May 24, 1999
Issues Related to the Herger-Shaw
Social Security "Lock-Box" Legislation
by Robert Greenstein
The House leadership has announced plans to take Social Security "lock-box" legislation introduced by Reps. Wally Herger and Clay Shaw (HR. 1259) to the House floor on May 25, bypassing committee consideration. Unlike the lock-box legislation introduced by Reps. John Kasich and Paul Ryan which is similar to a lock-box bill that Senators Spencer Abraham and Pete Domenici have introduced in the Senate the Herger-Shaw bill does not seek to use debt limit as an enforcement tool. Instead, the Herger-Shaw bill establishes a majority point of order in the House and a 60-vote point of order in the Senate against a any legislation (and any budget resolution) that would either result in a deficit in the non-Social Security budget or enlarge such a deficit if one already existed. The Herger-Shaw proposal seeks in this manner to erect barriers against legislation that would result in the use of Social Security surpluses to finance non-Social Security expenditures.
Because the legislation adopts this approach rather than the approach in the Kasich-Ryan plan, it does not risk triggering government defaults or requiring the use of economically counter-productive austerity measures in years when the economy is weakening and recession threatens. The Herger-Shaw bill is substantially superior to the Kasich-Ryan proposal for this reason. The Herger-Shaw plan, does, however, have some significant weaknesses. In addition, it adds little to, and is largely redundant with, current budget enforcement procedures.
The Legislation's Weaknesses
- While the Herger-Shaw bill would establish a majority point of order in the House and a three-fifths point of order in the Senate against any legislation that would create or increase an on-budget deficit, it contains a large loophole that could partially vitiate this rule. The bill exempts from these points of order any legislation that contains a sentence designating the legislation as "Social Security reform" or "Medicare reform." H.R. 1259 provides neither any definition nor any standards that explain what these terms means. There is, for example, no requirement that to be designated as Social Security or Medicare reform legislation, a bill at least must reduce the long-term actuarial imbalance in Social Security or Medicare by some minimum amount.
The Herger-Shaw bill consequently contains a large loophole, since the terms "Social Security reform" and "Medicare reform" would mean whatever Congress says they mean. A bill containing modest Social Security or Medicare reforms and a large tax cut would be exempt from the points of order under H.R. 1259 if it included the magic words designating it as Social Security or Medicare reform legislation. To take an extreme case, a bill that contained large payroll tax cuts to finance private accounts without including offsetting Social Security benefit reductions, and that also included income tax cuts, might be designated "Social Security reform." Yet such a bill could accelerate Social Security insolvency, bring back deficits in both the non-Social Security budget and the unified budget, and cause the national debt to be higher than would otherwise be the case.
- The Herger-Shaw legislation would make it more difficult for Congress to fashion appropriate responses to recessions. Suppose recession sets in and temporarily casts the non-Social Security budget back into deficit. Under the Herger-Shaw bill, a point of order would lie against legislation to provide a temporary extension of unemployment insurance, as well as against other temporary stimulus measures, such as a temporary tax cut. Because of the point of order, such legislation would need a three-fifths majority to pass the Senate. The three-fifths requirement would hold regardless of whether Congress and the President agreed the legislation should have an emergency designation.
This is not sound policy. During a recession, measures such as these can help both to lessen hardship and to prevent a decelerating economy from sinking further. So long as the measures are temporary, they should have no adverse long-term fiscal effects. Such measures should not require a three-fifths vote to pass the Senate during economic downturns.
Most other relevant federal budget laws including the Budget Enforcement Act and its predecessor, the Gramm-Rudman-Hollings Act have contained provisions to suspend their procedures when the economy stumbles and real growth falls below one percent of GDP for two consecutive quarters (as well as when the nation is at war). Even the Kasich-Ryan and Abraham-Domenici lock-box bills contain provisions for suspending their rules when growth drops below one percent for two straight quarters or war occurs. The Herger-Shaw bill does not.
- The Herger-Shaw bill also may pose substantial problems for other types of emergency legislation. If the non-Social Security budget is in balance but not in surplus as would be the case if Congress chooses to use up the surplus for such items as tax cuts and increases in the discretionary spending caps emergency spending would bring back on-budget deficits. This means that if the budget were in close balance and a sudden need arose for resources to respond to a major natural disaster, the resulting emergency spending bill would face a point of order and need a three-fifths vote in the Senate to pass (unless its costs were offset). This problem would be most acute during economic downturns that causes a temporary re-emergence of an on-budget deficit; during such periods, any emergency spending would be subject to a point of order and require a three-fifths vote in the Senate.(1)
Because H.R. 1259 provides no exceptions to its point-of-order requirements during economic downturns or in the case of emergencies, it accords too much power to Senate minorities. In such circumstances, Senate minorities with the ability to stop a Senate majority from moving legislation that the House had approved would enjoy substantial leverage over their Senate colleagues and the Members of the House.
Bill Does Not Strengthen Current Enforcement Rules
The Herger-Shaw bill is generally presented as tightening current budget rules to make it more difficult for Congress to adopt legislation that would result in Social Security surpluses being used for other purposes. In fact, current budget rules already contains safeguards against such action by Congress. The Herger-Shaw bill adds little to them, except in cases of emergencies, economic downturns, or wars.
- The current pay-as-you-go rules and discretionary caps effectively preclude the enactment of legislation that would result in the use of projected surpluses including both the Social Security surplus and non-Social Security surpluses except in the case of emergencies, wars, or economic downturns. A violation of the pay-as-you-go rules or a breach of the discretionary caps triggers sequestration of a sufficient magnitude to ensure that the surpluses are not consumed.
- Until this year, Congressional budget resolutions have adhered to the pay-as-you-go rules and discretionary caps; doing otherwise invites sequestration, unless the pay-as-you-go rules are changed or the caps are raised. Since legislation that violates the budget resolution is subject to a point of order including a 60-vote point of order in the Senate any legislation that would cause the Social Security surpluses to be used for other purposes in coming years already is subject to a 60-vote point of order under current law.
- This year's budget resolution ignores the pay-as-you-go rules and includes a large tax cut without offsets. This tax cut would not be subject to a 60-vote Senate point of order for violating the budget resolution. But the tax cut would trigger sequestration. As a result, it still is effectively blocked, unless legislation were to be enacted altering or waiving the pay-as-you-go rules. Any such legislation to weaken the pay-as-you-go rules, however or for that matter, any legislation to raise the discretionary caps would itself either be subject to a 60-vote point of order or subject to a filibuster. (If such legislation is packaged so it cannot be filibustered, then it is subject to a 60-vote point of order, and vice versa.)
Taking a Point to an Illogical Conclusion
The Herger-Shaw bill would make it illegal for any official government document to contain both on-budget and off-budget numbers. This prohibition would apply to Congressional Committees and individual Members alike. Thus, it would illegal for a Member of Congress, in a newsletter to his or her constituents, to show both on-budget and off-budget deficits and surpluses, even if he refrains from adding them together. The Member could not inform his or her constituents of the level of unified budget deficits or surpluses without breaking the law. If the Member wanted to convey such information, he would have to write two different newsletters with one newsletter containing the on-budget numbers and the other containing off-budget numbers and trust the constituents to add the two sets of numbers together to get the unified budget totals.
In short, under current law, legislation that would result in the return of, or the enlargement of, on-budget deficits and the consequent use of Social Security surpluses already requires 60 votes to pass the Senate. (So does legislation that would reduce non-Social Security surpluses, an area the Herger-Shaw bill does not address.) The Herger-Shaw bill consequently does not tighten existing procedures and is essentially redundant with current safeguards, except in cases of emergencies, recessions, or wars. Those, however, are precisely the times when there ought to be flexibility in these rules.
(Moreover, if it is the intention of the legislation's sponsors or of some of its supporters that this bill ultimately should supplant the current pay-as-you-go rules, then the effect would be to weaken fiscal discipline. If the pay-as-you-go rules no longer applied with respect to projected on-budget surpluses, such surpluses could be used in full to pay for tax cuts and entitlement increases. If that occurred and the projected surpluses failed to materialize in substantial part, on-budget deficits could return, and Social Security surpluses would be used to cover those deficits.)
It also should be understood that the Herger-Shaw bill does not improve Social Security or Medicare solvency. The legislation does not extend the point at which either the Social Security trust funds or the Medicare Hospital Insurance trust fund are projected to become insolvent. Improving solvency is not the goal of the legislation. Accomplishing that goal entails taking on directly the long-term financing problems that Social Security and Medicare face.
1. The FY 2000 Congressional budget resolution establishes a 60-vote Senate point of order against an emergency designation. This is not a permanent change in procedure. It is a one-year experiment that expires upon adoption of next year's budget resolution.