The Lock Box and the Use of the Surplus for Social Security Fixes

[National Dialogue Moderator <moderator>]

    The Lock Box and the Use of the Surplus for Social Security Fixes

	Before responding to the questions posed by Bob Carlitz, let me say that I found the discussion by the participants in this dialogue interesting, informed, and sophisticated.  I have thoroughly enjoyed interacting with you and regret that the other commitments I had over the past two weeks didn't allow me more time to participate.  
 
Lock Boxes:	The budget surplus that you read about in the newspapers (sometimes called the unified budget surplus) is actually the sum of the balance in the Social Security accounts (the program's receipts minus its expenditures) and the balance in the other accounts of the government (the receipts from income, excise, non-Social Security payroll, and other taxes minus spending by the Defense, Interior, Justice, etc. Departments).  Social Security has been running growing surpluses since the mid 1980s. Taken together, the other accounts of the budget have been in deficit for decades and will register a small deficit even this year when the unified budget will be in surplus by over $100 billion. Next year (fiscal year 2000), the non-Social Security accounts are projected to remain in deficit but after that growing surpluses are expected in this portion of the budget as well as in the Social Security accounts.

	Some members of Congress are concerned that these surpluses will erode fiscal disciple and lawmakers will boost spending or cut taxes so much that not only will the surpluses expected for the non-Social Security accounts disappear but also some portion or all of the projected Social Security surpluses will be dissipated.  To make this more difficult, the House passed a *lock box* proposal this week that will allow members to raise a point of order against any proposed legislation that would cause the non-Social Security accounts to go into deficit.  The Senate will take up this legislation when it returns from the Memorial Day recess.

	The motivation for this effort is commendable but it will have little practical effect.  The rules of the House are such that a majority can override the point of order and for the threatening legislation to be passed in the first place it would have to have majority support.  In the Senate, the point of order could only be waived by a super-majority vote.  But under current Senate rules there are already four points of order protecting Social Security balances and one more won't make much difference.  In short, you won't have to be a Houdini to pick the lock on the *lock box.*

	Nevertheless, the lock box legislation will help to focus attention on the balance in the non-Social Security portion of the budget.  Our fiscal policy goals should be to use the Social Security surpluses to retire federal debt and to use the surpluses in the government's other accounts to invest in activities that hold out some promise of boosting economic growth. 

Surpluses and the Solution to the Social Security Problem.  Many reform proposals would devote a portion of the projected budget surpluses to fixing Social Security.  This seems to me to be an appropriate use as long as the following four conditions are met.

1.  The surplus we are talking about is the one generated in the non-Social Security portion of the budget.

2.  The fix does not involve promising future Social Security beneficiaries higher benefits than are promised by current law.  

3.  The use is temporary, in other words, it is for a transition period¯even though that period could be as long as 50 or 70 years.

4.  The allocation of these resources to Social Security does not impose excessive fiscal restraint on other national priorities. In other words, we don't have to slash Medicare, defense, education, food stamps or other important programs to *save* Social Security.  

	As I discussed earlier, a case can also be made for using general revenues (that is, the surplus in the non-Social Security accounts) to support some or all of the past or future social assistance provided by the current program.  But that is another topic.

	In considering whether we would want to use surpluses to fix Social Security, we must consider the alternative uses of the resources.  One is to strengthen Medicare, another to invest in the educations of children who will be tomorrow's workers and taxpayers. While I am sure many participants in the dialogue would disagree, I do not think tax cuts would be a wiser use of these monies.   

Robert D. Reischauer
The Brookings Institution