Experts See Modest Gain in Social Security Plan

President Clinton’s flashy new plan for bolstering the Social Security trust fund may seem attractive politically, but it is an unusually complex piece of fiscal legerdemain that would probably provide only a modest--and temporary--fix, budget experts say.

With details only now being digested two days after the president unveiled the plan, fiscal analysts on all sides are describing it as a Rube Goldberg scheme that seems designed largely to postpone any serious reform.

Long after Clinton has left office, they say, the White House and Congress still will have to cut some Social Security benefits, and possibly raise payroll taxes as well, to restore the health of the trust fund for the longer term.

“All of this is blue smoke and mirrors” to avoid tackling the looming Social Security deficit head-on, said Carol Wait, director of the Committee for a Responsible Federal Budget, a nonpartisan monitoring group.

Stanley E. Collender, head of the Federal Budget Consulting Group, which tracks such issues closely, is equally skeptical. “If this isn’t a true Rube Goldberg proposal, it’s the next thing to it.”

White House Sees Reduction in Debt

Administration officials say the plan would keep the Social Security system solvent through 2055 instead of running into deficit in 2032, as current projections show.

They also say it would help reduce the national debt over the next 15 years to its lowest level in nearly a century. That in turn would boost national saving, increase the amount of money available for private investment and drive interest rates down. The ultimate payoffs: more economic growth and a higher standard of living.

On the surface, Clinton’s proposal seems simple enough. If the plan is enacted, the government would take 62% of the cumulative $4.4 trillion in federal budget surpluses expected between now and 2015, or about $2.7 trillion, and use it to bolster Social Security.

In effect, the plan is equivalent to earmarking 62% of the surplus to pay down the national debt. The other 38% would be turned over to Medicare, national defense and a new retirement investment account for workers.

But analysts say the government would pay down the debt faster under the plan Clinton proposed a year ago. Under that formula, 100% of the surplus would have been dedicated to debt reduction.

Convoluted Proposal Frustrates Experts

What budget experts find most frustrating about the proposal is its convoluted mechanics, which the White House omitted when Clinton unveiled it Tuesday in his State of the Union address. It has taken many analysts a day or two just to digest the details.

Robert D. Reischauer, a Brookings Institution budget expert and former director of the nonpartisan Congressional Budget Office, called the scheme “the most complex proposal from a budgetary process standpoint that I can imagine.”

“It’s mind-boggling,” he said, after reviewing the details. “It’s almost impossible to explain in simple terms.”

Just as Clinton advertised, the plan calls for the government to “commit” 62% of the overall federal budget deficit over the next 15 years to bolster Social Security.

Although that might keep the Social Security trust fund afloat until 2055, analysts said it still would close only a little more than half the cumulative gap between benefits and payroll-tax revenues projected through 2075.

The rest would have to be made up by trimming Social Security benefits or increasing payroll taxes--prospects that the president hinted at during his speech but never clarified. His plan to boost benefits for widows would only make that harder.

Nor is Clinton’s plan a simple accounting transfer.

Under current procedures, the federal budget has two major components: the operating budget and the Social Security trust fund. The overall budget is the combination of the two.

The operating budget for fiscal 1998, which ended Sept. 30, was in deficit by $29 billion, whereas the trust funds ran a surplus of $99 billion. That produced a $70-billion surplus in the unified budget, the first such surplus in 30 years.

Until now, when the Social Security trust fund has run a surplus, the Treasury has used the money to cover part of the deficit in the government’s operating budget. In exchange, it has given the trust fund an equivalent amount in special interest-bearing bonds.

Under the Clinton plan, however, the government would change those procedures, at least for the 62% of the overall budget surplus that it “commits” to Social Security.

First, instead of transferring the money to help cover the government’s operating expenses, the Treasury would use it to buy back an equivalent amount of Treasury bonds that are now held by the public. That would steadily reduce the national debt.

At the same time, it would issue bonds in that same amount to the Social Security trust fund, enlarging the program’s long-term kitty.

Here’s the trick: The injection of more funds into Social Security wouldn’t show up as an outlay--as it would if Congress were to cut taxes or increase spending programs instead--because the government would have offset the outlay by redeeming an equivalent amount of debt.

But Robert Greenstein, director of the liberal Center on Budget and Policy Priorities, said the whole thing might be worth the trouble, if only as a ploy to keep lawmakers from raiding the surplus to finance tax cuts or spending increases.