Bush Aide Sees Drain on Social Security

The Bush administration warned House GOP leaders Friday that tumbling revenues might force the government to spend up to $15 billion of the Social Security surplus this year, congressional sources said, signaling that the budget outlook has worsened far more swiftly than the White House has previously acknowledged.

The disclosure by White House Budget Director Mitchell E. Daniels Jr. prompted a scramble among Republican lawmakers to find a way to avoid taking that politically hazardous step.

After previously insisting that the surplus was safe, Daniels told House Speaker J. Dennis Hastert of Illinois and other Republican leaders in a private briefing that the government could be forced to dip into those funds to cover shortfalls elsewhere in the budget in the current fiscal year, which ends Sept. 30, sources said.

Daniels warned “that things are not going particularly well and that the projections aren’t going as planned and that we have a situation here,” said John Feehery, Hastert’s spokesman. “It’s a very difficult economic situation, and there’s no doubt about that.”

Indeed, the development, which Daniels attributed partly to falling corporate tax receipts, was accompanied by other new indications Friday of mounting economic trouble, as the unemployment rate rose to a four-year high and stocks fell to a three-year low.

Publicly, White House officials clung to their contention that the so-called Social Security trust fund will remain untouched and that the pessimistic predictions attributed to Daniels represent an unlikely worst-case scenario.

But Daniels’ warning is the first indication that, internally, the White House is bracing for a perilous political dilemma.

Some congressional Republicans immediately advocated spending cuts to avoid using the Social Security money. But the White House provided no clues to its strategy.

Policy experts note that using some of the Social Security surplus to pay for other areas of government would not jeopardize the solvency of the program, projected to have a surplus of about $160 billion this year. But doing so would violate a pledge President Bush and congressional leaders from both parties have made to keep Social Security funds in a “lockbox” and to use the money only to pay down the national debt.

The president and most lawmakers are loath to go back on that promise and risk angering voters. But with just a few weeks left in the fiscal year, and with the vast majority of the government’s money already spent, it’s not clear there is a way to avoid dipping into the surplus, short of budget gimmickry.

Pete V. Domenici of New Mexico, the top Republican on the Senate budget committee, broke ranks with his party Thursday when he suggested there would be little harm in using a small portion of the Social Security surplus to patch other budgetary holes.

But the vast majority of Republicans fear coming under attack from Democrats in elections next year for tampering at all with a program that many voters have come to consider sacrosanct.

Democrats wasted little time in seizing on Friday’s developments to step up their attacks on Bush, seeking to connect the troubles to the 10-year, $1.35-trillion tax cut he pushed through Congress earlier this year.

The mounting economic problems are “a reflection, unfortunately, of the Bush budget and the Bush economy,” said Senate Majority Leader Tom Daschle (D-S.D.). “You can clearly make the connection between unemployment and the budgetary circumstances we’re facing.”

But Democrats have not proposed any way out of the budget quagmire, either. And Bush, sounding a note he and other Republicans likely will be repeating, pointed out during brief remarks at the White House that the economy started to turn sour before he moved into the Oval Office.

Norm Ornstein, a congressional scholar at the American Enterprise Institute think tank here, characterized the partisan haggling over the shrinking budget surplus as “a game of chicken” being played by the two political parties.

The grim news from Daniels and the rise in unemployment prompted a new wave of worry among GOP leaders on Capitol Hill. Hastert and Senate Minority Leader Trent Lott (R-Miss.) visited the White House on Friday afternoon for an emergency meeting with Bush about the economy.

They discussed options for avoiding dipping into Social Security, according to aides. Among those proposals is a plan to impose automatic cuts across the federal budget if the Social Security receipts are threatened. But that idea probably couldn’t be implemented in time to help this year and would likely face stiff resistance from an array of interests--from top brass at the Pentagon to medical researchers around the country--that would stand to lose federal funding.

Daniels’ briefing came just weeks after he had offered a rosier outlook concerning the budget. In mid-August, estimates from the Office of Management and Budget, which Daniels directs, projected that the Social Security surplus would survive the fiscal year intact, though just barely.

That was contradicted by projections released shortly thereafter by the Congressional Budget Office, which warned that the government was on a spending pace that would require reallocating about $10 billion of the Social Security trust fund.

At one point early this year, the overall surplus for the 2001 budget year was estimated at $275 billion.

After meeting Friday with Hastert and Lott, Bush reiterated that the Social Security surplus must remain untouched, as he sought to ease growing concern about the nation’s economy.

With the GOP leaders standing beside him, the president insisted that “a growth plan . . . starts with having a responsible budget that meets our nation’s obligations without affecting Social Security or dipping into Social Security.”

In a briefing earlier in the day, White House Press Secretary Ari Fleischer reiterated the president’s opposition to using the Social Security trust fund to help balance the federal books. “He’s dedicated to keeping the promise,” Fleischer said. “And the promise will be kept unless Congress overspends.”

Democrats, who were excluded from Daniels’ briefing, noted the apparent contradiction between the budget chief’s private warning to lawmakers and the White House’s public stance concerning the budget.

“It would be surprising if [the president’s] budget director is owning up to the problem,” said Douglas Hattaway, Daschle’s spokesman. “The president continues to insist that everything is hunky-dory with his budget, despite the fact that the economy is tanking and people are losing their jobs.”

Bush met Friday morning with House Minority Leader Richard A. Gephardt (D-Mo.), who later publicly called on the president to submit either a new budget or to make suggestions on spending cuts in light of the diminishing budget surplus. But Fleischer rejected any such prospect.