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Reading Between the Budget Lines, Clinton's Social Security Plan Is No Real Fix

By Allan Sloan
Tuesday, February 10, 1998; Page C03

Yes, Virginia, there really are stories out of Washington that don't involve Monica Lewinsky. Consider, if you will, one of the nation's most important financial questions: how to fix Social Security before baby boomers start retiring about 15 years from now and bust the federal budget.

Taking advantage of the fact that experts now predict the first federal budget surpluses in 30 years, President Clinton proposed in his State of the Union message to link surpluses and Social Security. "What should we do with this projected surplus?" he declaimed. "I have a simple four-word answer: Save Social Security first."

Exit the rhetoric, to applause. Enter the bookkeeping, to yawns. How, exactly, does the president's budget propose to use the surplus to "save" Social Security? With accounting hocus-pocus.

Open the four-volume, 2,475-page, 11-pound budget proposal, which plopped onto desks all over Capitol Hill last week, and you find a new line called "Reserve Pending Social Security Reform." It starts at $9.5 billion in fiscal 1999 and rises to $258.5 billion in 2008 and consists of the difference between federal receipts and federal outlays.

In other words, what would normally be called a surplus is now called a Social Security reserve. The budget still has the traditional deficit-surplus line, but it's zeros straight across. Isn't accounting fun?

Strange bookkeeping, but interesting politics. Propose a tax cut, and you can be accused of trying to loot the Social Security reserve. On the other hand, Clinton proposed new spending programs – to be funded by tobacco settlement money the federal government may never see – that don't count as affecting Social Security.

What would the Social Security reserve do? No, it wouldn't be used to pay Social Security benefits. It wouldn't end up in the Social Security trust fund either. Rather, says White House budget office spokesman Lawrence Haas, the money would be used to reduce the federal government's debt. Which is exactly what would happen if you called the $9.5 billion a surplus instead of a Social Security reserve.

The idea, Haas says, is to keep people from spending the surplus before we solve Social Security's long-term problems. After that's done, the Social Security reserve would no longer appear in budgets. "It's a place holder," he says. Gene Sperling, Clinton's economic adviser, is even more blunt. "This is a purposely designed line to shame people from draining the surplus before we've met our obligation to fix Social Security," he says.

I'm not blaming the folks in the White House for using political accounting. The budget, after all, is a political document. My problem is that the debate over "saving Social Security first" is hiding the fact that, except for the government's strange accounting methods, no one would be talking about a surplus. And that the debate over what to do with the so-called surplus makes it harder for non-policy junkies to understand what's really going on with Social Security.

For fiscal 1999, for instance, it's projected that the Social Security trust fund will take in $105 billion more in taxes and interest than it spends in benefits and other costs. The government will borrow that $105 billion from the trust fund, replace it with Treasury IOUs and spend it.

So instead of spending the whole Social Security surplus, Clinton now proposes to use $9.5 billion of the $105 billion to lower the federal debt. Yes, a smaller national debt is better than a bigger one. The lower the debt, the less we have to spend on interest, the lower interest rates will tend to be, the bigger and more productive the economy will tend to be.

But let's not pretend that either the budget's or Social Security's problems are solved. Even though federal rules count Social Security in the so-called unified budget, taking cash out of the trust fund, spending it and replacing it with Treasury IOUs is what Susan Tanaka of the Committee for a Responsible Federal Budget calls spending the same money twice.

You spend the cash on various government programs, while telling present and prospective retirees that trust fund money has been set aside for them. The budget projections don't show what I would call a real surplus – a surplus without using Social Security money – until fiscal 2007. And that's a long time from now. I wouldn't bet the farm – or my future income – on it.

Besides, whether the projected 1999 surplus is or isn't being used to strengthen Social Security isn't the real point. The real point is this: When baby boomers begin retiring en masse in the second decade of the next century, paying them today's benefits will throw Social Security into horrendous deficits.

The only way to cover those deficits would be to cut other government spending, raise taxes or increase borrowing. And please don't tell me about the Social Security trust fund cushioning that blow. The trust fund consists entirely of IOUs from the Treasury. How do you think the Treasury will convert those IOUs to cash? You got it: by cutting spending, raising taxes or borrowing.

In other words, while the trust fund has enormous political significance – representing pledges to present and future retirees – it has little financial significance. Using the trust fund's Treasury IOUs to raise money is no different from the Treasury selling its own IOUs to raise money.

And who knows? Maybe we'll actually fix the Social Security problem, preserving good features (like keeping low-income seniors from having to live on dog food) while making the system more fair to today's twenty- and thirtysomethings, many of whom quite rightly feel the system is ripping them off. If we can actually do that, the debate over the lines in the 1999 budget may turn into mere historical footnotes. And maybe Monica Lewinsky will, too.

Allan Sloan is Newsweek's Wall Street editor. His e-mail address is sloan@panix.com. Newsweek's Rich Thomas contributed to this column from Washington.

© Copyright 1998 The Washington Post Company

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