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The Administration strongly opposes the budget process legislation
announced by Senators Abraham and Domenici and the Republican Leadership on
March 10, which we understand will be offered on the Senate Floor as a
substitute amendment to S. 557. While purporting to be a Social Security
"lockbox," this legislation fails to protect Social Security and would in
reality put payment of Social Security benefits at risk. For the reasons
detailed below and in the attached tetter from Secretary of the
Treasury Rubin, if the Abraham/Domenici amendment or similar legislation is
passed by the Congress, the President's Senior Advisors will recommend
to the President that he veto the bill.
The Abraham/Domenici amendment would establish declining statutory limits
on debt held by the public. As explained by Secretary Rubin in the attached
letter, these arbitrary limitations on the Treasury's ability to borrow
funds could trigger periodic debt crises, placing at risk the Federal
government's ability to honor its financial obligations -- including
payment of Social Security benefits. The Secretary concludes that this
mechanism would create "uncertainty about the Federal government's ability
to honor its future obligations . . . potentially threatening the ability
to make Social Security payments to millions of Americans." These concerns
would exist even if the legislation is amended to include recession
waivers, because any unanticipated slowdown in the economy would
cause a breach of these arbitrary limitations on debt.
Furthermore, the Abraham/Domenici amendment would not extend the solvency
of the Social Security Trust Funds by a single day. The legislation is
flawed because it fails to extend the solvency of the Trust Funds, fails to
ensure that the surplus is used to protect the payment of benefits to
Social Security beneficiaries, and contains an escape clause designed to
allow the diversion of surpluses attributable to Social Security to other
purposes which neither help Social Security beneficiaries nor reduce the
debt.
By contrast, the President has proposed a budget plan that substantially
extends the life of the Social Security Trust Funds and dedicates a large
portion of projected surpluses for the payment of Social Security benefits.
The President's budget framework would reserve 62 percent of unified budget
surpluses over the next 15 years to extend the solvency of the Social
Security Trust Funds. These surpluses would be fully dedicated to the
Social Security Trust Funds and would not be available for tax cuts or
other spending programs. The independent Social Security Administration
actuaries have estimated that reserving 62 percent of unified budget
surpluses for Social Security would extend the life of the Trust Funds
until 2059.
Moreover, the Administration supports extension of the Budget Enforcement
Act pay-as-you-go requirements and discretionary spending caps, as
additional insurance that the dedicated surplus funds will not be used for
purposes other than Social Security solvency. The pay-as-you-go
requirements and budget caps have been effective for the last ten years,
and should be extended without change until the Congress and the President
have secured the long-term solvency of Social Security.
In addition to securing the future of the Social Security program, the
President's budget framework would lock away an additional 15 percent of
total budget surpluses to extend the life of the Medicare Trust Fund by at
least a decade. As with the Social Security surpluses, these funds would
be dedicated to Medicare by investing the funds in Treasury securities and
making them unavailable for any other purpose. The Republican proposal, by
contrast, does nothing to guarantee extension of the Medicare Trust Fund
and would seriously weaken the budget rules to permit non-Social Security
surpluses to be spent on tax cuts.
The Administration may comment further, as the final details of the
Republican proposal become available.
Attachment:
March 17, 1999 letter from Secretary Rubin
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