This week, President Obama released the final budget of his presidency. With respect to Social Security, he missed an important, consequential opportunity.
Too many Americans believe that their Social Security contributions have been stolen by their government, diverted to some unauthorized purpose. This belief has been exploited by elected leaders. Governor Chris Christie, for example, said in a recent presidential debate, in reference to Social Security: "[L]et me be honest with the people who are watching at home. The government has lied to you and they have stolen from you."
The Obama budget could have reassured the American people that the monies they contribute to Social Security are properly handled, protected for their intended purpose of paying earned benefits and related administrative costs. Unfortunately, the just-released budget reinforces the opposite view.
Social Security funds, by law, can only be used to pay benefits and related administrative costs. From the beginning, whenever there is an annual surplus, the monies are invested until they are needed. From the start, Congress has directed that the funds only be invested in the safest investment on Earth --Treasury bonds backed by the full faith and credit of the United States. These bonds have the same legal status as Treasury bonds held by the public. If the government were ever to refuse to redeem these bonds, it would be in default.
For sound reasons, the law requires that private employers who sponsor pension plans keep plan income and assets segregated from the company's general operating fund. For the same sound policy reasons, the law requires that Social Security's income and assets be kept segregated from the general operating fund of its plan sponsor, the federal government. Pub. L.101-508, title XIII, Sec.13301(a), Nov. 5,1990,104 Stat.1388-623, unambiguously states:
Notwithstanding any other provision of law, the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund [i.e., Social Security] shall NOT be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of --
(1) the budget of the United States Government as submitted by the President,
(2) the congressional budget, or
(3) the Balanced Budget and Emergency Deficit Control Act of 1985. (Emphasis added.)
Notwithstanding the law, many of today's policymakers treat Social Security's funds, held in trust, as if they have been commingled with the general operating funds of the government. They are treated as if the dedicated FICA contributions can be used for other governmental purposes. Like other investors in U.S. government obligations, the funds invested can be used for any purpose Congress chooses, but those funds must be repaid with interest when the investor redeems the investment.
This important but subtle distinction is routinely ignored. Just last summer, for example, Majority Leader Mitch McConnell (R-KY) and Senator Barbara Boxer (D-CA) proposed to "pay for" highways with, among other things, cuts to Social Security. That agreement failed to get sufficient support to pass, but that was only the latest attempt to use dedicated monies to offset other expenditures.
Reducing Social Security expenditures simply increases its trust fund, which stands at around $2.8 trillion. Those funds, by law, cannot be spent on highways or other unauthorized purposes. Counting Social Security's income as income to a theoretical "unified" budget of the United States, gives the American people the false, but understandable sense that the funds are commingled and being diverted for unauthorized purposes.
The president's latest budget, like the ones before it, unfortunately presents Social Security's receipts, disbursements, and deficit in this manner, treating the funds as commingled in a so-called unified budget -- despite the clear requirements of the law to do the contrary, instead of making it perfectly clear that Social Security's funds are held in trust, separate and apart from the general fund.
The budget's Summary Table of budget totals, Table S-1 lists all the receipts and outlays of the federal government as combined numbers, with a third line, showing the deficit, as the one offset from the other - despite the fact that Social Security is projected to run a $22 billion surplus in 2016. Adding insult to injury, the Table shows only the federal debt held by members of the public, though this is an artificial category, with no legal status. And, it ignores the federal debt subject to the statutory limit, which has great legal significance - and, perhaps not coincidentally, includes the debt held by Social Security.
Notably, the Congressional Progressive Caucus's FY 2016 The People's Budget: A Raise for America, is sensitive to the issue. It excludes Social Security, consistent with Pub. L. 101-508. It announces its policy recommendations, but makes clear that those should be considered separately:
The Congressional Progressive Caucus does not include changes to Social Security in the People's Budget, but endorses Social Security improvements separate from the federal budget process. We support increasing Social Security's modest benefits, separate and apart from budget discussions. Social Security is a solution...
Although the president's budget does not include Social Security, I urge him to join both Democratic presidential candidates, 43 Senators and 141 Members of Congress in supporting expanding, not cutting Social Security. These policymakers are part of a growing, nationwide movement of people who understand that Social Security is a solution. It is a solution to the nation's retirement income crisis, income inequality, a disappearing middle class, and other challenges. I urge him, separate and apart from his budget, to send to Congress legislation that expands and does not cut Social Security, while restoring the program to long-range actuarial balance by requiring that the wealthiest among us pay their fair share.
Some seem to believe that Social Security policymaking must be done behind closed doors. If policymakers want to cut Social Security, against the will of the vast majority of Americans, it probably does have to be done that way.
In stark contrast, a proposal to expand Social Security, paid for in a fair way, can and should be considered in the sunshine, through the normal legislative process, as Social Security legislation has been historically. Poll after poll consistently shows that the vast majority of Americans -- irrespective of age, gender, race, ethnicity, political affiliation or ideology - support Social Security and favor its expansion.
Even though that legislation won't be enacted in this Congress, the president, by the simple act of proposing it, would perform an important public service. Polls show that too many Americans believe that Social Security is unaffordable and will not be there for them in the future. This goes hand in hand with their belief that the monies they have contributed have already been stolen. Given the attention accorded presidential proposals, one to expand Social Security would demonstrate to the nation that the question of whether to expand or cut Social Security is a matter of values and choice. Moreover, a Democratic Party unified around the idea of expanding, not cutting, Social Security, will clearly demonstrate to the American people where both Parties stand on this vital issue - something that they cannot determine from vague discussion of saving or strengthening Social Security on a bipartisan basis.
A thirty-year, billionaire-funded campaign to cut Social Security has succeeded in undermining the American people's confidence in Social Security -- and in the government itself. A dramatic, largely symbolic act by the President can do much to reverse the damage wrought by that campaign. An opportunity to restore a sense of security and peace of mind - an important, intangible benefit that Social Security is intended to provide -- was missed in the president's budget. But the opportunity is not gone. That will only happen if the president leaves office without taking the invaluable, symbolic step of championing expanding, not cutting Social Security.