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Part VI: Social Security and the Federal Budget

by Neta Warren

(Originally published in OASIS Magazine, September 1995 issue)

I field many questions for the Office of the Actuary and one question I am frequently asked is, "How is the Social Security program handled in the Federal Budget?" It's easy to understand how the treatment of Social Security in the Federal budget can cause confusion.

In 1990, Congress excluded the program from calculations of the budget and largely exempted it from procedures for developing and controlling the budget. However, because Social Security represents 19 percent of Federal spending and 27 percent of Federal receipts, it often is included in summaries of the Government's financial flows. Confusion also results because people mistakenly believe that the program's removal from the budget calculations changed how its funds are handled. It did not. As has been the practice since Social Security's inception, its taxes continue to be deposited into the Federal treasury with appropriate crediting of Federal securities to the Social Security Trust Funds, and its expenditures continue to be paid from these trust funds.

Beginning in fiscal year 1969, Social Security and other Federal programs that operate through trust funds were counted officially in the budget. This was done administratively by President Johnson. At the time Congress did not have a budget-making process. In 1974 Congress adopted procedures for setting budget goals through passage of annual budget resolutions. Like the budgets prepared by the President, these resolutions were to reflect a "unified" budget that included trust fund programs such as Social Security in the budget totals.

Beginning in the late 1970s, Social Security faced financial problems, and over a period of time legislation was enacted to restore the financial health of the program. However, because the Federal budget deficit remained large, interest in reducing Social Security spending continued. This routine consideration of Social Security constraints led to concerns that cuts in Social Security were being proposed for budgetary purposes rather than programmatic ones.

In response to this concern, a series of measures were enacted in 1983, 1985, and 1987 making the program a more distinct part of the budget and permitting Congressional floor objections (points of order) to be raised against budget bills containing Social Security changes.

Late in the decade, when Social Security income substantially exceeded outgo, critics argued that the program was masking the size of the budget deficits. In response, Congress in 1990 excluded Social Security income and outgo from all calculations of the Federal budget, including the deficit or surplus. This measure applied to the budgets prepared by the President, to the Federal budgets formulated by the Congress, and to the budget process provisions designed to reduce and control the budget deficits (with the exception of Social Security's administrative expenses which can be reduced to bring spending down to prescribed limits).

Since Social Security taxes and benefits now are not part of the budget, the fiscal constraints of the budget process technically no longer apply (with the exception of administrative expenses). Concerned that this would weaken Social Security's financial condition, Congress in 1990 established separate rules for the House and Senate that attempt to make it difficult to bring measures for a vote that would weaken the financial condition of the program by reducing revenue or increasing spending without offsetting changes.

In the House, a floor objection can be raised against a bill that proposes more than $250 million in Social Security spending increases or revenue reductions over 5 years unless the bill also contains offsetting changes to bring the net impact within the $250 million limit. A point of order can also be raised if the 75-year, long-range cost of a bill is equal to or greater than 0.02 percent of taxable payroll.

In the Senate, budget resolutions must include separate amounts for Social Security income and outgo for the first year and 5-year period covered by the resolution. (These amounts are separate in the sense that they are not counted in the budget resolution totals themselves.) These income and outgo amounts cannot cause the balances of the Social Security trust funds to be lower than projected under current law. Recommended resolutions or amendments that do so could draw an objection that can be overridden only by approval of three-fifths of the Senate. Simply stated, Senate rules preclude consideration of budget resolutions that would erode the "near-term" balances of the Social Security trust funds.

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Comments on any of the published articles or suggestions for additional articles in this series may be e-mailed to:

Office of the Chief Actuary
Social Security Administration
March 10, 1997