Bush Says He Won't Tap Social Security
Budget Fight Brews As Surplus Shrinks
By Glenn Kessler
Washington Post Staff Writer
Friday, August 17, 2001; Page A01
The White House, anticipating a sharp plunge in the federal budget surplus, said yesterday that it would not tap Social Security payroll taxes to fund government operations, setting up a political fight with Democrats who charge that the administration is able to make the pledge only through accounting gimmicks and rosy forecasts.
Both parties are bracing for a report from the Congressional Budget Office, which will release its own budget forecast later this month using different assumptions and accounting. Budget analysts expect the CBO forecast to suggest the administration is right on the edge of spending the Social Security surplus, if only a few billion dollars of it.
The overall surplus is expected to be between $150 billion and $160 billion, the second-highest on record, but virtually all of that was generated by Social Security payroll taxes. Since lawmakers in both parties have pledged never to touch the Social Security funds, that means, in coming years, much less money left for promised increases in defense and education spending or a Medicare prescription drug benefit.
Congress is also rushing to pass the 13 spending bills that must be enacted into law before the new fiscal year starts Oct. 1, and the new reports will intensify pressure, particularly on Republicans, to rewrite those bills to reflect the new budget constraints.
Democrats believe the budget travails have handed them a potent political weapon going into the 2002 elections, allowing them to charge that President Bush's tax cut endangered popular programs ranging from Social Security to education. Indeed, the political stakes are so high that some Republicans are floating the idea of finding a way to reimburse Social Security if any payroll tax money needs to be spent now. Others say they will push the White House to clamp down on spending by federal agencies in September, the last month of the fiscal year.
White House spokesman Ari Fleischer, previewing next week's release of the administration's surplus estimate, said the projection "will fully protect Social Security while leaving a small surplus in the operating accounts." Earlier this year, the administration had projected a $125 billion surplus beyond Social Security in 2001.
"This is not good news," said Rep. Jim Nussle (R-Iowa), chairman of the House Budget Committee. "But it is my intention to do something about it. Spending is the real peril, and we have to redouble our efforts on the spending side."
Democrats have maintained from the start of the year that the administration's tax cut was fiscally irresponsible, but even they have been surprised by the speed of deterioration in the budget picture.
"We had worked for 10 years to turn a vicious cycle into a virtuous circle," said Rep. John M. Spratt Jr. (S.C.), the senior Democrat on the House Budget Committee. "Now we see an unraveling of that."
Yet many Democrats also privately acknowledge that while this may be a political windfall, the new budget numbers make it much harder to fund Democratic priorities.
In a $2 trillion federal budget -- and a $10 trillion economy -- a few billion dollars is literally spare change. But the political ramifications could be enormous, both sides agree.
Already, the Bush administration revealed this week it had changed the accounting for Social Security in its forecast in a way that would free another $4 billion. Officials are also adopting a slightly more optimistic forecast -- 3.2 percent economic growth in 2002 -- than the consensus of private economists, which could add about $8 billion more to the 2002 surplus forecast.
"It is a political problem rather than a fiscal problem," said William G. Hoagland, Republican staff director for the Senate Budget Committee. Hoagland, who closely tracks the budget numbers, expects the CBO to estimate that 2001 spending exceeded the Social Security surplus by $2 billion or that as much of $4 billion in Social Security payroll taxes will be spent. "We're at the edge," he said.
Democrats charge that Bush's tax cut is eating away the surplus. Republicans blame the slowing economy for the revenue shortfall; corporate tax receipts have fallen 12 percent so far this year. But some of the immediate political problem stems from an earlier accounting change approved by the administration.
In the tax bill passed this summer, Republicans shifted $33 billion in corporate tax payments from fiscal 2001 to 2002 because they feared that the tax cut would slice revenue so much that the government would be forced to tap Medicare payroll taxes to cover government expenses in an election year.
Instead, revenue this year shrank so much that the problem was moved up one year -- and in fact will happen in 2002 as well, budget analysts said.
Under government accounting, spending Social Security or Medicare taxes does not reduce the amount of Treasury bonds credited to the trust funds of the two programs; nor does it affect benefit payments. But if the money is used for spending rather than debt reduction, it reduces national saving and could lead to higher interest rates. Nevertheless, administration officials and Republicans said, a substantial amount of debt will still be repaid this year.
But Republicans, especially in the House, have pledged repeatedly not to touch either the Social Security or Medicare funds. The budget outline passed earlier this year makes it difficult to boost spending for such areas as defense or farm programs if that money uses any of the Medicare hospital payroll taxes.
"We've got a serious problem, and this administration doesn't have an answer to the fiscal mess they've created," said Sen. Kent Conrad (D-N.D.), Senate Budget Committee chairman. Conrad said he will be forced to block any additional funds for defense because the Medicare hospital fund surplus has been wiped out.
As recently as last month, Nussle was quoted as saying, "This Congress will protect 100 percent of the Social Security and [Medicare] trust funds. Period. No speculation. No supposition."
"Yes, that was me," Nussle said yesterday. "I still mean that today as much as I did then. Unfortunately the economy wasn't listening."
© 2001 The Washington Post Company
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