November 1, 1999
Congressional Actions Would Not Avoid
A Non-Social Security Deficit in 2000
But Social Security Would Not Be Raided or Harmed
by James Horney and Robert Greenstein
There is a dispute over whether the 13 appropriation bills that Congress has now passed, including several vetoed by the President, would preserve a surplus in the non-Social Security part of the budget or would result in a modest deficit in that part of the budget. Both parties in Congress have brandished letters from the Congressional Budget Office that they claim show their position to be the accurate one.
Although this debate concerns relatively small differences in a $1.7 trillion federal budget, it has taken on political importance, as leaders of each party accuse the other of "raiding" the Social Security trust fund and thereby weakening Social Security for future beneficiaries.
Despite the heated rhetoric surrounding this debate, however, the basic facts should not be in dispute. First, the Congressional Budget Office has said its best estimate is that the appropriations bills which Congress has passed would result in a $17 billion non-Social Security deficit in fiscal year 2000. (See table below.) What the CBO letter supposedly showing these bills would not result in a deficit actually says is that the $17 billion deficit disappears and is replaced by a $1 billion surplus if one accepts the "scorekeeping adjustments" that the Republican Congressional leadership is using; those adjustments subtract nearly $18 billion in expenditures from the amount that CBO actually estimates will occur.
Before too much is made of the fact that CBO does believe these bills would produce a small non-Social Security deficit, however, a second key point should be made. Such a deficit would not result in any raid on the Social Security trust fund or have an adverse effect on the Social Security benefits that future beneficiaries will receive. Neither Social Security benefits nor the assets of the Social Security trust funds would be directly affected by a non-Social Security deficit in 2000.(1)
It also may be noted that with a $17 billion non-Social Security deficit, the total budget surplus still will be $130 billion in fiscal year 2000 under CBO projections, a notable accomplishment.
Claims About Balancing the Non-Social Security Budget
The assertion that Congress is balancing the non-Social Security budget and not using any surplus Social Security funds to help cover the costs of non-Social Security expenditures is based on the following claims and statements:
- CBO projects a $14 billion non-Social Security surplus for fiscal year 2000 if appropriations are held to $580 billion, CBO's estimate of the statutory cap on discretionary spending when it produced its baseline projections in July.
- Emergency appropriations that Congress has approved will increase discretionary spending by almost $19 billion above the level assumed by CBO. These include appropriations for the 2000 census, routine operation and maintenance activities of the Defense Department, payments to farmers, and the Low-income Home Energy Assistance program. Designating those appropriations as emergency spending helps the Congress technically to comply with the discretionary caps, but the additional spending still reduces the surplus.
- Reductions in other discretionary spending below the level allowed under the caps primarily through a 1 percent across-the-board cut in all funds appropriated for 2000 that is included in the combined District of Columbia and Labor, Health and Human Services, and Education appropriation bill would offset nearly $6 billion of the increase stemming from the emergency appropriations.
- The resulting $13 billion net increase in discretionary spending above CBO's baseline level, together with a small increase in federal debt service costs that will occur as a result of these additional expenditures, will use up most of the projected $14 billion non-Social Security surplus. It will leave the non-Social Security budget with a surplus of about $1 billion.
Claims Based on Unrealistic Assumptions and Gimmicks
These claims rest on several rather transparent gimmicks and highly dubious assumptions.(2)
- The Budget Committees have subtracted $14 billion from CBO's estimates of the level of discretionary expenditures that the appropriation bills moving through Congress will generate in fiscal year 2000. The figures the Leadership is using to claim it is balancing the non-Social Security budget consequently understate CBO's estimate of actual discretionary expenditures by $14 billion.
The Budget Committees justify the decision to "lowball" these expenditure estimates by noting that the Administration's estimate of the amount of discretionary program expenditures that would occur in fiscal year 2000 under the President's budget is $14 billion lower than CBO's estimate of the level of discretionary expenditures that budget would produce. But this does not mean the CBO estimate is $14 billion too high. Indeed, the bulk of the estimating difference between OMB and CBO regarding the level of expenditures that would result in fiscal year 2000 from the discretionary funding levels in the President's budget (nearly $10 billion of the $14 billion difference) occurs in defense spending. To assume that the Administration's lower estimate of defense expenditures will prove more accurate than CBO's flies in the face of the historical record. Each year from 1994 through 1998, the Administration's estimate of the level of defense expenditures that would result from enacted appropriations was lower than CBO's, and in each year, actual discretionary outlays ended up exceeding CBO's estimate. The amount by which actual defense expenditures have exceeded the CBO estimates has averaged $4 billion a year.
The Non-Social Security Deficit Under Realistic Assumptions
Under the more realistic assumptions of the Congressional Budget Office, the actions Congress has taken to date would produce a deficit in the non-Social Security part of the budget of $17.1 billion. This does not include the effects of the tax bill the President vetoed on September 23 or the likely costs of future appropriations (either in revised versions of vetoed regular appropriation bills for FY 2000 or in supplemental appropriation bills next year) for peacekeeping operations in Kosovo and East Timor, further implementation of the Wye Memorandum on the Middle East peace process, and assistance to victims of Hurricane Floyd. It also does not include the effects of tax and entitlement legislation that may be considered in coming weeks, such as legislation to roll back some of the Medicare savings provisions affecting health care providers that were included in the 1997 Balanced Budget Act and legislation containing various tax cuts.
CBO's Estimates of the Effects of Congressional Action on the
Non-Social Security Surplus for Fiscal Year 2000
(in billions of dollars)
CBO July 1999 baseline non-Social Security surplus 14.4 Effects of actions taken by Congress "Scorekeeping adjustments" to CBO's estimates Reduce estimated defense outlays 9.7 Reduce estimated transportation outlays 1.3 Reduce estimated other non-defense outlays 3.0 Count spectrum auction savings that CBO does not believe will be achieved 2.6 Count more savings - primarily in the student loan program - than CBO estimates 1.1 Subtotal from scorekeeping adjustments to CBO's estimates 17.7
Emergency appropriations Census 4.1 Defense 4.8 Agriculture 8.3 Low-income Home Energy Assistance 0.9 Other 0.4 Subtotal from emergency appropriations 18.6 Across-the-board cut in appropriations -3.5 Other savings in appropriation bills -2.1 Total increase in discretionary spending above cap 30.7 Debt service 0.8 Total effect on the surplus -31.5 Resulting non-Social Security deficit -17.1 Source: Congressional Budget Office
- The Budget Committees also are crediting the appropriation bills with having achieved $2.6 billion in savings in fiscal year 2000 by including a provision in the defense appropriation bill that is supposed to accelerate a planned 2001 Federal Communications Commission auction of a portion of the electromagnetic spectrum. CBO estimates, however, that this provision would produce no savings in 2000.
- In addition, the Budget Committees have credited the appropriation bills with another $1.1 billion in savings that CBO does not include in its estimates. Most of this $1.1 billion stems from the Congressional claim that a provision affecting the mandatory federal student loan program will save nearly $900 million. CBO estimates the savings will be less than $100 million.
- The claim that Congress is avoiding a non-Social Security deficit for fiscal year 2000 also assumes there will be no additional emergency appropriations for the next 12 months. Yet it is highly unlikely that Congress will fail to provide additional emergency funding to assist the victims of Hurricane Floyd, to help further implement the Wye Memorandum on the Middle East peace process, or to pay for the U.S. share of the cost of peacekeeping operations in Kosovo and East Timor.
- Still another assumption that underlies that claim is that additional legislation enacted in coming weeks will cost less than the avowed $1 billion non-Social Security surplus. But it will be hard to hold the costs of popular entitlement and tax legislation under consideration by the Congress to less than $1 billion. In fact, legislation reported by the Senate Finance Committee that is intended to provide relief to health care providers from Medicare provisions included in the Balanced Budget Act of 1997 would by itself increase spending by $1.1 billion, according to CBO. Separate bills extending expiring tax credits that have been approved by the House Ways and Means and Senate Finance offset the first-year cost of extending the credits, but only through the use of their own gimmicks such as temporarily speeding up estimated tax payments. Tax cuts introduced in the House as part of a bill to increase the minimum wage would reduce revenues by more than $400 million in 2000 (although most of the revenue losses that would result from enactment of that bill $95 billion over the next 10 years occur after 2000).
According to CBO's estimates, therefore, legislation already adopted by Congress would produce a deficit in the non-Social Security part of the budget. CBO officially estimates, in letters CBO director Dan Crippen sent to Representative John M. Spratt, Jr. and Senator Frank R. Lautenberg on October 28, that under those bills, the non-Social Security deficit will be $17.1 billion. Forthcoming legislation, such as additional emergency appropriations and legislation providing tax cuts or increases in entitlement spending, could increase this modest non-Social Security deficit.
Misunderstanding Social Security
A modest non-Social Security deficit in 2000 now seems inevitable under CBO's current assumptions. But despite the statements of various Members of both parties, such a deficit would not constitute a "raid" on Social Security that would weaken Social Security's financial position. The Social Security trust funds are not directly affected by the level of the surplus or deficit in the non-Social Security part of the budget, a point widely misunderstood.
In a memo attached to the October 28 letters sent to Representative Spratt and Senator Lautenberg, CBO makes the point clearly:
That [Social Security] surplus is invested in Treasury securities and earns interest for the trust funds. The cash that the Treasury receives in return for those securities can be used in two ways. If the revenues and expenses of the rest of the government (other than Social Security) are in balance, the cash generated by the Social Security surplus is used to reduce federal borrowing from the public that is, to pay down the debt. Alternatively, if the budget of the rest of the government is in deficit, some of the cash generated by the Social Security surplus is used to pay other expenses of the government and to avoid the need to borrow from the public to support that spending. In either case, the balances credited to the Social Security trust funds and the government's legal obligation to pay Social Security benefits are unaffected [emphasis added].(3)
This is not a defense of substantial non-Social Security deficits. Using the Social Security surpluses to pay down debt is a sound idea; it is helpful both to the long-term prospects of the economy and to the nation's long-term fiscal health. Doing so increases national saving, which in turn should result in small increases in the long-term economic growth rate. And a larger economy can more readily afford to provide the resources to finance Social Security, Medicare, and other needs in the future.
Paying down debt also reduces the interest payments the federal government must make on the debt, thereby creating more room in the budget to help finance spending for other programs or tax cuts. Furthermore, paying down debt would give the government more flexibility to borrow in the future to help address the fiscal crunch expected to occur when the baby boomers retire without amassing a level of national debt that could seriously injure the economy.
Paying down debt thus is an important goal to pursue. A $20 billion or $30 billion non-Social Security deficit in fiscal year 2000 is too small, however, to have any noticeable effect on long-term economic growth.
Some of the devices being used to support the claim that the Congress is preserving a non-Social Security surplus in 2000 and thereby protecting Social Security illustrate the confusion rampant on this subject. The beneficial effects of a non-Social Security surplus come from the contribution that such a surplus makes to debt reduction. But shifting revenues from 2001 into 2000 (as is done in legislation extending expiring tax credits) and delaying obligations of discretionary appropriations in order to shift outlays from 2000 into 2001 (as is done in the Labor-HHS-Education appropriation bill) simply reduces the total budget surplus in 2001 by the amount that such maneuvers increase the surplus in 2000 leaving federal debt at the end of 2001 unchanged. Focusing so intently on balancing the non-Social Security part of the budget in the current year detracts attention from what is important in the debt reduction area how much the federal debt is reduced over the next 10 or more years under realistic assumptions.
1. See James Horney and Robert Greenstein, "A Small Non-Social Security Deficit In Fiscal Year 2000 Would Not Adversely Affect Social Security," Center on Budget and Policy Priorities., September 17, 1999, https://www.cbpp.org/9-17-99socsec.htm.
2. Other gimmicks, such as using advance appropriations to move funding from 2000 to 2001 without cutting real spending, are not addressed here because they affect only budget authority, not outlays, and therefore do not affect the fiscal year 2000 surplus calculation.
3. Congressional Budget Office, Discretionary Spending Caps, Deficits, and the Social Security Trust Funds, October 28, 1999.