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CBO: Social Security funds needed to balance books

WASHINGTON (CNN) -- This year's federal budget surplus has plunged to $153 billion because of the nation's economic doldrums and the Bush administration's tax cut, meaning the federal government will have to cover $9 billion of spending by dipping into Social Security, the nonpartisan Congressional Budget Office projected Tuesday.

The new estimate for the federal surplus is sharply lower -- off by 44 percent --- from the $275 billion figure the CBO was predicting just three months ago. The reduction means that President Bush and congressional lawmakers will be hard pressed to keep their pledge not to use Social Security funds for any other government spending, save for a planned, steady retirement of the government's outstanding debt.

The CBO projected Tuesday that, if current spending habits aren't changed, the Social Security surplus would be dipped into again in 2003, for $18 billion, and in 2004, for $3 billion. The congressional accounting office projects a return to overall budget surpluses large enough to spare the Social Security fund in later years.

 What's in a 'surplus'?
The U.S. figures its annual bottom line by including all tax revenues - including taxes that can only be used to pay Social Security benefits. If revenues fall short, the government has customarily borrowed from Social Security.

Here's the math behind the Congressional Budget Office prediction:

$153 billion = Total budget surplus
$162 billion = Off-budget surpluses*
$9 billion = Shortfall

*Includes Social Security trust funds as well as the net cash flow of the Postal Service

CNN's Brooks Jackson takes an unusual look at the numbers game being played over Social Security (August 28)

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CNN's John King examines how President Bush is being held accountable for the diminished U.S. government budget surplus (August 27)

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White House Budget Report (pdf)
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What's the impact?
If Congressional Budget Office estimates are correct and the government needs to borrow from the Social Security trust fund, here are the effects of the move:

  • Social Security benefits are not affected.

  • Money taken out of the trust fund would be credited to the Social Security account.

  • It could slow down the pace of paying off long-term debt.

  • For the 10-year period from 2002 to 2011, the CBO calculates the nation will have a total surplus of $3.4 trillion -- three-quarters of which would be made up of excess monies in the Social Security trust fund. That number, however, is $2.2 trillion less than was projected just last May, and the reason for most of that drop is the $1.35 trillion tax cut championed by President Bush.

    The new numbers offer a dimmer view of the federal budget than that provided by the White House Office of Management and Budget last week. The Bush administration has pointed out that the overall surplus is the second largest in the nation's history, and argues it is just big enough this fiscal year -- which ends September 30 -- to barely avoid use of Social Security funds.

    That is politically significant because both Bush and congressional lawmakers from both parties have pledged to avoid dipping into the retirement fund reserve. So, although the surplus remains large by historical standards, the pledge makes most of it off-limits, because it is made up of Social Security receipts.

    In past years, before the recent spate of robust surpluses, the federal government routinely dipped into the Social Security surplus for additional spending money. But in recent years, in light of questions about the viability of the retirement program in the coming decades, both Democrats and Republicans vowed to leave the fund alone, and only use that money to pay off the national debt.

    Social Security's future

    Should the new CBO estimates be borne out, the $9 billion taken from the Social Security Trust Fund will not have an immediate effect on disbursement of benefit checks. Money will continue to flow to beneficiaries every month, and the program will continue to take in more than it pays out annually.

    But, Social Security won't stay flush with the looming retirement of the nation's 76 million "baby boomers." In the course of the next decade, more people will be drawing benefit checks, and fewer will be paying into the system. Social Security is at risk of running a deficit.

    Many lawmakers of both parties -- and interest groups representing sectors of the population that expect Social Security to be available to them later in this century -- are concerned that continued use of the Social Security surplus for other government spending will jeopardize their retirement security.

    President Bush has suggested his campaign proposal to allow individuals to invest some of their Social Security payroll taxes in the stock market could allay some of these fears. He has convened his Commission to Strengthen Social Security to deliberate over suggestions for modernization.

    Shrinking federal surplus estimates, meanwhile, have prompted fears that the United States will not be able to pay down its long-term debt in the same time period.

    The new CBO numbers project it will now be 2010 before the debt can be retired. In May, that was expected to happen in 2006.

    Dems blame tax cut

    Democrats have been quick to use the new budget numbers as backing for a claim they have been making for months -- that the Bush tax cut is too costly, especially in tandem with the administration's proposals to increase spending for defense, education and other programs.

    Sen. Kent Conrad, D-North Dakota, who is chairman of the Senate Budget Committee, cautioned that the CBO projections do not include Bush's proposed spending over the next decade on items such as defense and education.

    "When you put those together, what you find is that the invasion of the trust funds is far more serious than has been reported so far, far more serious," Conrad said on Tuesday.

    Dems blame tax cut

    "This is their spending plan. This is their tax plan. They have created this problem," he said of Bush and Republicans in Congress. "They have an obligation to tell us -- for example, when the president asks for $18 billion more for defense next year -- how is he going to pay for it?"

    But administration officials and congressional Republicans have defended their priorities and last week's OMB numbers, and say the president's plan will continue to protect the Social Security surplus. GOP lawmakers have said over the past few weeks, as news of the dwindling surplus surfaced, that the tax cut will help to stimulate the economy, and the biggest threat to the surplus is too much spending by Congress.

    "The budget is tight, and that is exactly where we want it to be and where we need it to be," said Rep. Jim Nussle, the Iowa Republican who is the House Budget Committee chairman. Nussle noted that much of the surplus was used for tax relief, to put money back in the hands of the taxpayers. He said Congress should be able to garner savings by going after excessive government spending.

    Nussle stressed the new numbers are only projections, which he noted are often wrong, as they were in May. "The books aren't closed," he said. "This is a weather report. You've got to wait for the weather to happen."

    Rough road ahead

    The debate over the dwindling surplus and the budget will likely be the main order of business when both the White House and Congress return from their far-flung vacation destinations next week.

    At the top of Congress's 'to do' list in the coming weeks will be completion of the 13 yearly appropriations bills, which will determine how the nation's $2 trillion, fiscal 2002 budget will be spent. The new budget numbers are bound to be a critical factor in the budget battles over that new spending. Already, Democrats have questioned whether the nation can afford some of Bush's spending priorities, in particular the proposed boost for defense spending.

    Part of the difference in the estimates between the CBO and the OMB is accounted for by differences in economic forecasts. Last week, OMB predicted the national economy would rebound at the end of this year -- or the beginning of the next -- and grow at a healthy clip of 3.6 percent next year.

    The CBO is predicting that the nation will avoid falling into a recession, but its prediction for economic growth next year is considerably lower, just 2.6 percent.

    -- CNN's Manuel Perez-Rivas and Ian Christopher McCaleb contributed to this report.

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