Weisbrot

Just

when you thought the debate over national budget and economic policy couldn’t

get any more confusing or silly, the "lockbox" is back. Big time. The Democratic

National Committee is running TV ads asserting that "the Bush budget raids the

Medicare trust fund — now he’s using gimmicks to hide a raid on Social

Security."

The

Bush Administration insists that it is doing no such thing, and that they would

never dip into the Social Security surplus to finance other spending. What’s

going on? Is anyone telling the truth here?

Unfortunately, no. Small wonder that few people bother to follow these debates,

and even fewer understand them. But Federal spending decisions affect almost all

of us, and the budget surplus is rapidly shrinking as the economy sputters. So

it is worth a few minutes to sort through the trash and find out what is

happening here.

Let’s

start with the "lockbox," a fictional concept popularized by Al Gore during his

presidential bid, as well as by the Saturday Night Live comics who made fun of

him. Social Security and Medicare (Hospitalization Insurance, or Part A) are

financed through a payroll tax that takes in more than it is currently spending.

It is these surplus funds — about $160 billion from Social Security and $30

billion from Medicare — that Mr. Gore wanted to put in a "lockbox," and that

the Bush Administration is now being accused of "raiding."

But

there is no such thing as "raiding" these funds, just as there is no such thing

as a "lockbox." The surplus funds from Social Security and Medicare are invested

in U.S. Treasury securities, which means that they are loaned to the federal

government. The federal government cannot save this money — it is not allowed

to invest in private assets. So it has to spend the surplus funds from Social

Security and Medicare, whether we like it or not.

So

the only question is: should these surplus funds be spent to pay off the

national debt? Or should they be used for other spending — for example, to fund

a prescription drug benefit for Medicare? That depends on your priorities. But

the finances of Social Security or Medicare are not affected at all by whether

these surpluses are used to pay off debt or for other spending. Either way, the

trust funds will be repaid for the money they loan to the government, with

interest — just like any other bondholder.

The

notion that these funds were being "raided" was a verbal and accounting trick

invented decades ago, by people who wanted to convince the public that Social

Security’s trust fund — which now holds more than $1 trillion — had been

"spent." So it is ironic to see the Democratic leadership now using this trick

for its own political purposes.

Of

course the Bush administration has come up with its own little accounting trick

— moving $4 billion from Social Security’s income to the general revenues. This

small-scale manipulation was done in order to keep up the pretense that the

government was not "dipping into" the Social Security surplus.

But

the big problem is not the trickery on both sides — confusing and dishonest as

it may be. Rather it is the real consequences of both parties committing the

Federal government to using all of the surplus that comes from Social Security

to pay off the national debt.

Last

year we had a record Federal budget surplus of $236.9 billion. The

Administration’s latest numbers show a surplus of $158 for this fiscal year.

This is still a large surplus, but because it all comes from Social Security

revenues, both parties are insisting that it must be used for debt reduction.

As

the economy continues to slow, the surplus will shrink further. The dwindling

surplus is actually a good thing, since a smaller surplus will stimulate the

economy — this is what economists call an "automatic stabilizer." Will the

Democrats support cutting federal spending on education or nutrition, just to

make sure that all of the Social Security surplus is used to pay off debt?

The

idea of using trillions of dollars of budget surpluses to pay off debt over the

next decade has never made much economic sense. Our national debt relative to

the economy is now at its lowest level since 1982. But to cut spending in a

recession when the government is running huge surpluses, just to pay off debt,

would be absurd and dangerous.

Mark Weisbrot is co-director of the Center for Economic and Policy Research,

in Washington, D.C. (www.cepr.net),

and co-author, with Dean Baker, of Social Security: the Phony Crisis (2000,

University of Chicago Press).