Breaking into the lockbox

Thanks to his massive tax cut, President Bush is under pressure to raid the Social Security surplus to fund his budget -- and some liberal Democrats agree.

By Anthony York

Published September 1, 2001 9:02PM (EDT)

Despite President Bush's August vacation, number crunchers in his administration and the Congressional Budget Office were working overtime all month, releasing dueling sets of budget figures and setting up this fall's first big political showdown on the Hill.

At issue is whether or not the president's budget -- which dedicates $27 billion in new funding to his top two priorities, education and defense -- will tap the hallowed Social Security surplus. Currently, more money is being paid into the Social Security trust fund than is being drawn out for benefits, creating a surplus. That trend is expected to reverse by 2015, as more baby boomers begin reaching retirement age.

White House budget numbers project a mere $1 billion surplus this year, not counting the Social Security surplus of roughly $150 billion. But critics say the administration used clever accounting gimmicks to achieve its numbers. The Congressional Budget Office projects a $9 billion shortfall if Bush's budget is passed -- which could require tapping Social Security funds.

Protecting the Social Security surplus became a bipartisan political priority during the Clinton administration, and both Bush and Vice President Al Gore promised not to use it to finance other federal spending during last year's presidential campaign. Gore's attachment to the so-called "lockbox" became a staple of political comedy, lampooned on "Saturday Night Live" and elsewhere, but both Democrats and Republicans have been dead serious about proving they're the party most committed to protecting Social Security.

Now, with Bush's massive tax cut threatening his ability to pay for promised military and education programs, there is a slowly growing clamor to declare the "lockbox" an artificial political creation that ties the hands of the president and Congress unnecessarily. Increasingly, that notion is finding support from both liberals and conservatives alike, for different reasons, outside Congress.

But Democratic congressional leaders say they're committed to protecting the surplus, and so do most Republicans, for now. The issue could well become a political game of chicken, with the parties reversing their traditional roles: The Democrats standing for fiscal conservatism, the Republicans preaching the benefits of fiscal flexibility and the need to invest in key public priorities like defense and education.

Already the anti-lockbox rhetoric is getting louder on the right. "It's one of the most disingenuous ideas to come out of Washington in a long time, a deception that's been equally perpetrated by both parties," says Michael Tanner, director of the libertarian Cato Institute's Project on Social Security Privatization. Before the Clinton administration, Tanner says, "there never was a lockbox. It was routinely accepted that [the Social Security surplus] would be used to finance government spending.

"This has no impact whatsoever on Social Security," Tanner continues. "Whether you use the money to pay down the debt, or for general government operating expenses, the exact same IOU is sitting in the Social Security trust fund backed by the full faith and credit of the U.S. government. Either way, the money gets spent."

In fact, the surplus has been used to pay down the debt in recent years. But Democrats say there's a difference between using it exclusively to pay down the debt, and putting it toward general government operations -- whether funding defense, education, or other stated bipartisan priorities, like a prescription drug benefit for seniors.

Yet some liberal Democrats are beginning to complain that the party's fetish for deficit reduction is wrong, and that more of the pre-tax-cut budget surplus should have been spent on party priorities like health and education -- which now should get help from the Social Security surplus, if necessary.

"Democrats are springing a fiscal trap on themselves," wrote Robert Reich, Clinton's former secretary of labor, in a recent column for the American Prospect. "Their pious pronouncements about fiscal rectitude suggest that they might go along with even deeper cuts in spending to keep the budget balanced. Democratic congressional leaders even have said they'd be willing to cut spending on education and health care to avoid dipping into the portion of the surplus that comes from Social Security payments," a priority Reich vehemently opposes.

And while Bush may be in political trouble as the public learns that his tax cut ate up the entire budget surplus and that it may force him to break into the sacred lockbox, Democrats should "hold the champagne," writes the Prospect's Robert Kuttner.

"This whole way of thinking about budget politics is a long-term trap for Democrats," Kuttner complains. "Budget politics now equates austerity with virtue" -- and that costs the Democrats their ability to court key constituencies like labor, seniors and working parents with new spending on child care, education and expanded health benefits, Kuttner complains. Lefty Dems like Reich and Kuttner also think the best way out of the current economic slowdown is to put money back in people's hands, either through targeted tax cuts for the working class, new government programs, or both.

But those old Keynesian notions aren't getting much attention from Democratic leaders on the Hill these days. Most sense a huge political opportunity if Bush reneges on his campaign promise and taps the Social Security trust fund. "Our poll numbers are the best they have been in probably six years," House Minority Leader Richard Gephardt said earlier this week. "And Bush is suffering right now on the issues of the deficit and Social Security and where did the surplus go."

"Look, I don't want to second guess Mr. Reich, but the House has voted over and over for a lockbox," says Gephardt spokesman Eric Smith. "All the Democrats are saying is, they joined Republicans in voting for a lockbox, and we don't think they should throw it out the window. Protecting the Social Security surplus not only means paying down the debt, it also means you can't spend it for other things."

Smith says that while Gephardt remains committed to the lockbox idea, it is unclear what other House Democrats think, as Bush begins his pitch for big increases in education and defense spending. "We share those priorities, but we don't know how the president intends to pay for everything," Smith says. "There's a fixed number of dollars, and that's all we have to spend. That's where Mr. Gephardt is at. We can't speak for everybody just yet."

Many think Gephardt has donned the mantle of deficit reduction for political reasons. But other Democrats have become sincere deficit hawks, including Sen. Joseph Lieberman and his allies in the centrist Democratic leadership council. So there is not likely to be a strong Democratic movement to break into the lockbox for spending programs.

Indeed, Bush faces more pressure from his right than Democrats do from their left to break into the lockbox, and the decision could divide the GOP. In a recent National Review column, editor Rich Lowry argues that the president's commitment to "protecting" the Social Security surplus will hurt efforts to boost the defense budget.

"Once all the spin and Washington fictions are brushed away, the fundamental question is whether it makes more sense to invest in defense spending or in debt retirement -- the use to which the lockbox funds are actually put," Lowry writes.

"If we were to have this debate, by any reasonable standard, the outcome should be obvious. Since the armed forces are in a state of near-crisis, and since the debt is already quite low by both historical and international standards, it makes the most public-policy sense to find more money for the military. Bush won't do this -- not just because playing the lockbox pretend-game is so important, but also because it would interfere with his political repositioning more generally."

For his part, Bush says that there's room for both debt reduction and a pumped-up defense budget. "I know this nation still has enemies and we cannot expect them to be idle. Security is my first responsibility and I will not permit any course that leaves America undefended," he said in a speech earlier this week.

But the administration seems to be hinting that it is at least looking at tapping the hallowed surplus for things other than debt reduction. "The president intends fully to protect Social Security and Medicare while funding his key priorities," says White House spokesman Ken Lisaius, and he refused to rule out using money from the Social Security surplus to fund his pet programs.

Lisaius accused Democrats of demagoguery in the budget fight. "The debate is about priorities, he said. "The debate is whether we're going to focus on our priorities or play partisan budget games. And that's what the Democrats are doing now, playing Washington budget games."

Of course, Bush is playing budget games of his own, boasting last week that he's happy the tax cut reduced the surplus to almost nothing, because it put a "fiscal straitjacket" on big congressional spenders, better known as Democrats. Rather astonishingly, the president admitted to what his enemies had long accused him of: achieving his anti-government agenda not with a forthright battle over individual social programs, but by reducing the government's ability to pay for them, forcing spending cuts in programs that might otherwise have popular support.

The trouble for Bush is that the biggest government spenders are Donald Rumsfeld and his friends at the Pentagon, who have already been promised an $18 billion boost by the president. Now that the tax cut has passed, the question is whether the president can afford his big-ticket programs for defense -- most notably his hugely expensive missile defense program -- as well as education. Democrats complain he can't, and that the tax cut also prevented action on a popular-with-voters proposal to develop a prescription-drug benefit for the elderly under Medicare.

The dueling budget numbers, partisan rifts, divergent priorities and 2002 midterm elections all converge to make likely a nasty budget battle that Congress members expect to last well into the fall. Bush has said that he wants Congress to deal with his education and defense appropriations bills before taking up other spending bills, but Gephardt spokesman Smith said that simply wasn't going to happen.

"It's impractical. We've already passed the Interior [appropriations bill] in the House. The House Appropriations Committee has taken up 11 appropriations bills. The only ones the committee has not started work on are education and defense. Certainly, it's going to be a long fight. We're a month away from the budget deadline, and Congress hasn't passed a single bill, so it doesn't look good."

Despite their differences in ideology and political tactics, most Democrats agree that the Bush tax cut is to blame for the current budget bind -- although it should be noted that the cut only passed thanks to support from Democrats. Liberals believe the cut gave the money back to the wrong people, namely the rich, and doomed new social spending. Centrists lament that it crippled the nation's ability to protect Social Security, fund targeted new programs and pay down the national debt at the same time.

Even Cato's Michael Tanner thinks there's a more interesting discussion to be had than the current false dispute over the Social Security surplus. "We could be having a philosophical debate about paying down the debt, reducing taxes, or increasing spending," Tanner says. "That's an interesting debate among economists that would be intellectually honest. This argument over dipping into the [Social Security] trust fund is pathetic. We're in an Alice in Wonderland world right now. Serious observers on all sides are incredibly frustrated."

And through the looking glass, voters will see Democrats reinvented as fiscal conservatives -- or so party leaders hope.

Anthony York

Anthony York is Salon's Washington correspondent.

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