Wednesday, February 11, 1998

Social Security 'reserve' isn't really a reserve

One of President Clinton's flashier sounding proposals is that the projected budget surpluses be put into a "reserve" for Social Security against the day that fund is swamped by retiring baby boomers.

"Save Social Security first," he said in his State of the Union address, his budget message and again in the East Room of the White House. His budget even lists the surpluses as a line-item marked Social Security Reserve. However, the president's budget aides were curiously sparse with details about how the reserve would work.

Social Security has no immediate need of the money. The fund runs a surplus, which Social Security loans to the federal government. It now "holds" more than $600 billion of special Treasury bonds, actually an unfunded liability that will eventually have to be made up. But if it were not for Social Security surplus, in 1998 the government would not be $10 billion in the black as Clinton projects but more than $100 billion in the red.

Assuming the projected budget surpluses do in fact materialize, the government has to do something with the money. The Treasury cannot let the surplus just sit around in a drawer, so to speak.

It turns out there is no "reserve." The surpluses will be used to offset the amount of money the government borrows. In other words, the surpluses will go to debt reduction and not much of that. Clinton's forecasts call for the amount of national debt held by the public to be reduced by about $100 billion from the current $3.7 trillion. However, the amount of money the government borrows from itself, like the Social Security bonds, will increase from $1.6 trillion to $2.6 trillion.

Paying down the debt, even modestly, makes a lot of sense. By trimming the 14 percent of the budget the government pays to service that debt, the government frees up money for other programs, including further debt reduction, and makes itself more credit-worthy if it must borrow to pay for the baby boomers' retirement.

"Save Social Security first" may be less than meets the eye but it sounds sexier politically than "debt reduction," and that seems to be the point.