Budget Winners and Losers

November 19, 1999

Wednesday night, President Clinton and the Republican leadership in Congress reached agreement on spending bills for fiscal year 2000. The highlight was a .38 percent "spending cut" - that's less than four tenths of one percent - which, of course, does not mean that spending will actually be cut but merely that spending will increase four tenths of a percent less than it otherwise would.

Republicans crow they have not "raided" the Social Security Trust Fund. Many Democrats believe that it would not matter if they had. Regardless, the Congressional Budget Office states that $17.2 billion of surplus Social Security payroll taxes will be spent on general expenditures. Could that money have been put to better use?

If that $17.2 billion of surplus payroll taxes were deposited in personal retirement accounts, earned the market rate of return and mandated benefits were reduced proportionately, the accounts would build enough wealth to delay Social Security's insolvency from 2014 to well into 2016. If the entire payroll tax surplus of approximately $70 billion were invested in personal accounts, insolvency could be delayed until 2019. Finally, if personal accounts were to receive the total Trust Fund surplus of $125 billion, which includes "interest" paid on existing Trust Fund bonds, insolvency could be delayed until 2020. If future payroll tax surpluses were similarly invested through personal accounts, insolvency could be put off even longer.

But since reform did not come this year, that money will not be invested. Workers will not build savings of their own. And Social Security's insolvency - and the need for tax hikes, benefit cuts or an increased retirement age - will not be put off by a single cent or a single day. The budget winners this year were the pet projects and pork barrel spending that received those Social Security dollars. The losers were American workers.

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