Proposal: social security out of budget

IN 1969, President Lyndon Johnson included social security in a new ``unified'' federal budget. It was the first time in the program's existence that it had been included with other programs in the budget, and Mr. Johnson's critics contended that by adding the surpluses of the Social Security Trust Fund to the overall budget, the President was hiding the increasing costs of the Vietnam war. In the Senate deficit reduction plan adopted this spring, a freeze in the social security cost-of-living adjustment (COLA) was included to reduce the deficit by $21.9 billion.

Social security surpluses in 1969 did not pay for the Vietnam war, and they cannot be used to reduce the deficit now. These two examples, in fact, illustrate why social security should be taken out of the unified budget immediately.

In the unified budget, social security's expenses and revenues are included in the total of federal spending and income. Social security funds, however, are derived from the payroll tax. By law, they can only be used for three specific purposes: to pay benefits; to pay administrative costs; or to be invested in government securities.

The unified budget does not take into account the unique nature of social security, however, and distorts the relationship of social security spending in two ways.

First, it hides the interest costs the Treasury must pay for a loan from social security. Although such costs would show up as an increase in the deficit if the Treasury went into private markets to borrow, the unified budget treats them as an ``intergovernmental transfer'' when the loan is from social security. The cost doesn't show up in the deficit column.

Second, the unified budget makes it appear that large social security surpluses or reduced social security spending reduces the deficit -- even though funds unused by social security cannot offset spending in other programs.

The Senate's COLA-freeze proposal is a perfect example. Under the proposal, the COLA would have been frozen and social security spending would have been $21.9 billion less than projected. Therefore, on paper, the deficit declined.

The reality is different. Although social security revenues would not have been paid out in benefits, the $21.9 billion would have been invested automatically as a loan to the Treasury. The net result of a COLA freeze would have been to (1) hide the government's borrowing costs; (2) increase welfare costs by nearly $1 billion (according to the Congressional Budget Office); and (3) spend $21.9 billion and, because it would be a loan, not direct spending, call it ``defi cit reduction.''

Some people contend that, while this all may be true, it's academic. But it isn't. Congress should not decide important political issues using a faulty budget document. It is unfair to 36 million social security recipients, and it is inaccurate as a true account of the government's finances.

Social security in 1990 will compile a one-year surplus of $67 billion. The unified budget will allow the Treasury to continue deficit spending in that year by almost $70 billion and still show what appears to be a balanced budget. In 1992, when social security is scheduled to be removed from the unified budget, the federal government could have an ``instant'' deficit of more than $70 billion, even though the fiscal situation of the government will be completely unchanged.

Political reality argues that the closer we get to 1992 -- a presidential election year -- the harder it will be for any president to take social security out of the budget. The time to do it is now.

I have introduced legislation to take social security out of the unified budget immediately, and my bill has been endorsed by Rep. Edward R. Roybal, chairman of the House Select Committee on Aging, as well as the 18 million-member American Association of Retired Persons and a bipartisan group of US representatives and senators. President Reagan has also come out in favor of removing social security from the unified budget, declaring it is a ``bookkeeping gimmick.''

It is time to act on this issue, and to stop worrying our senior citizens and deceiving other Americans.

US Rep. Matthew J. Rinaldo (R) of New Jersey is on the Select Committee on Aging.