Saving the Surplus

Studies | Social Security

No. 241
Wednesday, January 31, 2001
by Dr. Liqun Liu, Dr. Andrew J. Rettenmaier, and Thomas R. Saving


Introduction

A surplus is political manna, enabling politicians to fund their favorite programs. Proposals offered during the presidential campaign included such noble causes as strengthening Social Security, making America debt free, improving health care, cutting taxes and providing prescription drug benefits under Medicare, to name a few. How these goals are pursued would produce markedly different fiscal results. The central issue in the debate boils down to how the Social Security surpluses are used, because how they are spent today determines the magnitude of tomorrow's surpluses.

The fundamental choice is between using the Social Security surpluses to reduce the federal debt and using them to prepay future Social Security benefits. All other policy choices derive from this choice. Thus, the bulk of our analysis deals with the choice between retiring debt and prepaying future benefits.


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