Moynihan Shakes Budget Process

Senator's proposed Social Security tax cut earns little support, but gets everyone's attention. FEDERAL FINANCE

WHO do you think has had the greatest effect thus far on this year's annual budget agony in Congress - the chairman of a powerful budget committee? A world-renowned economist? Neither one: It's been the Senate's only six-foot leprechaun, Daniel Patrick Moynihan (D) of New York, who has proposed trimming Social Security taxes to unmask the real size of the federal government's annual deficit.

The Social Security tax debate, together with maneuvering to cut the defense budget, may call into question the Gramm-Rudman-Hollings law that has shaped the budget process since 1985.

Senator Moynihan has become to this year's federal budget process what now-retired outfielder Reggie Jackson used to say he was to baseball's New York Yankees: ``the straw that stirs the drink.'' Although few in Congress are likely to support Moynihan's plan, it has stirred up counterproposals from several members of Congress and President Bush. A group of House Democrats chaired by majority leader Richard Gephardt (D) of Missouri is trying to come up with a unified position on Social Security and the budget.

The New Yorker's proposal ``does an important service,'' says House Speaker Thomas Foley (D) of Washington, by focusing attention on the use of surplus Social Security revenue to hide some $59 billion in the annual debt. The amount masked will grow each year, matching the rise in the trust fund, which is supposed to be storing money to pay social benefits to baby boomers when they retire well into the next century.

`Bush has all the cards'

Congress won't be able to decide how much it must trim from the budget - or how much new revenue must be raised - until it decides whether to let some or all of the Social Security surplus continue to mask the deficit. According to the Gramm-Rudman law, the budget deficit must be cut from this year's supposed $100 billion (most experts think it's at least $30 billion higher) to $64 billion by Oct. 1.

If Congress and the president can't agree on a plan by then both domestic and defense programs will be cut by $18 billion each. This process, called sequestration, may well occur this October.

Alternatively, Congress may decide to stop counting some of the Social Security fund surplus against the deficit targets, then change the Gramm-Rudman law to permit a higher deficit in the coming fiscal years.

Unless Congress takes that step, ``Bush has got all the cards'' on the budget, says Stuart Butler, director of Domestic Policy Studies of the Heritage Foundation.

``The Gramm-Rudman sequestration process is probably now working to the benefit of those who previously feared it,'' the president and conservatives, Mr. Butler adds.

That is because sequestration would trim only $18 billion from defense expenditures, whereas many on Capitol Hill would like to trim more.

``I would like to see us take $20 billion out of the [defense] budget,'' says Rep. Patricia Schroeder (D) of Colorado, a member of the House Armed Services Committee. ``I don't know whether we can.''

Members of Congress now are debating whether a defense trim of more than $18 billion would lead the president to veto an overall budget bill in order to hold defense cuts to $18 billion.

Rep. Leon Panetta (D) of California, chairman of the House Budget Committee, says he does not think sequestration would actually be to the advantage of the president and other defenders of maintaining a large military budget. He says the cuts would come in the wrong places, from their point of view.

The defense cuts would ``come out of personnel, readiness, and maintenance,'' affecting the military's capability to swing into action if needed, says Mr. Panetta.

One point on which nearly everyone in Congress agrees: There isn't going to be a large ``peace dividend'' of now-unneeded military money available to be spent on domestic programs. ``Unfortunately, I think everybody has spent that peace dividend 20 times over,'' Representative Schroeder says.

Until Congress decides what to do, ``there's an awful lot of rhetoric going back and forth'' on Capitol Hill about the budget, says Prof. George Wilson of the Indiana University School of Business. Moynihan ``is right in pointing out that the way we finance this deficit is with the social security fund,'' he adds.

Unethical policy?

Some economists use stronger language. ``You've got embezzlement of the [Social Security] funds taking place to be used for running the current'' expenses of government, says Butler.

Furthermore, the rise in Social Security taxes has unfairly burdened lower-income workers, according to Professor Wilson, who has just completed an analysis of federal tax patterns of the 1980s. The amount of money Uncle Sam collected during the decade stayed constant, he says: ``There was no change [in amount] ... there was no [tax] revolution,'' rhetoric to the contrary.

But there was a difference in who paid the tax money, Wilson says. During the 1980s a growing percentage of federal revenues were raised through Social Security taxes, which he and many others call regressive because the near-poor wage earners pay the same percentage of their income as do the more affluent. At the same time, the federal government raised a smaller percentage of its income through the more progressive income tax.

But for 1990: President Bush says this is no time to ``mess around'' with Social Security; he opposes the Moynihan plan. Instead he proposes that beginning in fiscal year 1993, when the budget is supposed to be in balance, the government use some of the Social Security surplus to reduce the $3 trillion national debt.

Too much politics, Moynihan scoffs: ``What it says is there will be integrity with respect to the Social Security trust fund as soon as the next presidential election is over.''

Moynihan says he does not want to mess around with Social Security benefits either: ``I do take exception [to the charge] that we are putting Social Security at risk.'' His approach would fundamentally put Social Security on a pay-as-you-go approach.

``Pay as you go is the best way to fund the Social Security system,'' says Robert Meyers, former chief actuary of the Social Security system and executive director of the 1983 commission that returned a financially shaking Social Security system to more solid footing. ``The system will be financed just as soundly'' as the current method of building up a surplus which then is converted into IOUs from government securities, Mr. Meyers adds.

Concern for baby boomers

For the next 30 to 50 years Social Security is financially sound, so long as the US government is sound enough to pay back the IOUs that Social Security holds. The question is how keep it sound well into the 21st century, an important consideration to the young American wage-earners.

Young people's greatest concern about the Social Security system ``is will it be there for me,'' says Horace Deets, executive director of the American Association of Retired Persons. ``For most of them, there's a growing perception that it won't.'' America and its politicians need to fix not only Social Security and the deficit, but perceptions about both.

As America considers both the Social Security question and the budget deficit, it has the opportunity to look well beyond the calendar year: ``What we need is people who can look ahead 75 years,'' says Moynihan.

But short-term vision tends to be inherent in politicians, says Prof. Edward Gramlich, chairman of the economics department of the University of Michigan: ``It's habitual that [because] politicians get elected, they worry about the short term, not the long term.''

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