"We're entering the theater of the absurd, where you spend money, but it doesn't count, you borrow money, but you deny it," said Kent Conrad (N.D.), the ranking Democrat on the Senate Budget Committee. "Republicans are becoming further and further detached from reality."
To cope with the cost, while still helping the White House at least appear to be moving toward its goal of cutting the deficit in half by 2009, White House and congressional budget experts are looking at a variety of accounting mechanisms, said Michael Tanner, a Cato Institute Social Security expert who has worked closely with the White House.
They include treating the cost of Social Security reform not as a present-day expenses, but more as a prepaid benefit for future retirees that should not be counted against current deficits. Or they may take the costs "off-budget," meaning Social Security spending would not be included in the calculation of the annual budget deficit.
"How they label it is going to be somewhat of an exercise in creative budgeting," Tanner said.
Gregg and other allies of the president argue, in fact, that transition costs of $1.5 trillion or more over the next 10 years should not be considered an increase in the nation's debt. Instead, they say, such borrowing would be a prudent recognition of future obligations.
"The diversion of a portion of payroll taxes to personal accounts is akin to prepaying a mortgage," R. Glenn Hubbard, former chairman of Bush's Council of Economic Advisers, wrote in the current issue of Business Week. "If the transition costs are borrowed, the resulting higher explicit federal debt in the near term is offset by lower implicit debt (Social Security obligations) in the longer run."
The U.S. government may already be borrowing more than $400 billion a year, but supporters argue that international lenders will not punish the Treasury for additional borrowing because they already have factored Social Security's future obligations into the interest rates of today.
"The market is rational, and they are already nervous about all these unfunded obligations in Social Security and Medicare," said Kent Smetters, a former Bush Treasury Department economist now at the University of Pennsylvania. "Resolution of that uncertainty is actually going to be a positive."
To Democrats and some economists, that may be true in theory, but in reality, it is flirting with trouble. No matter how the borrowing is accounted for in the budget, lenders will have to be found to raise the money to pay the bills.
Already, there are concerns that foreign creditors in particular are growing tired of the U.S. government's constant need for cash, Conrad said. If lenders are reluctant to finance the president's Social Security plan, interest rates may have to rise sharply to entice them to do so. That could harm the overall economy.
"This is more than political blather," Conrad said. "This gets to the markets, and people who are in the markets can add and subtract."