Extra Serving of Surplus to Elderly Raises Eyebrows

How much is enough for the elderly?

That politically volatile question smolders through the blueprint that President Clinton released Monday for allocating the $4.4-trillion surplus the federal government expects to amass over the next decade and a half.

Under Clinton’s approach, the nation’s senior citizens would receive more than 40 cents of every dollar the government spends over the next five years--and still more as the baby boom generation approaches retirement age.

The expense would be borne by the hundreds of domestic programs--from agriculture to wildlife, and including education and criminal justice--whose costs can easily be adjusted from year to year.

Politically, White House officials believe, tying the surplus closely to Social Security, Medicare and a new retirement account for workers may make it easier for Clinton to resist Republican calls to use the windfall for a large tax cut.

But Clinton’s allocation of so many resources to once and future retirees worries reformers in both parties. They argue that the government must hit the brakes on Social Security, Medicare, Medicaid and other guaranteed benefit programs before they crowd out everything else.

Compounding the problem, many reform advocates believe that Clinton’s promise to devote fully 77% of the expected budget surplus over the next 15 years to Social Security and Medicare alone would make it more difficult for Congress to build political support now for any painful reforms that might control costs in the future.

‘Stronger Dose of Truth’ Needed

“What the president didn’t do . . . is stand before the American people and give them a little stronger dose of truth,” said Sen. Bob Kerrey (D-Neb.), a member of the bipartisan National Commission on the Future of Medicare. “You can’t fix either one of these problems--Social Security or Medicare--without some reduction in benefits or some increase in revenues.”

Although Clinton has said repeatedly that he will support long-term reform in Social Security and Medicare, his new agenda offers no specific reform proposals.

In its focus on the elderly, Clinton’s new budget accelerates a fundamental shift in federal priorities that has been underway for a generation--the trend away from discretionary programs and toward guaranteed benefit programs.

The three major entitlement programs--Social Security, Medicare and Medicaid--account for 42 cents of every dollar in the year 2000. The first two programs serve almost exclusively the elderly, and nursing home care has become Medicaid’s biggest expense.

As the 76 million baby boomers who were born between 1946 and 1964 reach retirement age, these programs will grow ever more voracious. Left unchecked, they will consume two-thirds of all federal spending by 2020 and three-fourths by 2030, according to administration projections.

By contrast, the share of the budget devoted to all discretionary spending will drop from about three-fifths in 1962 to about one-third today, to as little as one-fifth in 2030, according to the projections.

Some Increase in Elderly Spending

Some increase in spending on the elderly is inevitable because the population itself will gray in the next century: By 2030, it is expected that 20% of Americans will be 65 or older, compared with 13% today. The sharpening point of contention will be whether the extent of federal commitment to the elderly is greater than that demographic shift justifies--especially when compared to other potential needs.

Many Republicans want to increase spending on defense or cut income taxes. Many liberals are frustrated that, despite the surpluses, spending on domestic investments such as education and research remains tight.

“You have to ask at what point are we going to really make those investments,” said Jeff Faux, president of the liberal Economic Policy Institute. “We are still not fully funding Head Start--a 30-year program that everyone agrees is necessary.”

But Clinton has shown scant interest in precipitating a major confrontation over such programs this year. Instead, by applying so much of the surplus to Medicare and Social Security, he appears to be trying to replicate the alignment of the 1995 budget fight--when he was able to trump a Republican push for a large tax cut by portraying it as a threat to benefit programs for the elderly. “This is clearly intended to put the Republicans at risk,” said Will Marshall, president of the centrist Progressive Policy Institute.

Entitlement reformers universally applaud one aspect of Clinton’s plan. In practice, virtually all of the 62% of the surplus he wants to reserve for Social Security would be used to pay down the national debt.

This is because the Social Security trust fund would promptly invest its windfall in Treasury securities and the Treasury in turn would use the money to buy back government debt held by the public. Reducing the debt would reduce the government’s interest costs and free up more resources for other purposes.

Two Problems in Agenda

But those worried about entitlement spending see two distinct problems in Clinton’s agenda. One is that, by promising such large infusions of federal revenue into Social Security and Medicare over time, he has made the case for controlling the long-term costs of these programs seem less urgent.

The second problem is more straightforward: Clinton would create new obligations to the elderly.

At the top of the list is his call for universal savings accounts that would provide matching grants to help Americans save for retirement. While almost all analysts praise the goal, some question how Washington would fulfill the obligation if the surpluses were not as large as the administration projects. “I like the universal accounts,” Kerrey said. “The problem is there is no dedicated source of revenue.”

Similarly, the president would increase Social Security benefits to widows without offering a plan to solve the program’s long-range financing difficulties.

Rather, by pumping $2.7 trillion of the expected surpluses into Social Security over the next 15 years, he would divert large amounts of income-tax revenue to that program for the first time. The intent is to push Social Security’s day of reckoning--when it can no longer pay all promised benefits--from 2032 as of now to 2055.

Clinton took a similar approach to Medicare, whose hospital trust fund faces bankruptcy in 2008. Rather than recommend steps to curtail spending, the president proposed a massive new infusion of revenue--$650 billion to $700 billion over 15 years--from the expected surpluses. He would even add prescription drugs to the benefits that Medicare provides.

These proposals to put more money into Medicare are likely to complicate efforts by the bipartisan commission, chaired by Sen. John B. Breaux (D-La.), to build consensus for constraining costs.

“What that does,” Marshall complained, “is undercut the urgency of action now.”