By now it should be obvious to everyone, including Congress, that it is not possible to adhere to the budget limits (caps) on discretionary spending and pass realistic spending bills for FY 2000, at least not without resorting to accounting gimmicks and trickery. Sticking to the caps means drastic and politically unfeasible cuts. This should be good news for advocates who have been arguing all along that staying within the budget caps would severely slash important spending needs, including education, health, environmental protection, housing, and a score of other beneficial programs, especially those upon which low to mid-income Americans depend.

By now it should be obvious to everyone, including Congress, that it is not possible to adhere to the budget limits (caps) on discretionary spending and pass realistic spending bills for FY 2000, at least not without resorting to accounting gimmicks and trickery. Sticking to the caps means drastic and politically unfeasible cuts. This should be good news for advocates who have been arguing all along that staying within the budget caps would severely slash important spending needs, including education, health, environmental protection, housing, and a score of other beneficial programs, especially those upon which low to mid-income Americans depend.

But now that the budget caps cannot be seriously used for political leverage, both parties have fallen back on the remaining taboo. The latest strategy is to refuse to "raid" the Social Security surplus, eventually forcing either Congress or the Administration to do so, and then blaming that side for endangering Social Security. It’s yet another game of chicken. Whichever side starts spending the Social Security surplus first is the loser, even though a modest Social Security deficit now seems inevitable in order to get the spending bills for FY 2000 passed. The challenge remains how to focus the attention of Congress on the need for increased public investment and the consequences of failing to address that need, rather than allowing the debate to continue to be framed as solely a question of maintaining budgetary limits.

According to the predominant discourse, preserving the Social Security surplus seems something that every sensible person who wants to see Social Security survive should support. In reality, "saving" Social Security by preserving the Social Security surplus is a politically motivated fiction. It plays upon the fears that Americans have about the future of Social Security. It increases the confusion about how Social Security surpluses are used. It forecloses discussion about what should be done to insure the solvency of Social Security and Medicare for future generations. The idea that preserving the Social Security surplus will save Social Security is a myth that prevents us from rationally addressing the future of Social Security and national budgetary needs and priorities.

I. How the Social Security Trust Fund Works

In spite of their rhetoric, neither party, nor the Administration, is showing a commitment to the future solvency of Social Security by posturing about not using Social Security funds. Social Security is self-financed through employee/employer contributions and its revenues are secured through U.S. Treasury Bonds. Using the surplus to cover a deficit in the non-Social Security budget will not reduce Social Security’s assets nor diminish its ability to pay benefits in the future. Simply, this is how it works:

• When there is a Social Security surplus, it is "borrowed" by the Treasury.
  
  
• If there is a deficit in the rest of the budget, whatever is needed of the Social Security surplus is used to cover that deficit, and the remaining surplus goes to pay down the national debt.
  
  
• If there is no deficit in the rest of the budget, the entire amount of the Social Security surplus is used to pay down the debt.
  
  
• Either way, the Treasury uses the entire Social Security surplus (whether it is used to pay down the debt or to cover budget deficits) and issues U.S. Treasury bonds, the safest investment in the world, to the Social Security trust fund.
  
  
• The amount of Treasury bonds remains the same no matter how the surplus is used, and thus the trust funds are never "raided."

The reason the fiscal viability of Social Security is in question is not because its trust fund has been decimated by government spending, but because of demographic changes in the future, primarily increased life spans and the unprecedented increase in beneficiaries once the baby-boomer generation retires.

There are other approaches to insuring the solvency of Social Security and Medicare. A number of legitimate and simple "fixes" to the Social Security problem have been proposed. One is to raise the upper limit on earnings subject to Social Security taxes. Currently, earnings over $72,600 are not taxed. This means that a person making $80,000 a year and a person making $200,000 a year both pay the same amount of Social Security tax. Even raising the upper limit to $100,000 would bring in substantial income. Another is to raise the tax, shared equally between worker and employer from 12.4% to 13%, which would also increase the amount available for future beneficiaries. Other arguments are being made to increase the retirement age, lower benefits for some beneficiaries, or to privatize the system through private investments. The point is that it is time to start thinking about how to preserve Social Security and Medicaid without being blindsided by fictional threats or solutions.

II. Paying Off the National Debt or Investing in the Future?

As explained above, using the Social Security surplus will make no appreciable difference in the long-term solvency of Social Security. However, there is an argument that using the Social Security surplus to pay down the national debt should be the highest priority. There are at least three reasons supporting that position.

• First, interest payments on the national debt will be lower as the debt decreases.
  
  
• Second, according to some economists, paying off the debt would have the effect of increasing the long-term economic growth rate.
  
  
• Third, paying off the debt would leave the county in a better position to borrow in the future, if necessary, to meet the demands of Social Security and Medicare.
  
  

This position is that paying off the debt is an inherently good thing, and using the Social Security surplus to do that should be the first priority.

Another argument, barely audible, is that other priorities, such as supporting the education of children and young people, job training for workers, environmental action, the welfare of low and middle income families, health, and research ought to come before paying off the debt. One of the most important actions we can take as a country to insure the solvency of Social Security and Medicare is to invest well in the education and health of children and young people, provide job skills to insure future work productivity, and invest in research, public infrastructure and technological development that will insure future economic growth and income. A robust economy supported by a productive workforce will make a big difference in our ability to provide Social Security and Medicare benefits in the future. This argument has been drowned out by the noise being made about "saving" Social Security by not spending any of the Social Security surplus. Reducing government spending has become the only party line.

In this time of extraordinary economic prosperity, we are being distracted from a debate about public investment by a misguided and politically motivated emphasis on keeping within the budget caps and/or not using the Social Security surplus. While the overall economic climate has contributed to improving the prospects of many Americans, it has bypassed many others. Years of reducing spending in areas like education, environmental protection, housing, nutrition, job training, the well being of children, and the host of other federal services and programs that are supported by yearly congressional appropriations have negatively affected the quality of life for all Americans. Public investment—in infrastructure, research and development, early childhood programs, education, and training--as a portion of Gross Domestic Product, or total economic output, has been declining over the past twenty years. As estimated by the Economic Policy Institute, since a peak in the late 1970’s, federal spending on public investment, measured as a share of the GDP, has fallen by more than a third and is projected to fall another 35% over the next ten years if spending patterns are maintained.

It is time not only to look at our capacity to provide Social Security benefits in the future, but to consider what kind of a country those beneficiaries will be retiring into. It is time to talk about the huge human, environmental and community deficits that are created by the shortsighted and narrow focus on limiting government spending. Rather, we could be talking about what programs work and how they can be made available to all of the people who are eligible for them; we could be discussing new ideas for strengthening and benefiting our communities; we could begin talking about visions for the future and the resources that will be necessary to achieve them.

Budgeting in an era of surplus requires a paradigm shift. There is evidence that this shift is occurring among "ordinary" Americans, who support government spending for important purposes. According to an evaluation of data from various polls, the Economic Policy Institute found that the majority of the public supports increased spending on Social Security, Medicare, and other domestic programs, primarily education and health care, over tax cuts or debt reduction. The public’s budgetary priorities do not appear to have yet penetrated inside the Capitol Beltway. Politics inside the Beltway—namely, the attempt to score points by not "spending" the Social Security surplus, is distracting us from important debates about how really to insure the solvency of Social Security and secure adequate domestic public investment.

The future viability of Social Security and Medicare must be a high priority and most Americans consider it to be so. However, this is not incongruent with the position that it is largely irrelevant to the long-term solvency of Social Security whether some of the so-called Social Security surplus is used. Use of some of the Social Security surplus is highly relevant to having enough money to restore domestic spending, which has been dramatically reduced in the past few years.

The pity is that these ideas are not even being discussed. Rather than a national debate on real ways to insure the solvency of Social Security and Medicare, the subject has become focused almost entirely upon not spending the Social Security surplus. Rather than a useful and long overdue debate on domestic investments, the fixation on preserving Social Security by not spending the surplus is preventing us from considering national needs and priorities and the budgetary resources that will be necessary to address them.

For further information on Social Security and the surplus, see The Center on Budget and Policy Priorities: "A Small Non-Social Security Deficit in Fiscal Year 2000 Would Not Adversely Affect Social Security"
Other sources of information are The New Century Alliance for Social Security website, the 2030 Center, and the Economic Policy Institute.