Benefit Cut Countdown? Record Deficits Put Pressure On Benefits

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Benefit Cut Countdown? Record Deficits Put Pressure On Benefits

The nation is learning the consequences of three years of massive tax cuts coupled with runaway discretionary spending. The Congressional Budget Office (CBO) recently estimated that the government will have a record deficit of $477 billion this year and almost $2 trillion over the next 10 years. Despite the grim budget forecast, President Bush proposed making recent tax cuts permanent which, the CBO estimates, would add another $1.5 trillion to the deficit.

To pay for the tax cuts, Federal Reserve Chairman Alan Greenspan suggested that Congress cut Social Security benefits. Greenspan, who chaired a Social Security commission during the Reagan Administration, said he “strongly advocated” measures that would force current workers to work longer before becoming eligible for Social Security benefits. He also recommended that Congress consider getting a “more accurate price index” than the Consumer Price Index that, he argues, overstates inflation each year (and thus pays Cost-of-Living Adjustments that are too high). Greenspan acknowledged that cutting benefits would not be politically popular, but he said problems in this area would have to be addressed for Congress to get control of the soaring budget deficit.

When the government receives more in Social Security revenues than needed to pay benefits, the money is credited to the Trust Fund as an IOU that earns “interest,” and the taxes are spent on other government needs. That Trust Fund “interest” is not real cash either, but more IOUs. Thus the CBO projects that when the non-cash “interest” is excluded, Social Security outlays will be growing faster than real cash revenues in about eight more years.

With a massive 10-year deficit ahead, Congress and the President have all but run out of time, leaving increasingly more difficult choices. TSCL is meeting with Members of Congress to urge action to ensure the solvency of the nation’s retirement trust funds and to require a clear accounting to the American people of the size of the deficit. To this end, we have recently written Congressman Gene Taylor in support of his resolution, H.J.Res.88, calling for locking the trust funds off budget. TSCL believes the first step in protecting the Trust funds is for Congress to remove them from the general budget deficit (see “Ask the Advisor: Government Should Not Be Allowed to Treat Us With Contempt” at http://www.tscl.org/NewContent/102162.asp). In addition, TSCL is fighting ill-conceived proposals that could exacerbate the funding problems such as a recent proposal for amnesty for illegal immigrants.

Sources: “Greenspan, With a Big ‘If,’ Backs Bush Tax Cuts,” Edmund L. Andrews, The New York Times, February 13, 2004. “The Budget and Economic Outlook: Fiscal Years 2005 to 2014,” The Congressional Budget Office, January 26, 2004.

May 2004