Republican budget writers say they may have found a way to cut the federal deficit even if they borrow hundreds of billions more to overhaul the Social Security system: Don't count all that new borrowing.
As they lay the groundwork for what will probably be a controversial fight over Social Security, Republican lawmakers and the Bush administration are examining a number of accounting strategies that would allow the expensive transition to a partially privatized Social Security system without -- at least on paper -- expanding the country's record annual budget deficits. The strategies include, for example, moving the costs of Social Security reform "off-budget" so they are not counted against the government's yearly shortfall.
Judd Gregg (R-N.H.) will head the Senate Budget Committee.
White House budget office spokesman Chad Kolton stressed that no final decisions have been made about how the cost of changing Social Security will be handled. The administration has not decided whether it will even embrace a specific Social Security overhaul, beyond advocating the creation of personal investment accounts that would be financed by diverting some portion of Social Security taxes from the current system.
But Judd Gregg (R-N.H.), the incoming chairman of the Senate Budget Committee, said concerns about the deficit should not be allowed to stand in the way of an overhaul that would put the ailing Social Security system on the path to solvency.
"You cannot look at Social Security in the context of a five-year budget," the window that current White House and congressional spending plans cover, Gregg said. "To do so is naive and foolish. . . . If this is simply scored as a five-year exercise, we're never going to solve the problem."
Gregg's thinking mirrors sentiments within the White House, according to administration officials and White House advisers. "The budget should reflect that this is an investment, a down payment that will have very positive implications," said White House spokesman Trent Duffy.
Within 20 years, the retiring baby-boom generation will begin earning more in Social Security benefits than workers are expected to be paying in taxes, a shortfall forecast to increase every year from then on. To ease the long-term shortage, the Bush administration wants to slow the growth in benefits but allow people to divert about a third of their share of Social Security taxes into personal retirement accounts.
In the years before the slower growth in benefits compensates for the loss in revenue, the government would have to borrow, raise other taxes, or cut other spending to maintain benefits for Social Security recipients. An analysis of one plan produced by Bush's Social Security Commission concluded that the interim financing would cost as much as $104.5 billion the first year, balloon to $194.4 billion in the 10th year and would peak in roughly 20 years at $258 billion.
Any accounting mechanism that obscures or minimizes those costs is sure to be controversial. John M. Spratt Jr. (S.C.), the ranking Democrat on the House Budget Committee, called it "the budgetary equivalent of having your cake and eating it too."
Social Security can be put on a stronger financial footing at a fraction of the cost of partial privatization, say critics, who note that borrowing hundreds of billions of dollars on top of already large deficits could spell fiscal disaster.