In spite of what you may have heard in recent days, no matter what happens this year, no one is going to be spending any part of the Social Security trust fund for anything other than Social Security.
Could a tax cut or spending increase lower the overall budget surplus so that it is less than the surplus in the Social Security trust fund? Absolutely. Does that mean that without Social Security there would be no budget surplus? You bet. Does it also mean that trust fund dollars will be used for something other than Social Security? No way.
My dictionary defines "spending" as using or consuming something. So when someone talks about spending the Social Security surplus for something other than Social Security, the perception is that fewer resources will be available for Social Security benefits.
That, however, is exactly what will not happen.
When Social Security takes in more than it spends in any fiscal year, the surplus is invested in federal securities. In effect, the trust fund lends its surplus to the government. This is the big reason why, as Budget Battles explained a few weeks ago, federal borrowing can increase even when the budget is balanced.
Regardless of what Social Security invests in, the trust fund will always be little more than the IOUs that critics routinely deride. Whether it invests in federal bonds, corporate stocks, junk bonds or offshore oil wells, the trust fund will never have anything other than promises from someone or something to pay back the loan (plus interest) in the future.
Contrary to what many say on talk radio, the IOUs are not an indication that the program is in financial trouble or being mismanaged. Just the opposite is true. To be prudent, the trust fund has to do something with its surplus other than leave the money in a drawer, safe deposit box or mattress. If it did not, inflation would reduce the value of the cash that accumulated, especially over the decades-long periods involved with Social Security.
Investments other than federal securities might provide a bigger return for the trust fund. With a stock market like the one that has existed for the past decade or so, it is hard not to see that 10 to 20 percent returns rather than the single-digit gains from government bonds are possible.
But return is only half the equation. Investments that might result in higher yields for the trust fund also involve far greater risks. Many of the currently high-flying Internet companies, for example, have never made any money and have no assets to sell if-as almost certainly will happen-one or more of those firms fail. If that happens, the stock of those companies will be worthless.
By contrast, government bonds are backed by the full faith and credit of the federal government. While that phrase is often met with scorn these days because of nearly 30 consecutive years of deficits and the $3.7 trillion national debt, the truth is that when it comes to paying back the Social Security trust fund, Washington is much more reliable than Whatever.com.
Washington also will have a wide variety of options to make sure that the loans are indeed paid back. These include selling government assets (everything from office buildings to stockpiled minerals to national parks), diverting funds from other programs, increasing taxes or fees, borrowing, or just printing money. The one option the government will not have is declaring bankruptcy. While that might actually be Whatever.com's first choice, it would be completely impossible for elected officials for political reasons.
But all of this is actually beside the point. Once Social Security transfers its surplus to the Treasury in exchange for the securities, the trust fund is credited with a certain amount of resources. Those resources will be the same regardless of whether the federal budget is in deficit or surplus, or whether the deficit is higher or surplus is lower because of a tax cut or spending increase.
This is the key as far as understanding the budget is concerned. Other than legislation that specifically takes money away from the program or expands the definition of benefits so that it includes, say, highways or tax cuts, nothing Congress and the president do will spend the Social Security trust fund on anything other than Social Security.
Fiscal Y2K Countdown
Including today, there are 40 legislative days left before the start of fiscal 2000. If Mondays and Fridays, when Congress typically does not do much legislative work, are excluded, there are only 25 days left.
Question Of The Week
Last Week's Question. I hesitate to report some of the gimmicks that were suggested by Budget Battles readers in response to last week's call for ingenious new ways that the caps on appropriations might be circumvented. They were so good that Congress and the White House might not be able to ignore them. An "I Won A Budget Battle" T-shirt goes to Howard Moorin, legislative director for Rep. Pat Danner, D-Mo., who suggested that luxury skyboxes be installed in the House and Senate galleries so lobbyists could pay big bucks to entertain clients while watching members in action. The fees would then be considered negative spending, which could then be used to offset increases that would otherwise cause the caps to be breached. Honorable mention to Scott Rader of the House Committee on Science, for his suggestion that the federal government shut down nonessential services the last two weeks of December like many businesses do.
This Week's Question. Moorin also suggested that the government sell naming rights to various federal buildings like is done these days with sports stadiums and arenas, and that leads directly to this week's question. If the government did sell naming rights to federal buildings and departments, which corporation, association or individual might provide an appropriate name for which facilities? For example, how about the Lockheed-Martin Department of Defense or the Marlboro Department of Agriculture?
Send your entry to scollender@njdc.com and you could win the much coveted "I Won A Budget Battle" T-shirt to wear while reading the Congressional Budget Office's next budget update on July 1.