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Plenty for Social Security

By James K. Glassman
Tuesday, November 24, 1998; Page A19

opinion
Bill Clinton's grand success in this month's elections was due partly to a fact that Republicans still can't accept: Their strategy on the Lewinsky scandal has backfired. Americans, it is clear, just don't like the idea of super-aggressive government prosecutors prying into private lives -- even the president's.

But there is another reason Democrats took five seats in the House and won a draw in the Senate: It was Clinton's brilliant strategy that blocked Republicans from offering the winning message of tax cuts.

In his State of the Union address in January, Clinton said, "What should we do with [the] projected surplus? I have a simple four-word answer: Save Social Security first."

This line -- which I'll shorten to SSSF -- would make Republicans (and Democrats, for that matter) look irresponsible and heartless if they tried to trim tax rates. The line was enormously effective -- even though it was an outright hoax. But no one called the president's bluff.

The surplus we ran in the fiscal year that ended Sept. 30, 1998, and the ones we'll run in the next several years have nothing at all to do with the plight of Social Security. Nothing. We could spend that surplus, or we could return it to the taxpayers in the form of cuts -- all without affecting retirees one iota. Let me explain.

Social Security is essentially a pay-as-you-go system. Workers pay taxes, nearly all of which are then turned over to beneficiaries. Anything left over -- and there hasn't been much -- goes into a trust fund.

For example, in 1998 the system will collect $484 billion from 144 million employees and their 7 million companies, or about $3,400 per worker. The system then pays out $383 billion to 44 million Social Security recipients, or about $8,700 per beneficiary.

The money that remains -- $101 billion -- goes into the trust fund, which will have a total of $656 billion in assets at the end of this year.

What assets? Well, the trust fund lends its money to the rest of the government (to buy missiles, run the Department of Education, etc.) and, in turn, receives special non-marketable bonds, or IOUs, which only the U.S. Treasury can redeem.

As long as there is more money coming from workers than is going to retirees, Social Security hums along nicely, but according to the latest report of the system's trustees, this happy circumstance will end in the year 2013 when "outgo exceeds tax income."

What will happen? The assets in the trust fund won't help beneficiaries, since they need cash to pay rent, not IOUs. So the trust fund will ask the Treasury for the money. There are only two sources for it: general tax revenues and new borrowing.

So let's be clear: The only way to save the Social Security system, as it currently exists, is through taxes or borrowing down the road.

Back to the surplus. There are only three things that can be done with it: Spend it, give it back in tax cuts or do nothing. This last means using the surplus to pay off some of the federal debt, which now totals about $5.5 trillion.

For fiscal 1998, politicians did nothing -- in part because the surplus snuck up on them. For fiscal 1999, despite Clinton's promise to "reserve 100 percent of the surplus," the president and Congress approved a budget that will spend about one-quarter of that surplus. (So much for SSSF!)

As a result, the Congressional Budget Office now projects a surplus for the year of $63 billion instead of $80 billion. Again, that surplus will be used to pay off bonds as they come due.

But what about Social Security? It is not affected by decisions regarding the surplus, except in this sense: In 2013, when outgo exceeds income, it may be marginally easier for the government to borrow if its total debt is $4 trillion instead of $5.5 trillion. Maybe.

Social Security does face a crisis in 2013 and beyond. It is a system that must be reformed, and Clinton, to his credit, has called a conference for Dec. 8 that will examine how.

But the two questions -- reforming Social Security and dealing with the surplus -- are separate. Members of Congress should not be intimidated by Clinton into abandoning tax cuts any time they hear, "SSSF!"

This year, federal taxes represent 20.5 percent of gross domestic product -- the highest proportion since World War II. The economy, both worldwide and domestic, is slowing, and a cut would help boost spending and investment at a critical time.

Remember that a surplus is an overcharge -- the federal government is taking more money out of the pockets of Americans than it needs for its operations. It should do what 22 states that ran surpluses last year did: End the inequity by reducing taxes.

Over the next five years, the CBO says surpluses will total $600 billion. Half could go to paying down debt and half to tax cuts with no effect -- none at all -- on Social Security.

The writer is a fellow at the American Enterprise Institute.

© Copyright 1998 The Washington Post Company

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