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http://www.latimes.com/news/nationworld/nation/la-020502assess.story
Social Security Takes on Role of a Cash Cow
Budget: A critic says Bush's plan "abandons fiscal discipline." Others consider it an appropriate response to a "national emergency."
By PETER G. GOSSELIN
Times Staff Writer

February 5 2002

WASHINGTON -- In the budget he delivered Monday, President Bush relies on one source of new money more than any other to pay for his proposals: the trillions of dollars in Social Security funds being set aside for the start of the baby boom retirement.

Although Bush and his aides warned in advance that the war on terror and the need for homeland defense would require dipping into the Social Security surplus and running deficits for a few years, the dimensions of what the administration had in mind were not apparent until the unveiling of the $2.13-trillion spending plan for fiscal 2003. The measure took the breath away from some Democrats and independent analysts.

"The president is requiring the use of Social Security to pay for the normal operations of government," said Robert D. Reischauer, president of the nonpartisan Urban Institute and a Washington budget veteran. "That's the most significant, and largely unrecognized, change he's making."

Declared Citigroup vice chairman and former Clinton administration Treasury Secretary Robert E. Rubin: "This country is ill-served by abandoning fiscal discipline and this [budget] abandons fiscal discipline. It's the opposite of what was accomplished in the 1990s."

To be sure, that opinion was not universally shared, and no one claimed there was any danger to current retirees' benefits. Former Democratic Sen. Daniel P. Moynihan, who co-chaired a recent commission on Social Security for Bush, said: "My own view is that this is a war budget. This is a national emergency and the president is responding."

$150-Billion Deficit Each Year for a Decade

Still, many analysts expressed surprise, both at the extent of deficits in the new Bush budget and its extensive use of Social Security money to cover them. What most surprised them:

• Far from running only a few years of deficits, the new budget assumes that the government's so-called "on-budget" spending, which covers everything from maintaining a military to subsidizing Amtrak, will run $150 billion or more in the red each year for the next decade, according to documents and White House officials.

• Instead of covering the bulk of the costs with expanding income tax revenue that can be expected with the resumption of economic growth, the plan relies heavily on Social Security money to nudge the overall budget--which includes on- and off-budget spending, such as payments to retirees--into the black by 2005.

• Although the president argues that the chief reason the nation must run in the red is to pursue the war on terror, his budget calls for new tax cuts--over and above the 10-year, $1.3-trillion package approved last year--equal to or greater than the new defense spending he seeks. The plan includes $590 billion in additional tax cuts over 10 years, but only $550 billion in new defense spending.

"Everybody concedes that deficit spending, if it is in response to an emergency like Sept. 11, is not a bad thing," said Robert Bixby, executive director of the anti-deficit Concord Coalition. "But what's astounding is that this goes way beyond what was [once] a strong political consensus to save the Social Security surpluses."

In fact, before the September attacks, the president was at the center of that consensus. In addressing a joint session of Congress only one year ago, he declared that "to make sure the retirement savings of America's seniors are not diverted in any other program, my budget protects all . . . of the Social Security surplus for Social Security, and for Social Security alone." His pledge was considered critical to winning congressional passage of his $1.3-trillion tax cut.

But Bush and his aides appear to have decided that they cannot pursue their new military and homeland defense goals, protect the president's already approved tax cuts and maintain the Social Security surplus. And they apparently think there is little political cost to giving up on the surplus pledge.

In part, that's because there is no immediate danger to retirees' checks. The system expects to collect more than $700 billion in revenue this fiscal year and pay out only about $470 billion in benefits. But analysts warn that failure to keep running surpluses and paying off federal debt will leave the country in a painful bind as baby boomers retire in growing numbers, and will burden the smaller generation of workers that follows with rising Social Security tax costs.

"By paying down the debt, we were increasing national savings, reducing the upward pressure on mortgages and corporate debt, and cutting the government's own interest bill," Rubin said.

Analysts drew the analogy to a couple paying off their home mortgage before retiring in order to cut monthly costs and save. They said that Washington was making the payoff in the nick of time because boomers are expected to begin leaving the work force in substantial numbers around the end of the decade.

Rubin and other analysts said that the administration's sudden lurch into deficits demonstrates that last year's tax cuts were more than the country could afford, and that any further cuts would compound the problem. "They're unwise and unjustified," said Reischauer.

But it was unclear Monday whether congressional Democrats will find the political spine to oppose a president with sky-high public approval ratings in the midst of a war on terror.

Democrats Bedeviled by Budget Needs

Capitol Hill Democrats criticized Bush for submitting a budget that goes into deficit, but they offered no suggestions about how to bring it back into the black.

In fact, the lawmakers suggested they would support policies that would make the deficit even bigger: While supporting Bush's increases in defense and homeland security, Democrats opposed offsetting cuts in highway, environmental and other domestic programs. At the same time, Democrats insisted they would not seek a tax increase or rollback of last year's tax cut.

About all that congressional Democrats would offer were ideas for curbing future tax cuts. Senate Budget Committee Chairman Kent Conrad (D-N.D.) said that the Democrats' budget proposal may include a "trigger" that would turn off future cuts or spending increases if the tax revenue to pay for them do not materialize.