social Security retirees.

Deputy Treasury Secretary Roger Altman said in a television interview that eliminating the annual raise in Social Security payments that offsets the effects of inflation is under consideration as the White House puts together its economic plan.

“That’s a death wish, and let’s get it out of the way and forget it right now,” Sen. Daniel Patrick Moynihan (D-N.Y.), new chairman of the Senate Finance Committee, said in a separate television interview.

Moynihan’s sharp criticism was voiced as President Clinton faces a new wave of controversy after being jolted by opposition to plans to lift a ban on gays in the military and the withdrawal of Zoe Baird as his nominee for attorney general.

The comments came as Clinton and members of his Cabinet met at the presidential mountain retreat at nearby Camp David, Md., to discuss components of an economic package that he will submit to Congress on Feb. 17 in his State of the Union message.

“We spent a lot of time talking about it,” Clinton told reporters as he returned to the White House late Sunday afternoon. He made no other comment.

Altman, a close friend of the President’s who was one of Clinton’s top economic advisers during the presidential campaign, said that the Administration would advocate restraints on the growth of Medicare, Medicaid, welfare payments and Social Security outlays as part of its efforts to reduce the huge federal budget deficit.

“We all know it’s eating the federal budget like a termite, and that has to be dealt with and that will be dealt with in this (economic) program,” Altman said on NBC’s “One on One with John McLaughlin.”

Traditionally, even discussing possible cuts in Social Security benefits or cost-of-living increases has been considered politically fatal in view of the well-organized and powerful organizations that lobby for retired persons.

About 30 million Americans now receive Social Security retirement benefits averaging $650 a month. The most recent cost-of-living increase to offset 1992 inflation--3.2%--amounted to about $19 a month for the average recipient.

Surprisingly, Senate Minority Leader Bob Dole (R-Kan.), appearing on NBC’s “Meet the Press,” said that he favors a reduction of one or two percentage points in cost-of-living payments to all Social Security recipients rather than higher taxes on relatively well-off retirees.

“In my view, that might be the better way to go,” Dole said, recalling that Congress delayed a cost-of-living adjustment in 1985 for six months. “It’s a tough call.”

Moynihan, speaking on ABC’s “This Week with David Brinkley,” scorned a plan reportedly being advanced by Budget Director Leon E. Panetta to delay for a year the cost-of-living adjustment now provided for recipients of Social Security, military and federal government pensions. Such a move would save about $15 billion, or 10% of the $145-billion deficit reduction that Clinton hopes to achieve by 1997.

Some leading Republicans, however, said that they wanted to see primary emphasis on reduction in government spending rather than new taxes as debate intensifies over how to lower a federal budget deficit now estimated at $300 billion a year.

And some GOP lawmakers caustically recalled Clinton’s campaign pledge to cut middle-class taxes and noted that the President now appears to be focusing on how much to raise taxes for all income groups.

Moynihan spurned the idea of limiting cost-of-living adjustments for Social Security recipients and said that it could be politically explosive.

“If the President just won’t step on the land mines as his Cabinet kept doing all week, like proposing to take away the cost of living allowances for retired persons--that’s a real blow,” Moynihan argued. “How many more millions of people do you want (to put into) poverty doing something like that?”

The New York Democrat said, however, that he would be willing to discuss a proposal from the Clinton Administration to raise federal income taxes on Social Security benefits of upper-income recipients, which Altman said also is under consideration.

Moynihan, who took over the finance panel when Lloyd M. Bentsen became secretary of the Treasury, also declared his support of a tax on all forms of energy--coal, natural gas, gasoline and electricity--that Bentsen has said is under consideration.

Moynihan said that the Social Security trust fund is running a surplus and that the cost-of-living adjustment simply maintains the buying power of the basic retirement benefit.

His position against limiting cost-of-living increases was reported to have been advocated by Senate Majority Leader George J. Mitchell (D-Me.) and Sen. James Sasser (D-Tenn.), chairman of the Senate Budget Committee, during a White House meeting with Clinton last week. House Majority Leader Richard A. Gephardt (D-Mo.) reportedly favors the Panetta plan.

Since 1983, the law requires that a retired couple with income above $32,000 a year, or an individual with retirement income of more than $25,000, must pay income tax on half of their Social Security benefits. Making a larger proportion of these benefits subject to taxation, some Senate Democrats believe, would be fairer, and more politically popular, than restricting annual cost-of-living raises.

As for a broad-based energy tax, Dole said that he wanted to see details of any such proposal.

While he might favor an oil import fee, the Kansas lawmaker said, it would have to make allowances for areas where home heating oil is widely used, such as New England.

“A gas tax--if you dedicate the money to deficit reduction, or half of it (to deficit reduction) and half to infrastructure, highways and bridges--I think we can get substantial support for that tax increase,” Dole said.