Experts: Clinton plan a quick fix

WASHINGTON - President Clinton's flashy new plan for bolstering the Social Security trust fund may seem attractive politically, but it is an unusually complex piece of fiscal legerdemain that would probably provide only a modest and temporary fix, budget experts say.

With details only now being digested two days after the president unveiled the plan, fiscal analysts on all sides are describing it as a Rube Goldberg scheme that seems designed largely to postpone any serious reform.

Long after Clinton has left office, they say, the White House and Congress will still have to cut some Social Security benefit to restore the health of the trust fund for the longer term.

"All of this is blue smoke and mirrors" to avoid tackling the looming Social Security deficit head-on, said Carol Wait, director of the Committee for a Responsible Federal Budget, a nonpartisan monitoring group.

Stanley Collender, head of the Federal Budgeting Consulting Group, which tracks such issues closely, is equally skeptical. "If this isn't a true Rube Goldberg proposal, it's the next thing to it," he said.

Officials say the plan would keep the Social Security system solvent through the year 2055 instead of running into deficit in 2032, as current projections show.

They also say it would help reduce the national debt over the next 15 years to its lowest level in nearly a century. That in turn would boost national saving, increase the amount of money available for private investment and drive interest rates down. The ultimate payoffs: more economic growth and a higher standard of living.

On the surface, Clinton's proposal seems simple enough. If the plan were enacted, the government would take 62 percent of the cumulative $4.4 trillion in federal budget surpluses expected between now and 2015 - about $2.7 trillion - and use it to bolster the Social Security program.

In effect, the plan would be equivalent to earmarking 62 percent of the surplus to pay down the national debt. The other 38 percent would be turned over to Medicare, national defense and a new retirement investment account for workers.

But analysts say the government would actually pay down the debt faster under Clinton's previous plan, proposed a year ago. Under that formula, 100 percent of the surplus would have been dedicated to debt reduction.

What budget experts find most frustrating about the new proposal is its convoluted mechanics, which White House officials carefully omitted when Clinton unveiled it Tuesday in his State of the Union address. It has taken many analysts a day or two just to digest all the details.

Just as Clinton advertised, the plan calls for the government to "commit" 62 percent of the overall federal budget surplus over the next 15 years to bolster the Social Security program.

While that might keep the Social Security trust fund afloat until 2055, analysts say it would still close only a little more than half the cumulative gap between benefits and payroll-tax revenues projected through 2075.

The rest would have to be made up by either trimming Social Security benefits or increasing payroll taxes - prospects that the president hinted at during his speech on Tuesday but never clarified. His plan to boost benefits for elderly widows would only make that harder.

Nor is Clinton's plan a simple accounting transfer.

Under current procedures, the federal budget has two major components - the operating budget and the Social Security trust fund. The overall budget is the combination of the two.

The operating budget for fiscal 1998, which ended last Sept. 30, was in deficit by $29 billion, while the trust fund ran a surplus of $99 billion. That produced a $70 billion surplus in the unified budget - the first such surplus in 30 years.

Until now, when the Social Security trust fund has run a surplus, the Treasury has used the money to cover part of the deficit in the government's operating budget. In exchange, it has given the trust fund an equivalent amount in special, interest-bearing bonds.

Under the new Clinton plan, however, the government would change those procedures - at least for the 62 percent of the overall budget surplus that it "commits" to Social Security.

First, instead of transferring the money to help cover the government's operating expenses, the Treasury would use it to buy back an equivalent amount of Treasury bonds that are now held by the public. That would steadily reduce the national debt.

At the same time, it would issue special bonds in that same amount to the Social Security trust fund, enlarging the program's long-term kitty.

Here's the trick: The injection of more funds into Social Security wouldn't show up as an outlay - as it would if Congress were to cut taxes or increase spending programs instead - because the government would have offset the outlay by redeeming an equivalent amount of debt.

Henry Aaron, a Brookings Institution budget expert, said that because the money that the government would be tapping would come entirely from the Social Security surplus, the scheme "in a sense" includes an element of "double counting."

But Robert Greenstein, director of the liberal Center on Budget and Policy Priorities, said the whole thing might be worth the trouble, if only as a ploy to keep lawmakers of both parties from raiding the surplus to finance tax cuts or spending increases.

01-22-99