Social Security Accounting Change Creates $4.3-Billion Surplus

The Bush administration is making an accounting change involving Social Security that would free $4.3 billion for Congress to use for spending or cutting taxes, officials said Wednesday.

The increase could be critical as the White House and its Republican allies in Congress try to fend off Democratic charges that President Bush’s tax cuts have drained too much of the surplus to meet government spending priorities.

Even with the change, the revised surplus projections for the fiscal year ending Sept. 30 will certainly be much lower than the administration or Congressional Budget Office had projected earlier this year. The tax cut and slowing economy could send the CBO’s forecast in May of a $275-billion surplus, including Social Security, plummeting to about $160 billion.

The new $4.3 billion on the side of the budget pie that lawmakers use for tax cuts or spending would be shifted from the politically sensitive Social Security section of the budget. Republicans, especially in the House, have staked much politically on preventing Social Security from being tapped for government spending.

Also Wednesday, Senate Majority Leader Tom Daschle of South Dakota and House Minority Leader Richard A. Gephardt of Missouri and other Democrats sent Bush a letter claiming that the upcoming budget revisions will clearly demonstrate the threat to Social Security and Medicare.

“We face the very real prospect that your tax cut, coupled with an economy that is slowing significantly, will have exhausted all of the surplus in the near term and leave no way to fund other functions of government without tapping into Medicare and Social Security,” the letter says.

Administration officials, speaking on condition of anonymity, said the accounting change more correctly describes the revenue in payroll taxes, those dedicated to Social Security and Medicare, coming into the Treasury.

“Little errors could mean a lot,” said one official. “There’s a general consensus that the Social Security surplus should be used for debt reduction.”

Democrats described the change as an unprecedented accounting gimmick designed to mask the effect of Bush’s 10-year, $1.35-trillion tax cut on the budget.

“Obviously, they’re scratching around,” said John Podesta, former White House chief of staff under President Clinton. “They need money for their priorities.”

The officials said the accounting changes involve properly crediting to Social Security the payroll tax revenue for 1998, 1999 and 2000, effectively reducing the trust fund’s surplus in 2001 by $5.6 billion.

The administration is making one other change involving the Postal Service, which is usually lumped in with Social Security for budget purposes. The change would separate the Postal Service account, which is running a $1.3-billion deficit this year and comes out of the spending side of the ledger.

Combining the two changes, the result would be a fiscal 2001 surplus excluding Social Security that is $4.3 billion larger than it would have been otherwise. It makes the Social Security surplus appear smaller than it would have been.

The White House Office of Management and Budget plans next week to include the revisions in its new budget outlook for 2001, showing the effect of $38 billion in tax-cut checks and lower tax revenue due to the sluggish economy.

The CBO, which provides the figures that Congress must live by, is also expected to issue new projections before the end of August.