Talking down the deficit

January 06, 1998|By Marie Cocco

THERE IS nothing like the New Year to expose just how threadbare the old-think has become.

The issue of the moment in Washington is the federal budget surplus. This surplus has not yet materialized and cannot yet be accurately estimated.

Nonetheless it's being hotly debated by satellite, as lawmakers who are still puttering around in their holiday sweaters take to the airwaves, the Internet and the fax machines to stage a virtual debate about how to spend all the extra money that might show up in federal coffers as a result of the humming economy. Conveniently enough, the extra cash could come just in time for the 1998 congressional elections. All this electronic hyperventilation is fitting, in a way. Because what they are debating is a virtual surplus.

Sure, President Clinton takes credit for having reduced the deficit from nearly $300 billion when he took office in 1993 to about nothing now. It is his signature achievement.

Reality check

In reality, this is what has happened: The federal government has gotten its household account in order. Nothing more, nothing less.

It still ''owes'' the Social Security trust fund billions that it borrowed to make the annual deficit look smaller, if only on paper. And it still faces an enormous drain in the not-too-distant future, not only on Social Security but also on Medicare and the military retirement system. Keep this nagging detail sharp in the mind when politicians offer up visions of tax cuts and spending goodies on all their favorite things.

It's useful to think of the government as a family. Just now, Washington is in the same financial position as a family with its day-to-day expenses under control after a long period of failing to keep up. The family can once again pay for food, clothes, medicine and utility bills without borrowing.

But it still has a worn roof that will soon need repair, if not replacement. And it long ago borrowed against the money it was pretending to set aside diligently in order to fix that roof eventually. That roughly describes the relationship between the federal government's annual spending -- the accounts now considered to be in balance, or even in surplus -- and Social Security.

In 1983, the Greenspan commission in charge of bailing out Social Security for the near term took some long-term steps, too. On the commission's recommendation, Congress boosted payroll taxes beyond what was needed to fix the immediate problem, intending to build up big surpluses in the Social Security trust fund.

The payroll taxes have flooded in. But the trust fund ''surpluses'' have been borrowed against to finance structural deficits since President Reagan's first term. According to the Concord Coalition, a fiscal watchdog group, the accumulated amount ''owed'' to the Social Security trust fund will reach beyond $700 billion by the end of the current fiscal year.

By that calculation, in order to have a real surplus -- instead of the virtual surplus the television talking heads are divvying up -- the government would have to take in about $80 billion more this year than it needs -- about eight times the lowest estimates of the virtual surplus.

''You need to have a surplus of $80 billion before you're not spending Social Security's money,'' said Martha Phillips, director the Concord Coalition. ''If you're talking about a tax cut, you're using the Social Security trust fund to finance that tax cut.''

It's become an article of faith that Social Security and Medicare need a vast overhaul -- political double-speak for benefit cuts, tax or premium hikes or outright abolition in favor of a private system -- to withstand the demands of the boomer retirement. There is no consensus on how to do this, since all options create losers. Using surpluses for their original purpose, the building of a national savings account to finance the baby boom retirement would be the fairest and least painful way to begin.

This requires giving up the chance at a new exit ramp or a few pennies from tax cuts. In political old-think, the exit ramp wins handily.

Marie Cocco is a Newsday columnist.

Pub Date: 1/06/98

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