Security Guard

The annual budgetary fight between the president and Congress has, this year, boiled down to a heretofore arcane accounting question: Should Social Security be counted as part of the federal budget or separate from it? This topic used to interest almost nobody outside the pocket-protector crowd. This fall it has precipitated a partisan jihad, with Republicans--in a reversal of their usual role--accusing Democrats of robbing old ladies of their pensions, and Democrats accusing Republicans of gross intellectual dishonesty.

The question of whether or not to exclude Social Security from the federal budget was first broached by the Republicans, who arrived at their position in a roundabout way. Last spring, they planned to corner President Clinton by passing a large tax cut and daring him to incur the wrath of the voters by vetoing it. But Clinton took the dare--and the voters remained unwrathful. So the congressional Republican leadership fell back on Plan B: force Clinton to abide by the austere spending cuts mandated by the Balanced Budget Act of 1997 and brand him a big spender if he asked for one nickel more. Alas, that maneuver failed, too: the cuts were so severe that even many conservatives in Congress blanched.

Now the Republicans have drawn a final line in the sand. They vow not to spend any part of the budget surplus that derives from Social Security taxes. And, since President Clinton wants to spend more money than the Republicans do on some programs, they claim he is raiding Social Security money to pay for big government. To drive the point home, the GOP has broadcast commercials portraying the congressional Democrats as burglars pilfering money from the Social Security safe.

Even by the standards of attack ads, the Republican claim is dishonest. First of all, spending the Social Security surplus will not rob Gramps of his check, as both parties have been spending the surplus for 30 years with no ill effect on retirees. Second, the White House budget does not touch the Social Security surplus. Third--and this is the truly Orwellian part--the Republicans are spending the Social Security surplus on government programs. The Congressional Budget Office (CBO), which calculates the cost of everything Congress does, determined that the bills passed by the Republican majority are so costly that they require the government to borrow from Social Security--to do, in effect, precisely what the congressional Republicans have insisted must not be done.

So Congress told the CBO to do the calculations again--and, this time, to subtract several billion dollars from the result so that the numbers would come out right. (This is called "directed scorekeeping"; essentially, Congress has the legal right to make the CBO do anything it wants, even if that means pretending certain budget items don't really exist.) The CBO dutifully followed its orders, as it must, allowing House Speaker Dennis Hastert to trumpet its new report as a vindication of his position. "Some may say these calculations don't fit together," he told The Wall Street Journal--neglecting to mention that "some" encompassed every independent analyst, including the very agency he claimed was backing him up--"but the bottom line ... is we protect the Social Security trust fund."

Among the opinion-making classes, the flimflammery is so transparent that it has created a backlash. Media accounts have rightfully poured scorn on the Republican tactic, but, in so doing, they have also dismissed the entire notion of maintaining the Social Security surplus. And that is unfortunate. While the Republicans may not have pure motives, they are actually standing up for a momentous and beneficent principle. Moving Social Security off-budget would strengthen it. Conservatives and liberals are so preoccupied with partisan exigencies that they are actually taking up positions antithetical to their convictions.

In 1935, when Franklin D. Roosevelt devised Social Security, he wanted to keep it separate from other government programs in order to prevent future presidents from cutting it. So, rather than funding it from the normal stream of federal revenue, he created a new payroll tax whose sole purpose was to fund Social Security. In addition, he structured the program on a "pay as you go" basis. This meant that, instead of each generation setting aside payroll taxes to fund its own benefits, all payroll taxes would immediately fund benefits for current retirees. The Social Security recipients of, say, 1957 would be supported by the workforce of 1957, and, when the workers of 1957 retired, they would be supported by whoever was paying taxes then.

Eventually it became clear that this arrangement was structurally unfair, because not all generations are equal in size. The baby-boomers, for instance, formed a very large contingent of workers and would have had little trouble paying for the retirement of their far less numerous parents. But, when the boomers retired, their benefits would have to be paid for by the smaller generation of "baby bust" workers, who would have to pay very high payroll taxes. To rectify this injustice, President Reagan and Congress agreed in 1983 to raise payroll taxes significantly higher than was necessary to fund current benefits. The extra taxes from workers would go into the Social Security trust fund, and, when the boomers eventually retired, they could draw upon the built-up reserves. Payroll taxes would still, in the long run, match Social Security benefits, but the equilibrium would work itself out across generations, not merely within them.

The trouble was that, during the '80s and most of the '90s, the rest of the budget was running huge deficits. Since extra money was now sloshing around in the Social Security trust fund, and since the trust fund was technically part of the overall federal budget, it helped mask the deficit's true size. Instead of putting the higher Social Security taxes aside to help save for the baby-boomers' retirement, Congress used them, in effect, to keep other taxes low--and to put off the day of reckoning on our growing national debt. (Actually, the extent to which this is true depends on what you think would have happened if there were no Social Security surplus. If you think we would have let the deficit run that much higher, then we were still "saving" the Social Security surplus to pay for the retirement of future generations. If you think we would have raised taxes or cut spending to bring the deficit down to a more reasonable level, then we were taking the Social Security surplus and using it to pay for other programs. The truth is probably somewhere in between.)

In case your eyes are beginning to glaze over, here's the essential point: the flaws with the Social Security trust fund stemmed from the fact that it was mixed in with the rest of the budget. But today the Republicans are taking advantage of good economic times to turn Social Security once again into a distinct, almost sacrosanct category. This year, Social Security is projected to take in $161 billion more than it spends, while the rest of the budget is projected to take in $14 billion more than it spends. The GOP is saying it can spend the $14 billion on federal programs, but not a dime of the $161 billion. That money would go, instead, toward reducing the national debt.

Put aside, for a moment, the fact that the congressional Republicans are only pretending to do this. The concept itself makes sense. The point of running a surplus in Social Security is to lighten the burden on future workers. Reducing the national debt does two things that make it easier for future workers to support retired baby-boomers. First, it lowers the government's interest payments on the national debt, freeing up money in the budget--and thus making it easier for the regular budget to pay back all the money it has borrowed from Social Security. Second, the money that the government would otherwise borrow to finance public debt becomes free for investment by the private sector, which increases productivity and makes for a more prosperous future economy.

Liberals have two arguments against this. First, they claim that using the Social Security surplus to pay down the debt will not alleviate Social Security's fiscal woes. This is true only in the narrow sense that, in the Social Security accounts, it doesn't matter whether the national debt is $10 trillion or zero. Somehow, no matter what, the government will make good on the IOUs to future retirees. But surely the level of national debt affects our ability to bail out Social Security in the future. Suppose you have a student loan that you need to begin paying next year and a credit card debt that you need to pay right now. Paying off the credit card debt--as opposed to, say, splurging on a new beach house--would not affect the amount of money you owe on your student loan, but it would make it a lot easier to handle next year.

The second objection is that, sure, paying down the debt would help Social Security, but, if we spend a few billion bucks of the Social Security surplus, it won't kill anybody. That's true, and, in an ideal world, we wouldn't have to choose between necessary spending and debt reduction. But it's probably worth sacrificing a bit of spending to establish a principle in the public's mind. It's worth it because there is a sneakily liberal long-term benefit to keeping Social Security off-budget. It would force the government to pay down debt for approximately the next ten years--which, if the economy holds up, is an ideal time to do so. But after that, remember, Social Security is going to start dipping into the red. If the current fiscal dogma--that the budget deficit must be zero every single year--holds, then we will face the unpalatable choice of slashing either Social Security or everything else the federal government does. But, if Social Security is thought of as a separate budgetary item--on behalf of which the public did without for several years--then it will be allowed to run deficits during a lean period and draw on the surpluses it's building up now. This would also help protect it from GOP efforts to "save" Social Security by privatizing it.

Of course, there's a danger that the consensus against spending Social Security surpluses could grow so extreme that it would prevent the government from borrowing during wartime or recession. But most people give the government slack during a crisis. And, if the Democrats continue to explain their restraint as saving up during good times, it should inculcate in the voters an understanding of the need for deficits in hard times. In the long run, then, the GOP plan would move us toward a more flexible, intelligent kind of budget and away from the mindless, zero-deficit fetishism that Republicans have done so much to foster. Shhh. Nobody tell Denny Hastert.