CRS Updates Administration, Congressional Action on Social Security

                       CRS Report for Congress

The President's Proposal For Social Security Reform

[2] In his State of the Union address on January 19, 1999 and his FY2000 budget request to Congress submitted on February 1, 1999, the President outlined a "framework" for dealing with Social Security's funding problem, which the Administration projects would resolve two-thirds of the system's long-range (75-year) actuarial deficit. He proposed reserving 62% of the overall or "unified" projected federal budget surpluses over the next 15 years -- some $2.8 trillion -- for Social Security. ("Unified" refers to the budget counting all governmental functions including Social Security.) His proposal envisions crediting this amount to the Social Security trust funds as a general fund "infusion," with 79% being used to buy down outstanding federal debt held by the public and 21% being used to buy stock for the Social Security trust funds. The President further stated he would work with the Congress to forge a bipartisan approach to eliminating the Social Security system's entire long-range problem. No draft legislation has yet been submitted.

Congressional Budget Resolution for FY2000

[3] As a first step in taking up Social Security issues, Congress has passed a concurrent budget resolution for FY2000 that establishes budget goals for the next 10 years that set aside projected Social Security surpluses pending consideration of Social Security and/or Medicare reform legislation. It is also considering so-called "lock box" measures that would enforce the budget set aside for Social Security with procedural and other possible legislative constraints. Both the House and Senate-passed budget resolutions established targets for federal receipts and expenditures over the FY2000-FY2009 period and set aside the entire amount of unified budget surpluses attributable to Social Security. (H.Con.Res. 68, Kasich, et al., and S.Con.Res. 20, Domenici, et al. -- passed by House, March 25, 1999 by a vote of 221-208; passed by Senate, March 25, 1999, by a vote of 55 to 44). Differences in the resolutions were worked out by House-Senate conferees and both houses agreed to the conference report on the resolution (passed House 220-208, April 14, 1999; passed Senate 54 to 44, April 15, 1999).

[4] House-passed provisions. The House-passed resolution included a new "point of order," under a provision entitled "Safe Deposit Box for Social Security Surpluses," permitting a floor objection to be raised against any budget resolution or amendment or conference report thereon that would set forth a budget deficit. The term "budget deficit" means one reflecting federal receipts and expenditures excluding Social Security and the Postal Service, what is technically referred to as an "on-budget" deficit. In the House, such an objection could be overridden by approval of a simple majority; in the Senate, it would require approval by 60% of the Members.

[5] It also contained a provision establishing a "Reserve Fund For Retirement Security And, As Needed, Medicare" permitting the chairman of the Budget Committee to alter the budget resolution totals to increase expenditures or reduce revenues during the 10-year period covered by the budget resolution, FY2000-FY2009, if the House Committee on Ways and Means reports a bill (or "an amendment thereto is offered, or a conference report thereon is submitted") that enhances "retirement security" or reforms Medicare. Simply stated, it would have permitted an "on budget" deficit for legislation designed to enhance "retirement security" or to extend the solvency or reform "the benefit or payment structure of the Medicare program." The amount of the increase in the "on budget" deficit could not exceed the amount of the projected Social Security trust fund surplus.

[6] It further contained a "sense of the Congress" statement that (1) legislation be considered precluding the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), or any other federal government entity from publishing federal budget totals in official documents that include the operations of the Social Security system, and (2) that Congress should consider legislation to establish either safeguards of the next 10 years' Social Security surpluses, or a new limit on federal debt HELD BY THE PUBLIC that would decline each year by the amount of the Social Security surplus. The intent of the latter would be to require a reduction in federal debt equal to the Social Security surpluses, and by so doing, free up resources in the financial markets that could add to national savings pending action to reform Social Security or Medicare.

[7] Senate provision. The Senate-passed resolution assumed that projected Social Security trust fund surpluses over the coming decade would be "used to retire debt held by the public and for no other purpose" and included corresponding declining levels of publicly-held debt (trust fund surplus refers to the excess of income over outgo recorded to the funds over the period). The Senate Budget Committee's report stated that the resolution "assumed" the declining debt levels, and that the resolution itself did not create new statutory limits. The report stated that the underlying assumption was that a "statute will be enacted to enforce" the declining debt levels shown in the resolution.

[8] It also included a "sense of the Congress" statement that legislation be enacted that: (1) reaffirms the "off-budget" status of Social Security provided under current law, i.e., that the program is not to be counted in the budgets presented by the President or adopted by Congress, and that violations of such would be subject to a point of order in the Senate; (2) "mandates that Social Security surpluses are used only for the payment of Social Security benefits, Social Security reform or to reduce the federal debt held by the public, and not spent on non-Social Security programs or used to offset tax cuts; (3) provides for a Senate super-majority point of order against any bill, resolution, amendment, motion or conference report that would use Social Security surpluses on anything other than the payment of Social Security benefits, Social Security reform or the reduction of the federal debt held by the public; (4) ensures that all Social Security benefits are paid on time; and (5) accommodates Social Security reform legislation."

[9] In addition, it allowed the Chairman of the Budget Committee to alter the budget totals to accommodate Senate consideration of certain legislation, including among other possible measures, tax cuts, Medicare reform, Medicare coverage of prescription drugs (if part of legislation that extends the solvency of Medicare), and changes in Medicare managed plans.

[10] It further extended the duration of the Senate "pay-as- you-go" budget rules until there is an "on budget" surplus, precluding expenditure of Social Security surpluses but allowing "on- budget" surpluses to be used for tax cuts and spending increases.

[11] Conference Report. The conference report on the budget resolution incorporates a blending of the House- and Senate-passed measures. It includes a modified version of the House-passed "Safe Deposit Box" point of order permitting an objection to be raised against any revision of the FY2000 budget resolution or consideration of a budget resolution for FY2001, or amendment or conference report thereon, that would set forth an "on-budget" deficit. It then permits nits the Budget Committee chairmen to alter the budget totals to increase expenditures or reduce revenues, if the House Ways and Means or Senate Finance Committees report a bill that enhances "retirement security through structural programmatic reform." Under a separate provision, it permits a similar adjustment to be made for a bill "that implements structural medicare reform and significantly extends the solvency of the Medicare Hospital Insurance Trust Fund without the use of transfers of new subsidies from the general fund (. . .)." This latter adjustment cannot cause an "on-budget" deficit.

[12] It also includes language similar to that in the Senate- passed resolution stating that it is the sense of the Congress that additional measures be passed to enforce separation of Social Security from the budget totals, the setting aside of Social Security surpluses under the budget resolution pending consideration of reform legislation, and the possible creation of a super-majority point of order against measures that would violate limits on publicly-held debt, which would be designed to ensure that Social Security surpluses are used exclusively for "the payment of social security benefits, social security reform, retirement security, or the reduction of federal debt held by the public."

[13] Discussion. Through these mechanisms, the FY2000 budget resolution would establish as a congressional policy the goal of setting aside $1.8 trillion of the projected budget surpluses over the next 10 years (the estimated portion attributable to Social Security) pending consideration of measures "enhancing retirement security." Although the term is undefined, it could be assumed implicitly to refer to Social Security and/or Medicare reform legislation. In the absence of such reform legislation, the portion of the federal debt held by the public would fall as surplus receipts of the government are used to buy up federal securities held by the public (which would be the natural consequence of current law). The budget resolutions, themselves, do not cause this to happen, but merely establish it as a congressional objective.

[14] The principal enforcement mechanism would be the potential points of order that could be lodged against a "budget resolution" and other bills that call for diversion of the Social Security surpluses to other purposes not permitted under the resolution, i.e., by incurring an "on budget" deficit. An "on-budget deficit" implies financing other government functions or tax cuts through Social Security surpluses (for however long they continue to exist). Once a resolution is enacted, under rules already in law in the Budget Enforcement Act of 1990, subsequent points of order can then be raised against other bills -- calling for spending increases or revenue reductions for something other than "enhancing retirement security" or Medicare reform -- that would create an "on budget" deficit. In effect, such bills would violate the budget totals established under the resolution and thereby possibly draw an objection. However, in practice, any such objection could be overridden, albeit requiring 60% approval in the Senate to do so, or the current or some subsequent Congress could alter the law again.

[15] In the Senate-passed resolution and in the sense of the Congress statement in the subsequent conference agreement, the implicit enforcement mechanism is the possible creation of a new statutory ceiling (or a target ceiling) on federal debt, one that pertains to the portion of the federal debt held by the public. The current statutory debt limit pertains to aggregate federal debt (or nearly so), including the portion held in the government's own accounts. This new type of ceiling, on debt held by the public, presumably would be reduced by the amount of the yearly Social Security surplus, thereby precluding their use for other spending increases or tax cuts pending consideration of reform legislation. The final resolution itself does not contain language creating new declining debt ceilings, but suggests their creation as a possible "lock box" measure.

[16] Since a point of order can be waived by a sufficient majority and legislation enacted today can be superseded at a later time, the underlying or implicit enforcement mechanism under either approach is the potential political hurdle of using Social Security surpluses for purposes other than to enhance retirement security, reform Medicare, or reduce the debt held by the public. Whether that hurdle will be a binding impediment depends on the President's and Congress' general perspective on the overall needs of the Nation.

Other Bills Affecting Social Security's Budget Treatment

[17] A pending Senate amendment to S. 557 (Budget Process Reform bill), supported by the Republican leadership, would attempt to carry out the sense of the Congress statement in the budget resolution (to enforce the "lock box" goals) by requiring a new limit of publicly-held federal debt that would decline by the amount of annual Social Security surpluses. Motions to end debate and vote on the amendment were defeated twice, on April 22 and 30, 1999. Proponents argue that it would discourage measures that would use Social Security surpluses for tax cuts or spending increases since such measures could cause the new debt ceiling to be exceeded, thereby threatening a government shut down. Opponents, including the Administration, argue that it is an extreme measure. They contend that the public wants Social Security surpluses protected, but not by threatening the very institution whose existence the program needs to function. A Democratic alternative, S. 862, would establish new points of order (requiring 60% of the Senate to waive) against measures that would use Social Security or Medicare surpluses for tax cuts or spending increases.

[18] More than 20 other bills have thus far been introduced in the 106th Congress directed at altering Social Security's treatment under the federal budget. Prominent among them are provisions to preclude the publication of official budget totals that count Social Security (currently, budget documents prepared by OMB and CBO show budget totals both with and without Social Security). Others would create various forms of "lock boxes" or special Treasury accounts to which Social Security surpluses would be credited pending Social Security reform. Some would create new points of order that could be raised against bills that would use Social Security surpluses for tax cuts or spending increases. Still others call for amendments to the Constitution to require that the federal budget be balanced each year, excluding Social Security. The following table summarizes the various bills that have been introduced and the approaches they would take.

                               TABLE 1.

[20] For additional reading, see: CRS Report 95-206, Social Security's Treatment Under the Federal Budget: A Summary, by David Koitz; CRS Report 98-422, Social Security and the Federal Budget: What Does Social Security's Being "Off-budget" Mean? by David Koitz; and CRS Issue Brief 98048, Social Security Reform, by David Koitz.