Overlooked effects of Excluding Social Security from BBCA

U.S. Senate Republican Policy Committee - Larry E. Craig, Chairman - Jade West, Staff Director

February 25, 1997

[For a more detailed paper, see RPC's "Dire Consequences of Democrats' Social-Security-Exclusion Budget: Taking a Ride on a Fiscal Roller Coaster," 2/25/97]

For years, leading opponents of the bipartisan balanced budget constitutional amendment (BBCA) have been hiding behind the gimmick of excluding Social Security from the calculation of a balanced budget. While it is difficult to take their proposal (S.J.Res. 12) seriously, it is imperative to realize its very serious effects.

What S.J.Res. 12 Would Do

The actual consequences of S.J.Res. 12 would be the direct opposite of the positive economic effects provided by a real balanced budget requirement.
S.J.Res.12, over 30 years, would start with decreasing deficits -- achieve a moment of surplus (requiring enormous new taxes or spending cuts) -- enter a phase of declining surpluses (to perhaps one-year's balance) -- and then revert to skyrocketing deficits.
It would create $2.3 trillion in "gimmick deficits" between 1998 and 2018.
It would result in tax hikes and/or spending cuts of $1.935 trillion from 2002 to 2018.
That $1.935 trillion is more than eight times Clinton's largest-ever 1993 tax hike of $240 billion and almost five times the amount of CBO's estimated savings ($423 billion) of what it will take to reach balance between today and 2002. While surpluses are not bad per se, this enormous level over such short duration would produce massive fiscal strain.
It would result in less than two decades of nondeficit spending, and just one year in which the federal budget might actually balance.
It would provide no possibility for tax cut or spending increase unless a recession occurs.
It would require absolute spending cuts in five of the first six years after the amendment, and a return to huge federal deficits in little more than two decades -- $700 billion from 2019-2024 and $2.474 trillion from 2019-2028, all perfectly off-budget and constitutionally legal.
S.J.Res. 12 could be worse than doing nothing because of the high probability of massive tax increases that would destroy economic growth.

What S.J.Res. 12 Would Not Do

S.J.Res.12 would not provide any additional support for Social Security.
It would not protect the trust fund -- it will begin running deficits just seven years after its outlays begin exceeding revenues in 2012 -- exactly the current estimation. The trust fund would be bankrupt just 10 years after that (2029) -- also the current estimation.
The trust fund balance sheet would not change by a single dime and its solvency calendar would not be altered by a single day.
S.J.Res.12 would not alter the fact that Social Security is a pay-as-you-go system and always has been.
It would not provide a long-term solution. By pretending there exists some hidden balance, it would forestall a real solution to Social Security's long-term imbalance.
Simultaneously, S.J.Res. 12 would damage Social Security because Social Security's existence depends on a growing economy to meet its growing commitments -- something S.J.Res. 12's likely tax hikes would seriously jeopardize.

How Implausible Are S.J.Res. 12's Requirements?

Every dime of the $1.935 trillion that would be artificially added to the deficit between 2002 and 2018 would have to be payed for with tax hikes and/or spending cuts.
In the 2002-2007 period, spending literally would have to be cut in five of the six years under S.J.Res. 12, even under CBO's most recent baseline spending estimates for a balanced budget. By contrast, Congress's failed 1995 effort to balance the budget was vetoed by Clinton, and it merely slowed the rate of spending's growth.
Spending would decline in absolute terms -- not just reductions in the rate of growth.
How rare are absolute spending cuts? Only nine times since 1933 have they occurred. Eight were due to severe economic contraction or postwar economies: 1935, 1937, and 1938 during the Depression, the first three years following World War II, and the first two years after the Korean War.

Copies of chart used in this report are available in SR-347