Social Security tap likely Budget update predicts $9 billion withdrawal

WASHINGTON – The sour economy and President Bush’s tax cut will force the government to tap $9 billion in Social Security reserves this year, congressional analysts concluded in a report Monday, igniting a bitter political fight over the dwindling surplus.

“Houston, we’ve got a problem,” said Rep. John Spratt, D-S.C., ranking Democrat on the House Budget Committee. He used the famous Apollo 13 line to underscore the pessimistic projections from the nonpartisan Congressional Budget Office. “What we’ve got here is the hard job of adjusting the budget to reflect reality.”

The CBO report was scheduled for release today. It was obtained Monday by The Associated Press from congressional sources.

Democrats said the CBO update, coming less than a week after a sunnier White House budget forecast, would severely crimp the ability of the president and Congress to fund their priorities: increasing defense and education spending, providing a Medicare prescription drug benefit, paying for a new farm subsidy program and extending popular expiring tax breaks.

“It’s very disheartening because we’ve worked so hard to shore up the Social Security trust fund walls [to make sure money would be there for retirees in the future],” said U.S. Rep. John Baldacci. While he supported some tax breaks, Baldacci said the president’s tax cuts went far too deep.

GOP Sens. Olympia Snowe and Susan Collins were not immediately available for comment.

House Minority Leader Dick Gephardt, D-Mo., said the 10-year, $1.35 trillion tax cut is causing an “alarming fiscal crisis,” draining away the surplus cushion just as the economic downturn is hitting home.

The CBO provides the budget numbers Congress is required to use.

“The numbers don’t lie,” Gephardt said.

The CBO now projects the total budget surplus for the fiscal year that ends Sept. 30 at $153 billion. That is down $122 billion from its May estimate but still an enormous amount.

The first installment of Bush’s tax cut accounted for two-thirds of the reduction, with most of the rest due to dwindling tax revenues from the slowing economy, the congressional budget analysts said.

The CBO said the government will have to divert $9 billion in Social Security money to make ends meet this year, something Democrats and Republicans had pledged repeatedly not to do.

The government will return to a small non-Social Security surplus of $2 billion in fiscal 2002 – assuming somewhat higher spending next year compared with 2001. But the CBO projects the government will use $18 billion out of the retirement program in 2003 and $3 billion in 2004 as more of the tax cuts kick in.

Over the next 10 years, the CBO is forecasting a $3.4 trillion surplus counting Social Security, down from $5.6 trillion in its May forecast. The tax cut and the associated changes in interest costs account for more than $1.7 trillion of the surplus reduction.

The White House Office of Management and Budget last week also forecast a shrinking surplus, but it projected a non-Social Security surplus of $1 billion this year and next.

Diverting Social Security money has no practical effect on the program, although it does prevent the government from paying down public debt as quickly as it otherwise would. Making Social Security exempt from such invasions has become a political priority as Republicans and Democrats sought the mantle as its greatest protector.

White House budget director Mitch Daniels portrayed the differences as relatively tiny and said the Social Security pledge was “symbolic.” He said it would be “a big mistake” to make Social Security so sacrosanct that other priorities are discarded.

“These are reasonably small differences when you take everything into account,” Daniels said.

Republicans blamed the economy for the shrinking surplus and argued that the tax cuts will help spark a recovery. House Majority Leader Dick Armey, R-Texas, said in a written statement that controlling spending will cure the fiscal woes. He noted that the Democratic-run Congress routinely tapped Social Security reserves in years past.

Democrats’ “sudden concern for the surplus is a mask to disguise their true intentions – repeal tax relief and spend the money on more risky spending schemes,” Armey said.