A fresh focus on Social Security in budget debate

The Associated Press
Wednesday, March 9, 2011; 6:20 PM

WASHINGTON -- In the midst of the budget crisis, an old debate has broken out with new force: Should Social Security be seen as part of the deficit that Washington needs to rein in?

The White House is balking at calls to tackle Social Security's financial problems now, before baby boomers swamp the system. But the massive retirement program, like the rest of the government, is running a deficit and has become part of the argument on Capitol Hill.

The elderly and disabled don't need to worry about losing their benefits or seeing them cut anytime soon. The Obama administration is correct in asserting that Social Security doesn't face an immediate crisis. But the program's red ink will only get worse the longer policymakers don't act.

While Congress has spent the past several weeks debating how much to cut government spending through September, a growing number of lawmakers say they also want to act on long-term concerns about benefit programs like Social Security, Medicare and Medicaid.

"If you don't think Social Security is becoming unraveled as a safety net, you're not listening," says Sen. Lindsey Graham, R-S.C. "This year it is paying more in benefits than it collects in taxes. Once it goes off this cliff, it goes fast."

House Republican leaders say their budget plan for next year will address entitlement programs, including Social Security. President Barack Obama kept the administration's hands off the big benefit programs in his budget plan for next year, saying it will take time to create the political environment necessary for Democrats and Republicans to negotiate in good faith on such difficult long-term issues.

But Social Security's problems do have some immediacy. Last year's $37 billion operating deficit - the first since the system was last overhauled in the 1980s - is expected to grow to $45 billion in 2011. Over the next decade, the program is projected to run up more than $500 billion in operating deficits if Congress doesn't act, according to the nonpartisan Congressional Budget Office.

White House officials and some Democrats in Congress say not to worry: Social Security has built up a $2.6 trillion surplus over the past 30 years.

"Social Security benefits are entirely self-financing," White House budget director Jacob Lew wrote in a Feb. 21 article in USA Today. "They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries."

That argument, however, overlooks a nagging fact: The money in the trust funds has been spent over the years to help fund other government programs. In return, the Treasury Department issued bonds to Social Security, which earn interest and are backed by the government, just like bonds sold in public debt markets.

When Social Security runs a deficit, it redeems its bonds with the Treasury Department to cover the red ink. But Treasury gets the money to pay Social Security the same places the government gets all its money: either from taxes and other revenues or by borrowing it. Last year, the government borrowed 37 cents of every dollar it spent. This year it's borrowing 43 cents of every dollar.

Here is how Lew described the Social Security trust funds when he was budget director under former President Bill Clinton, in Clinton's 2000 budget request:

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