By James D. Agresti
November 11, 2011
During the recent one-on-one debate between Newt Gingrich and Hermann Cain, Gingrich said, “If you take it off-budget, you could solve Social Security. You take what’s in that [Trust] Fund, and you model it on what’s in Chile, you find with a few modest cuts in spending you get to a stable retirement program.”
As a matter of fact, taking Social Security off-budget doesn’t change the finances of the program by a single penny. Per the U.S. Social Security Administration, “whether the Trust Funds are ‘on-budget’ or ‘off-budget’ is primarily a question of accounting practices–it has no effect on the actual operations of the Trust Fund itself.”
This is because the finances of the Social Security program have always been legally separated from the rest of the federal budget. By law, Social Security surpluses must be loaned to the federal government, which is a requirement that was established in the original Social Security Act. Federal law also requires the government to pay back this money to the Social Security program with interest. The amount that the federal government owes to Social Security is the so-called Trust Fund.
It is important to realize that this fund does “not consist of real economic assets that can be drawn down in the future to fund benefits.” Those words are not from some conservative pundit but straight from the Clinton administration’s fiscal year 2000 budget (page 337). Likewise, a 2010 Congressional Budget Office report (page IX) explains that the money needed to pay back the Social Security Trust Fund “must be generated from taxes, income from other government sources, or borrowing by the government in that year.”
So what does it mean to take Social Security off-budget? It means that when the White House and Congress report the budget, they do not combine the finances of the Social Security program with the rest of the federal budget. Ironically, there is already a federal law requiring this (see the section entitled “Exclusion of Social Security from all budgets”).
Regardless, the White House and Congress get around the law simply by including entries in their official budget documents that list the off-budget deficits. These off-budget figures are frequently placed in the bowels of the reports, while the combined figures that include the finances of Social Security are highlighted prominently in the summaries and overviews. Politicians and reporters typically follow suit and report the combined figures while ignoring the off-budget ones. A 1998 Congressional Research Service report explains how and why this came to be.
During the debate, Newt also said that since the days of Lyndon Johnson, “we have been hiding the real size of our budget deficit by obscuring it with Social Security.” This is true, as evidenced by the facts above and detailed in my 2001 essay, “The Impact of Social Security on the National Debt.”
Stay tuned for further facts about Newt’s plan to save Social Security.