If you add up all Clinton’s would-be commitments–and include a big actual commitment he didn’t mention–you discover that he proposes to fix Social Security and Medicare, establish individual savings accounts for millions of Americans and boost military spending and other items by committing no less than 151 percent of the federal budget surpluses he’s projecting over the next 15 years. That’s right, 151 percent–51 percent more than the more-than-a-little-iffy surplus, 51 percent more than shown in those neat pie charts that you’ve seen all over the newspapers and television. Think of it as the 151 percent solution.
If anyone else committed to spend more than 100 percent of something, he’d be put in a straitjacket or arrested for fraud. But it’s the divine right of U.S. presidents, thanks to the way that the federal government keeps its books and accounts for Social Security. The administration agrees with this math, as you’ll soon see, but says I’m categorizing things unfairly.
Before we start deconstructing the president’s numbers, let’s take a brief tour of the Social Security landscape to see what’s going on. As you know, Social Security will run into problems around 14 years from now, when boomers begin retiring en masse and Social Security’s income from taxes falls below Social Security outlays. Seeing a chance to shrink the government’s role and encourage private investment, lots of Republicans and some Democrats are proposing to change Social Security from today’s pay-as-you-go system to a system that offers smaller guaranteed benefits but lets people invest some of their Social Security taxes in individual accounts. Some liberal Democrats want to leave the system as is, but to have Social Security’s trust fund invest in stocks rather than continue to keep all its money in Treasury bonds. The idea is to increase Social Security’s income, helping keep benefits higher and Social Security taxes lower than they would otherwise be.
Clinton’s proposal pre-empts everyone. It would offer private accounts, independent of Social Security; it would enhance Social Security benefits without raising taxes, at least for now, and it would have the government put $700 billion of Social Security money into the stock market.
Even leaving aside the serious question of whether Uncle Sam should be playing the market–Fed chairman Alan Greenspan testified last week he thought it was a bad idea–there are lots of problems here. Not the least of which is that projecting budgets 15 years into the future is a perilous undertaking. How long ago did sages predict ““deficits as far as the eye can see’’? Now, thanks to a booming economy and an even more booming stock market, they project surpluses forever. Don’t count on it.
Now it’s fun-with-numbers time. Please don’t be too finicky about the math–like everyone else trying to translate the State of the Union into numbers, we’re doing the best we can in the absence of hard data, and rounding to the nearest hundred billion. Here goes. The ““unified budget’’ surplus over the next 15 years is projected at $4.5 trillion. Clinton proposes to commit 62 percent of that–call it $2.8 trillion–to ““saving’’ Social Security, of which $700 billion or so would be invested in stocks. Another 16 percent–call it $700 billion–goes to Medicare. Another 11 percent–$500 billion–for the aforementioned individual savings accounts, and the remaining 11 percent for military and other spending. Total, 100 percent. So why am I saying the president is committing 151 percent of the budget surplus? Watch.
Some $2.3 trillion of the $4.5 trillion ““unified’’ surplus Clinton is so eager to spend is already spoken for. It’s the Social Security surplus: the difference between the taxes and interest Social Security will take in and the benefits it will pay. This money, by law, goes into the Social Security trust fund. In essence, Clinton is spending the $2.3 trillion twice: first he’s putting it into the Social Security trust fund, but he’s also counting it to help pay for his proposed $4.5 trillion of goodies. Wouldn’t you like to be able to spend the same money twice? Wouldn’t everybody?
But here’s where the real budget magic comes in. Remember that $2.8 trillion Clinton promised to use to bolster Social Security? That’s in addition to the $2.3 trillion we just mentioned. The seemingly impossible result is that Clinton is committing $5.1 trillion of a $4.5 trillion surplus to Social Security, and another $1.7 trillion to Medicare et al. Grand total: $6.8 trillion. How can Clinton do this without Uncle Sam’s checks bouncing from here to Mars? Easy. Much of that $6.8 trillion of spending consists of putting Treasury IOUs into Social Security and Medicare trust funds rather than spending cold hard cash. This creates obligations for taxpayers yet unborn. Gene Sperling, Clinton’s economic adviser, says the math is right, but that it’s not fair to say the president is spending 151 percent of the surplus. The reason: under budget rules, every administration gets to spend the Social Security surplus plus any extra surplus. ““The Social Security surplus is committed to the trust fund by law,’’ he says. ““The president is responsibly allocating 100 percent of the surplus under the rules of the unified budget.''
While Clinton is proposing to stuff $2.8 trillion of new IOUs into the Social Security and Medicare trust funds, he would use the cash surplus to pay off about $3 trillion of Treasury IOUs currently held by public investors. That way, Sperling argues, when the new Social Security and Medicare IOUs come due, it will be relatively easy for the government to meet them by borrowing money from public investors, because the government would have so little public debt outstanding. ““The president is responsibly saving the coming surpluses for shortfalls in the future,’’ Sperling says, ““rather than just consuming it in the present and leaving bills behind for future generations to pay.’’ Of course, you can also argue that it would be even better to pay off debt without committing trillions more dollars to Social Security and Medicare than are already committed. The bottom line: it may be time to open the debate over what to do with the budget surpluses. But it sure helps to be able to spend 151 percent of the surplus, rather than settling for a mere 100 percent, as we mere mortals are forced to do.
NOSE DIVE As millions of baby boomers begin to retire next century, Social Security will dip into the red.
CLINTON’S SOLUTION: DOUBLE COUNTING After decades of deficits, the government now projects $4.5 trillion in budget surpluses–give or take a few hundred billion–over the next 15 years. Bill Clinton wants to use the money to shore up social programs and boost defense. But do the numbers add up?
$500 billion Universal Savings Accounts: Clinton’s proposed new program would let taxpayers open “USA” retirement accounts. Uncle Sam would contribute about $100 per person and match some contributions. + $500 billion Defense spending and other programs: This would spread some of the surplus around and may win over Republicans. + $700 billion Medicare: The government would put Treasury IOUs into the troubled Medicare trust fund. + $2.8 trillion New Social Security commitment: To help extend the life of the retirement program, the government would put $2.1 trillion of Treasury IOUs into the Social Security trust fund–and would also invest $700 billion in the stock market. + $2.3 trillion Already committed to Social Security: The double dipper, which Clinton didn’t mention in his speech. This money, which makes up 51 percent of the projected surplus, is already committed legally to the Social Security trust fund. $6.8 trillion - $4.5 trillion = $2.3 trillion What Clinton would spent The projected surplus The shortfall
