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Economist Query Hands-Off Social Security Policy

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  • Social Security Special Report
  • By George Hager
    Washington Post Staff Writer
    Sunday, October 10, 1999; Page A5

    As the Republican-controlled Congress ties itself in knots to avoid spending a penny of the Social Security budget surplus, economists and budget analysts say politicians have created an artificial crisis that has little or nothing to do with economics or the safety of retiree benefits.

    While budget experts applaud the impulse to limit federal spending, they say politicians have elevated what is essentially an arcane accounting device to a matter of life-or-death national policy that somehow threatens Social Security recipients. Not so, experts say.

    "A good goal has been transformed into a political football that's very ugly, trying to scare people into saying if you dip into Social Security money it's somehow coming out of beneficiaries' benefits," said Robert Bixby, policy director for the Concord Coalition, a budget watchdog group. "It has absolutely nothing to do with beneficiaries."

    At stake here are the huge annual surpluses generated by the Social Security program, which for years has been collecting more payroll taxes than it needs to pay current benefits. Technically, that extra money is being banked to pay baby boomer retirement benefits in the next century.

    But just as a bank books deposits and lends out the cash, Social Security for years has been lending its surplus cash to the Treasury to pay the day-to-day bills of the rest of the government. Experts say that doesn't change the amount of the deposits in the Social Security trust funds, or retirees' entitlement to draw on them in the future.

    When Social Security needs the money, the government will have to make good--by drawing on non-Social Security surpluses, cutting other spending, raising taxes or running budget deficits again. Indeed, under current law, there is no way for Social Security to "save" its excess cash except by reducing the national debt, which will essentially put the government in a better position to run up deficits again if that becomes necessary.

    But now, in an escalating feud over which party is purer in its devotion to the giant national retirement system, congressional Republicans and Democrats and President Clinton have all taken the pledge not to lend out that Social Security cash anymore. Goaded by each other into firmer and firmer declarations that they will not "raid" Social Security, all sides have promised to pass all 13 of this year's spending bills without touching any of the giant program's surplus.

    Alas for Congress and the White House, though, that looks increasingly impossible. Congressional Budget Office figures show that the bipartisan demand for spending is so big--and the amount of non-Social Security money so tight--that politicians may have no choice but to dip into Social Security to make their spending bills work.

    So should retirees cringe in anticipation that their benefits will shrink? Hardly. Despite the increasingly flamboyant rhetoric, Congress and the president could invade the Social Security surplus for much more than now seems likely without affecting the program a bit, experts say.

    That's because it's the overall fiscal health of the government--which will remain sound whether lawmakers "raid" Social Security for $4 billion or $40 billion--that determines how well equipped it is to meet its obligations to beneficiaries.

    "Whether or not they meet this limit has nothing to do with Social Security," said William A. Niskanen, chairman of the libertarian Cato Institute and former chief economics adviser to President Ronald Reagan. "It is no great tragedy if they exceed it by a little bit."

    "They're not stealing anything from anybody," said Stanley Collender, managing director of the federal budget consulting group at Fleishman-Hillard. "They're not in any way threatening the viability of the program."

    The cause for much of the confusion and maneuvering is the complex way the federal budget treats Social Security. Although economists tend to look at the federal budget as a single entity (which is why they don't particularly care about the line between Social Security and everything else), budgeteers have carved the budget into scores of accounts that at least technically function separately.

    But budget experts emphasize that these are just accounting devices aimed at helping the government record how much it owes future retirees, much as a bank records the money it owes depositors.

    In effect, Congresses and presidents of both parties have been treating the Social Security surplus like a bank account ever since 1983, when Reagan and the Democratic Congress bailed out the program by raising payroll taxes and making other fixes. Since then, by one estimate, both parties have spent more than $600 billion in Social Security surpluses. For years, Social Security surpluses made the deficits in the rest of the government look smaller or, beginning in 1998, evaporate, when the Social Security surplus helped balance the federal budget for the first time since 1969.

    The only reason politicians can suddenly propose to stop spending Social Security surplus funds is because the rest of the budget is finally projected to begin generating surpluses too. Of the overall $161 billion surplus forecast for the current fiscal year, for example, $147 billion comes from Social Security, while $14 billion comes from the rest of the government balancing its books.

    Politicians consider that $14 billion non-Social Security surplus fair game, and CBO numbers indicate they have already spent it to fatten spending bills. Now the question is whether they can avoid dipping into the $147 billion surplus that derives from Social Security.

    While CBO numbers suggest they already have, both sides are furiously maneuvering to avoid it. Clinton has proposed a tobacco tax increase to offset the cost of bigger spending bills. Republicans reject that, but they have had a hard time settling on their own offsets.

    With both parties having highlighted the issue, the stakes are high. "God help the political party who is defined as spending the Social Security surplus," said Frank Luntz, a GOP pollster, who said he fears congressional Republicans are losing the fight. "They knew that this was going to be the argument at the end, and they still fell into Clinton's trap," he said.

    While they don't regard dipping into the Social Security surplus as the "raid" politicians describe, budget experts endorse the idea of trying not to spend it, because that encourages fiscal discipline and leaves the surplus available for paying down the national debt. "If we stick with that," said Robert Reischauer, a senior fellow at the Brookings Institution, "it will be a very important development in our budget history."

    But while that would put the government in a better position to borrow again to help pay baby boomer retirement benefits in the next century, reformers say it would do nothing to solve Social Security's fundamental mismatch between future revenues and burgeoning benefit payments, a problem Congress and the White House were supposed to tackle this year. The dispute over spending money from the Social Security surplus "totally obscures the big issue, and it's going to let both parties off the hook for not doing any real Social Security reform this year," said the Concord Coalition's Bixby. "It's a pretty sad conclusion."

    © 1999 The Washington Post Company

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