Bush Wants Separate Social Security Ledger : Budget: Surpluses mask the size of the deficit. The President seeks to move the program off the main books.

President Bush, countering a Democratic proposal to cut Social Security taxes, will call for gradually ending the practice of using huge Social Security surpluses to mask the size of the federal deficit, his top aide said Sunday.

White House Chief of Staff John H. Sununu said the plan, to appear in Bush’s new budget, involves moving Social Security revenues into a separate “trust structure that makes sure those funds are preserved.”

Sununu provided scant details in an interview on CBS-TV’s “Face the Nation,” but indicated the proposal to shift Social Security funds off the main-budget books would be phased in over a number of years.

The Bush plan contrasts sharply with one advocated Dec. 29 by Sen. Daniel Patrick Moynihan (D-N.Y.), chairman of the Senate Finance subcommittee on Social Security.

Moynihan urged cuts in the Social Security payroll tax that would save 130 million workers and employers a total of $62 billion during the next two years. He said the plan would put the retirement system back on a pay-as-you-go basis instead of amassing trust fund surpluses exceeding $200 billion in the coming decade.

Moynihan protested that listing Social Security surpluses in the general budget keeps the Administration and Congress from having to make more drastic spending cuts or generate new revenue to meet deficit reduction targets.

He made clear that his plan, which would have immediate impact, was aimed at forcing deep defense cuts and moderation of Bush’s bid to cut capital gains taxes.

The President’s proposal to move Social Security revenues off budget might take place so gradually that it would put little pressure on his spending and tax plans.

In 1983, with the Social Security system deemed in serious trouble, the government moved from a pay-as-you-go system, in effect for decades, to a system of higher taxes to build up the trust fund in advance of benefit payments.

Since then, the surplus in the Social Security trust fund has grown and is expected to reach $236 billion in the year 2000.

The surplus money is used to buy Treasury bills; it is also used as a bookkeeping method to offset the deficit. For instance, the fiscal 1989 deficit would have been $204 billion, instead of just over $145 billion, without the trust fund offset.

Moynihan said the Congressional Budget Office estimated that in the year 2000 the true deficit would be about $268 billion--or “a $268-billion deficit financed almost exclusively by the Social Security payroll tax. This is totally unacceptable.”

Sununu charged that Moynihan’s tax-cut proposal was “absolutely contrary to what he cautioned we ought not to do” when Moynihan served on a bipartisan commission that produced a Social Security rescue plan.

The Bush aide said the Administration was concerned that “this Democrat effort” was only a “first step” that would lead to “cutting Social Security benefits.”

Moynihan spokesman Brian Connolly said in response: “We find it encouraging that the White House may be willing to finally stop using the Social Security trust fund to mask the size of the federal budget deficit.

“The measure that Sen. Moynihan plans to introduce would return the Social Security system to a pay-as-you-go basis that will be fully adequate to fund present benefits and future commitments into the next century.”