February 25, 1997

Bad for Social Security; Bad for the Budget; Bad for the Constitution

The Reid Amendment. The Reid amendment would exclude from the operation of the Balanced Budget Constitutional Amendment (BBCA) the receipts and outlays of the main Social Security programs, the Federal Old-Age and Survivors Insurance Trust Fund (OASI) and the Federal Disability Insurance Trust Fund (DI).

The BBCA. Under the underlying BBCA, a fiscal year's "total outlays" cannot exceed its "total receipts" unless three-fifths of both houses of Congress provide by law for a specific excess of outlays over receipts (section 1), and the terms "total outlays" and "total receipts" are defined (section 7). The Reid amendment adds a sentence to section 7 that excludes from those definitions the receipts and outlays of the two Social Security trust funds.

BBCA If Amended. Shown below is section 7 of the BBCA as it would appear if amended by the Reid amendment. The underlying text is shown in roman type with the Reid amendment added in italic type:

"Section 7. Total receipts shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Government except for those for repayment of debt principal. The receipts (including attributable interest) and outlays of the Federal Old-Age and Survivors Insurance and the Federal Disability Insurance Trust Funds (as and if modified to preserve the solvency of the Funds) used to provide old age, survivors, and disabilities benefits shall not be counted as receipts or outlays for purposes of this article."

Five (of Many) Reasons To Oppose the Reid Amendment

First, the Reid amendment is a threat to the financial stability of Social Security. The Concord Coalition, the nonpartisan organization that is dedicated to addressing America's looming financial crisis, says the following about the Reid amendment:

"The principal effect of the [Reid amendment] would be to allow the nation to run huge unified budget deficits at a time when a massive age wave will be straining the productive capacity of America's younger generations. . . . [L]egislators should focus on how the BBA without an exemption for Social Security would strengthen the Social Security program and the ability of our nation to finance retirement benefits not only for the baby boom generation, but for succeeding generations as well. The BBA would raise national savings and thus make Social Security -- along with Medicare and other claims on tomorrow's economy -- more affordable. It would be ironic indeed if concern about funding Social Security, whether real or pretended, turns out to be the issue that sinks the BBA."

Second, the Reid amendment will undermine the independence of Social Security. The Reid amendment requires that "off budget" outlays be "used to provide old age, survivors, and disabilities benefits." These words might find their way into the Constitution, but their definitions will not. The definitions will be provided by future Congresses, and those definitions may have no particular connection to current definitions. The Reid amendment will create a fiscal black hole that could, for example, draw into it every manner of economic, educational, and cultural "disabilities benefits." The Reid amendment provides an incentive for creating all kinds of benefits and putting them in OASDI because that is where they will be safe from the commands of the balanced budget amendment. Frankly, the Reid amendment is a threat to Social Security as we now know it.

Third, the Reid amendment is a disaster for sober budgeting. The two Social Security trust funds which the Reid amendment would place off-budget account for about 23 percent of total Federal outlays. What kind of budgeting is it that puts nearly a quarter of the budget "off limits"?

All revenues to these two trust funds, from whatever source derived, are put "off budget" by the Reid amendment. It can be predicted, therefore, that future Congresses will be astonishingly creative in raising or diverting taxes or borrowing money for these "off budget" accounts. The BBCA is expressly designed to chain Congress's ingrained habits for taxing and taxing, spending and spending, borrowing and borrowing. Creating a huge loophole for manipulating revenues is contrary to the purposes of the amendment and contrary to sound budget practices.

Fourth, the Reid amendment will require the biggest tax increase in history. Senator Abraham has pointed out that removing Social Security receipts from the unified budget will create a shortfall of $706 billion in fiscal years 2002-2007 alone! Now, of course, that shortfall can be made up with huge cuts in spending for education, health care, environment, and law enforcement, but if those cuts don't materialize (as we all know they won't) then we're going to have to raise taxes. A $706 billion tax increase is nearly three times as big as President Clinton's 1993 tax package.

Fifth, the Reid amendment is a blight on the Constitution. The Reid amendment puts into the Constitution of the United States two named, statutory trust funds -- and all future modifications to them. This is unprecedented. If the Reid amendment were to be added to the Constitution, future amendments to the Social Security Act would have some sort of constitutional significance. The key section of law that establishes these trust funds, 42 U.S.C. 401, has been amended some two dozen times, but the pace of amendments has increased in recent years.