Budget Amendment Debate Confronts Bottom Line: Social Security

The bitter struggle over the balanced-budget amendment has boiled down to a debate over the unresolved fate of Social Security, one of the toughest and most explosive issues that Washington will face as it edges closer to the turn of the century.

Grudgingly, Senate Republican leaders now are offering to exempt Social Security from the requirements of the balanced-budget amendment to win critical Democratic support and to salvage the most visible centerpiece of the Republican agenda.

Yet those same Republican leaders know that exempting Social Security and thus prohibiting its huge surpluses from being used to offset the budget deficit will make the task of balancing the budget next to impossible. But the GOP leaders are one vote short of victory. They need the votes of at least one of North Dakota’s two Democratic senators, Kent Conrad and Byron L. Dorgan, who both want the Social Security fund totally divorced from the rest of the budget before they agree to vote for the amendment.

That change would protect Social Security benefits from the fiscal pressures that are sure to build in Washington in coming years if the balanced-budget amendment is passed. Social Security is perhaps the most popular and sacrosanct program in the federal government, providing retirement, death and disability benefits to 45 million American families. Insulating it would help avert the potential for a political fight every time Congress deals with the budget.

Yet it also would keep a huge pot of money out of the reach of lawmakers who would be scrambling to bring spending and revenues into balance with the approach of the amendment’s deadline of 2002. Social Security is the government’s single biggest program and slicing it out of the budget-balancing equation would create havoc throughout the rest of the federal establishment.

The 1996 deficit would be $66 billion higher if the surplus in the Social Security trust fund was not available as an offset. The Social Security surplus can be used by the government because the money is invested in government securities, which can be redeemed by the trust fund when it is needed later.

Within four years, Social Security is expected to run annual surpluses of close to $100 billion. Thus, Congress would have to impose far more Draconian spending cuts--or face up to steep tax increases--to cover that gap.

Lawmakers would have to find at least another $558 billion over the next seven years--on top of the $1.2 trillion now estimated to be the total cost of achieving a balanced budget by 2002.

At the same time, however, the current debate over the issue is mired in misconceptions.

Democrats repeatedly have argued that plundering Social Security is the only way for the GOP to finance its “contract with America” promises. “Social Security is very much on the table” for cuts by Republicans, Sen. Christopher J. Dodd (D-Conn.), general chairman of the Democratic National Committee, charged again Wednesday.

“We will not raid the trust funds of Social Security,” insisted Dorgan, who continued Wednesday to resist Republican pressures to switch to support the amendment.

In fact, surpluses of the trust fund already are being used to buy Treasury notes that the government issues to finance the government’s borrowing needs and, in government accounting, is an offset against the deficit. But that does not mean that the trust fund is being drawn down for direct spending for other federal programs.

The Social Security trust fund is accumulating an ever-growing balance, which now stands at roughly $500 billion. That balance is expected to peak at a staggering $2 trillion around the year 2013.

But isolating the trust fund would not necessarily protect Social Security from budgetary gimmicks. Analysts warn that taking Social Security out from under the balanced-budget law would increase the incentive for Congress to dump unrelated programs into Social Security to benefit from its exemption.

“I could see how we could expand the definition of Social Security in order to cover lots of favored spending programs; we could end up with welfare being counted as Social Security,” argued Henry Aaron, an analyst at the Brookings Institution in Washington.

But while Social Security looks like a tempting source of funds today and for the near future, ultimately, it will face an enormous budgetary crisis of its own, one that Congress and the public have yet to confront.

The demographic bulge that is expected to be caused by the retirement of the baby boomer generation after the turn of the century will shift the fund from annual surpluses to yearly deficits after 2012 or 2013. By 2029 the huge shift of boomers from working status to retirement will have exhausted the entire $2-trillion surplus, the Social Security Administration predicts. And, if no action is taken before then, the fund will go broke.

Thus, a constitutional amendment that isolates the fund may limit the long-term solutions that Congress can use to address that looming crisis.

“The problem that no one is talking about is how to deal with the big deficits in Social Security coming in the future,” observed Eugene Steuerle, a senior fellow at the Urban Institute.