Last week, Senator Byron Dorgan and several like-minded colleagues held a news conference at which they warned that if the balanced budget amendment (BBA) does not exempt Social Security it will somehow nullify the program's trust-fund surpluses and prevent Congress from paying promised benefits when Boomers retire. This conclusion, they said, has been corroborated by the Congressional Research Service (CRS).
All of this is nonsense. What the BBA would do is to raise national savings and thus make Social Security -- along with the myriad other claims on tomorrow's economy -- more affordable. It would be ironic indeed if concern about funding Social Security, whether real or pretended, turns out to be the issue that sinks the BBA.
A Deficit Time Bomb
Let's be clear: The BBA would in no way alter the status of the Social Security trust funds. After enactment of the BBA, the Treasury IOUs held in the trust funds would be precisely as meaningless as they are today. With or without the BBA, these "assets" can only be redeemed if Congress hikes taxes, cuts other spending, or borrows more from the public to raise the cash. The BBA, by requiring that the unified budget be in balance in every future year, would simply curtail the borrowing option -- which -- in effect, is all CRS says.
Apparently, what the senators really want is some guarantee that Congress translate Social Security's trust-fund surpluses into genuine economic savings by running unified budget surpluses of equal size. This may be a laudable policy goal -- and there is nothing in the BBA to prevent Congress from pursuing it. But embedding trust-fund accounting in the Constitution by exempting Social Security from the BBA is a terrible idea.
Why? While the Social Security trust funds are officially projected to run modest surpluses until 2019, thereafter they are due to run ever-widening deficits. And once the deficits begin, the BBA-cum-exemption would allow Congress to run a unified budget deficit equal to the Social Security trust-fund deficit every year. By 2025, the allowable annual unified budget deficit would rise to $315 billion; by 2040, it would rise to $2.1 trillion. If the economy takes a dip, moreover, deficits could begin much sooner -- by 2007, according to the Trustees' high-cost projection. In this case, a BBA that goes into effect in 2002 would guarantee very little near-term addition to national savings -- but would allow a Niagara of deficit spending in future years.
And even this assumes that legislators won't redefine "Social Security" so that the exemption becomes an immediate highway for any amount of deficit spending. With the White House now proposing to keep Medicare "solvent" by shuffling outlays between its trust funds, such shenanigans hardly seem farfetched.
Time to Wake Up
It's time we focus less on process and more on substantive economic results. Trust-fund accounting is (and always has been) an arbitrary legislative artifact. Whether a trust fund is in surplus or deficit has little economic relevance. What does matter is the net difference between total federal revenues and outlays, otherwise known as the unified budget balance.
The senators should wake up and look around. The principal effect of their exemption would be to allow the nation to run huge unified budget deficits at a time when a massive age wave will be straining the productive capacity of America's younger generations.
Yes, it probably is sound policy to run unified budget surpluses today to boost our lagging savings rate and prepare for the coming demographic transformation of our society. But let's not do so merely to fulfill some narrow trust-fund logic -- and especially not as a way to justify and allow massive budget deficits in the future.
Right now we find ourselves waist deep in deficit water. The purpose of the BBA is to require Congress to raise the deck above water and keep it there. The Social Security exemption would defeat this purpose. As for running budget surpluses, nothing in the BBA prevents Congress from doing so whenever it so decides.
FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Martha Phillips