Taking Social Security Off Budget
November 23, 1998
Speaker of the House-designate Bob Livingston (R-La.) has said that his first priority in the new Congress will be to remove Social Security from the budget. "Under the new budget rules, we will no longer use Social Security proceeds to mask the budget deficit," he said. At the same time, however, Livingston also promised that he will push hard for tax cuts next year as well. Unfortunately, these two proposals are in conflict.
The problem is that revenues from Social Security payroll taxes are now greater than current Social Security expenditures. Hence, viewed in isolation Social Security is running a large surplus-- $54 billion next year. In addition, the Social Security trust fund receives interest on Treasury securities held by the fund. Including interest on Treasury securities held by the fund raises the surplus to $107 billion in 1999.
Social Security also includes the Medicare program which is financed by a separate tax, but runs a cash deficit. Next year it is expected Medicare will pay out $13 billion more than it takes in. Including Medicare in the Social Security calculation, therefore, lowers the cash surplus to $41 billion in 1999.
The broadest definition of the Social Security surplus uses up more than 100 percent of the total federal budget surplus for many years to come -- meaning further spending cuts will be necessary just to balance the budget. Even the narrowest measure of the Social Security surplus uses up most of the projected total budget surpluses, leaving very little for tax cuts.
Thus taking Social Security off-budget may force Congress to cut spending if it wants to cut taxes.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 23, 1998.
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