Clinton's Double Counting Social Security Plan
November 1, 1999
Recently, President Clinton proposed a new plan to "save" Social Security that is worse than his plan to have the government invest part of the Social Security trust fund in stocks, say analysts.
The new Clinton plan retains most of the first plan's weaknesses and proposes spending another $544 billion from general revenues to prop up the Social Security system a little longer. Here's how it would work:
- Under the President's new plan, Social Security tax dollars in excess of benefits paid each year would still go to the Treasury in return for an IOU.
- Those same payroll tax dollars -- deposited in the general funds of the government -- would be used to buy back Treasury bonds owned by the public.
- But the paid-off bonds would not then be retired; instead, they would be added to other IOUs in the Social Security trust fund.
This allows the same $1 of excess taxes collected to generate $2 worth of government bonds (IOUs) in the trust fund. True, this creative accounting would lower the amount the government's interest payments on debt held by the public. However, the taxes that normally go to pay this interest -- an estimated $544 billion between 2011 and 2015 alone -- would be spent to buy back still more debt from the public debt, which would also be placed in the Social Security trust fund.
All that would change about Social Security is that the number of IOUs in the trust fund -- representing nothing more than a legal obligation on tomorrow's taxpayers -- would increase. But, starting in 2011, an average couple would pay an additional $1,150 in income taxes just to fund his proposed general revenue transfers -- with no corresponding increase in benefits.
Source: David C. John, "Clinton's Newest Social Security Plan: From Bad To Worse," Executive Memorandum No. 633, October 28, 1999, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546-4400.
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