Surplus Has No Bearing On SS Trust Fund Solvency, Says CBO Director

By Christine Hall | July 7, 2008 | 8:28 PM EDT

( - Fresh from the Labor Day recess, Senate Democrats and Republicans have resumed their on-going battle over who gets to characterize the shrinking federal tax surplus.

In the wake of last week's Congressional Budget Office (CBO) report, Democrats have criticized President Bush's ten year, $1.3 trillion tax cut for taking money away from the Social Security and Medicare trust fund surpluses, money that would otherwise be spent on reducing publicly held debt.

They also accuse Republicans of failing to plan for necessary changes to the tax code and for increases in defense and education spending.

Republicans have blamed the slowing economy for the reduction in the expected fiscal year 2001 surplus, from $153 billion to $122 billion, still the second largest surplus as a share of the economy since 1951.

Either way, Dan L. Crippen, the director of the nonpartisan Congressional Budget Office, says the important issue for Social Security is not whether money is taken from the trust fund.

"The attention given to what's in the [Social Security] trust fund come 2015, or even if the trust fund exists at that point, is misplaced," Crippen told the Senate budget committee Tuesday. "What will matter is size of economy" and the amount of benefits paid to retirees.

"Ultimately it is the size of the economy that will determine the ability of my children to fund my benefits," said Crippen.
"The payroll taxes will have no changes due to the president's tax cut," Crippen added.

CBO has attributed the drop in surplus projections for 2001 mostly to new spending legislation and about 20 percent of it to the slowing economy. Over the next ten years, according to CBO, the president's tax cut will have the biggest impact on projected surpluses. "But current economic weakness nonetheless contributes 20 percent ... to the reduced 10 year projections," said Crippen.

Democrats like Budget Committee Chairman Kent Conrad (D-N.D.) say the back-loaded tax cut, along with other upcoming changes in the tax code, will slow debt repayment and cost taxpayers more in interest payments. That, they say, will make it harder to pay Social Security's expected shortfall in 2016.

"The senator from New Mexico [Republican Pete Domenici] says that this [recent forecast] is just a short-term thing ... just caused by the economy," said Conrad. "No it's not. It's a long-term thing.

"It has enormous implications for the United States," said Conrad, because instead of having, at the end of 2006, a $1.3 trillion publicly held debt, the nation will have a $2.3 trillion publicly held debt. Federal interest costs will go up dramatically, by 91 percent, he said, from $621 billion to $1.2 trillion.

"So there are real consequences to the fiscal choices that have been made," said Conrad. "The important thing right now is for the president to get beyond denial. I think paying attention to the new CBO report could help him take that step."Domenici protest

"The problem right now is how much of the surplus has gone down because we have not had the economic growth we expected," said Domenici, former chairman and now ranking minority member of the budget committee. "If you have a slowdown in the American economy, you lose tax revenues.

"We've been losing tax revenues by large amounts, not to a tax cut, but because the American economy is slowing down," said Domenici.

"The fiscal plan adopted earlier this year was a correct one ... for a weakening economy," said Domenici. "If we had followed the Democratic proposals, it is clear that dipping into Social Security, which is now the new word around, and Medicare trust funds would have been even greater than estimated by the CBO.

"Whenever I hear that the Republicans are dipping, I would say the Democratic plans would have dipped more," said Domenici. "They just didn't get passed."

CBO's ten-year surplus estimates are down $40 billion -- $5.6 trillion to about $3.4 trillion -- from May estimates. See Related Stories:

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