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Social Security and the Federal Budget: The Necessity of Maintaining a Comprehensive Long-Range Perspective [i] (August 2002)

handle is hein.congrec/cbo0715 and id is 1 raw text is: CBO LONG-RANGE FISCAL POLICY BRIEF A series of issue summaries from the Congressional Budget Office August 1, 2002 Social Security and the Federal Budget: The Necessity of Maintaining a Comprehensive Long-Range Perspective By law, the Social Security program is treated as an off-budget entity, and its financial figures are displayed separately from the rest of the budget. The separate display, along with the use of trust funds as an accounting device, is a means of distinguishing the program's finances from those of other government activities. However, the distinction can be confusing when it leads people to think of Social Security as an independent financial entity. Social Security is a federal program, and as such, all of its taxes are received by and its outlays dispensed from the U.S. Treasury. Focusing on an accumulating balance in the Social Security trust funds can also be misleading. The only economically significant way that the government has a surplus is if there is a unified budget surplus--when total receipts are greater than total outlays. Although separate taxes are collected for Social Security, the money left over after benefits are paid is used to fund other government programs or to pay down the debt held by the public. Moreover, in the future, those separate tax receipts will become insufficient to maintain the program once the post-World War II baby-boom generation begins drawing federal entitlement benefits. Social Security and other entitlement programs will then be dependent on the federal government to cover their costs--at the same time that the government must pay for its many other functions. Regardless of how any federal program is financed and accounted for--and whether it is presented as on- or off-budget--a full understanding of the government's looming fiscal strains and the potential economic impact of its fiscal condition requires that all government functions be considered together. It is the federal government's total claims on the nation's resources that affect the economy D not the individual components that make up those claims. The Utility of a Comprehensive Budget Display The government's fiscal condition has a significant impact on the economy, and that impact is most effectively summarized by the aggregate flows of money to and from the U.S. Treasury. It is the difference between the government's total receipts and total spending, including Social Security's, that determines how much the government needs to borrow from the financial markets or how much it can repay. Social Security benefits alone account for

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