Social Security calculus: a budget time bomb?

A more cautious approach to retirement-plan accounting may disrupt 2001

As members of Congress recover in home districts from this year's exhausting budget struggle, there's something they should keep in mind.

Next year's fiscal battle will probably be worse.

The looming presence of the 2000 elections is only one reason the struggle over the fiscal 2001 budget could be the political equivalent of a 100-year storm. Another is that members will start their budget discussions billions of dollars in the hole, due to spending hikes and bookkeeping shifts adopted this year.

Furthermore, the long-term outlook for Social Security finances could become a matter of contention. An oversight panel established by Congress is urging Social Security officials to adopt more cautious economic and demographic assumptions.

Social Security is already predicted to start running big deficits early next century. These changes would make predictions more dire. "That deficit gets 26 percent worse over a 75-year period" if the recommendations are adopted, says Joyce Manchester, staff economist of the Social Security Advisory Board.

Many lawmakers may not think that the budget process could possibly become more chaotic. Congress had to pass six emergency short-term spending bills to keep the government running as GOP leaders and the White House wrangled over the budget's final shape.

Republicans used a number of creative accounting procedures to meet their self-imposed goal of not spending the Social Security surplus. President Clinton got more than $5 billion in extra spending for his priorities at the last minute.

But the terms of the settlement contain the seeds of some problems for next year, as a just-released analysis by the Congressional Budget Office (CBO) makes clear.

This year's budget simply shifted billions of dollars of spending into fiscal 2001, for one thing. Moving a federal payday past next October took $7.8 billion off the 2000 books.

In addition, agreed-to spending hikes add up quickly. Last July, the CBO estimated that the surplus in 2001 would be $37.5 billion, not counting the Social Security surplus. Last week, a CBO update predicted that the non-Social Security 2001 budget will be $19.4 billion in the red.

That means that if the GOP wants to adhere to its new goal of leaving the Social Security surplus untouched, it may have to come up with almost $20 billion in cuts - or, alternatively, "revenue enhancements" - weeks before an election in which its narrow control of Congress will be challenged.

Not that the GOP necessarily accepts CBO numbers. Other predictions, notably those by the administration's own Office of Management and Budget, have been somewhat more favorable. And economic growth could yet change the figures.

"All such projections are subject to great uncertainty, and can change the budget outlook significantly," concludes the CBO's latest report.

Ending the government's long practice of using surplus Social Security funds for general government purposes is certainly a worthy exercise in fiscal discipline, say some budget experts. But it does not affect the viability of the giant retirement system. The Treasury bond assets of the Social Security trust funds remain the same, whether the government uses the cash raised by those bonds to pay for defense or to reduce the national debt.

But for other reasons, Social Security's finances may not be in quite the shape that current estimates hold them to be.

A panel of experts established by Congress to review Social Security's technical assumptions and methods is urging changes in the trust fund's long-term projections.

For one thing, Social Security's estimate of Americans' life expectancy is "unduly pessimistic," notes the report of the Social Security Advisory Board. Social Security should figure on a greater rate of improvement in life expectancy, year by year, through next century, urges the board.

For another, the panel estimates that the return on government securities will be slightly lower than Social Security's current intermediate estimates.

CURRENTLY, the Social Security Trust funds are estimated to become insolvent in 2034.

It's uncertain how this date would change if Social Security officials adopted the changes in demographic assumptions urged by their advisory board. A booming economy might help things by growing faster, and hence producing more Social Security tax revenue, than currently projected.

But the bankruptcy date might come significantly sooner if Social Security adopts the new assumptions for its most-likely estimate of where the trust funds are headed.

(c) Copyright 1999. The Christian Science Publishing Society

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