Budget 2000

Clinton's Goal to Save Social Security
Involves Complex Debt-Reduction Plan

By BOB DAVIS
Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- While President Clinton's plan to prepare for baby
boomers' retirement has been derided as budget gimmickry, it is a complex
proposal based on a simple idea: Save now, pay later.

According to the skimpy details in the president's new budget, Mr. Clinton
wants to devote most of the next 15 years' expected surpluses to reducing the
national debt. By Sept. 30, 2014, the federal debt held by the public would fall
to $1.17 trillion from the current $3.67 trillion. In economic terms, reducing
debt is the equivalent of increasing savings.

Why does that matter?

Administration economists, blessed by Federal Reserve Chairman Alan
Greenspan, believe that the best way to prepare for the baby boomers'
retirement is for the government -- and therefore, the nation -- to save more
now. The more savings, the more money available for investment. The more
investment, the more productive the economy in the future. And the more
productive the economy, the more goods and services available to retired baby
boomers and their working offspring in the next century.

Greenspan's Two Cents

"At the most rudimentary level, one could envision households saving by
actually storing goods purchased during their working years for consumption
during retirement," Mr. Greenspan said last week before the Senate Budget
Committee. But a better strategy is to use today's savings to produce plants,
equipment and technology that "would ... produce an even greater quantity of
goods and services to be consumed in retirement."

So how does the administration translate that? Confusedly.

For one thing, the budget is short on details. In the president's State of the
Union address, he proposed Universal Savings Accounts, which would be
financed by contributions from workers and the government. But the budget
doesn't explain who would qualify or how much the government would kick in.

The president is being attacked because he cloaked his reduce-the-debt
strategy in a save-Social-Security costume to make it more politically
appealing. The result is complex accounting that the president's advisers are
finding tough to explain and Republican critics are attacking with increasing
volume.

The budget reiterates Mr. Clinton's pledge to devote 62% of the budget surplus
over the next 15 years to bolstering Social Security. But that is less definitive
than it sounds. Most of the budget surplus already comes from the payroll taxes
that fund Social Security payments. The administration is counting the same
money twice, many critics charge.

Harvard economist Martin Feldstein, who headed the White House Council of
Economic Advisers during the Reagan administration, urges that the surplus be
used to create individual accounts for taxpayers. He doubts politicians will save
the money the Clinton administration is counting on. He labels the plan "Magic!"

Economic Faith

Actually, it is more like faith.

By paying off debt and -- here's where faith comes in -- boosting future
economic growth and government revenue, the administration argues it will be
in better shape to make promised Social Security payments to retired baby
boomers. By sustaining growth, the administration argues implicitly, it can
guarantee retirees the current level of benefits through around 2049, instead of
the current estimate of 2032.

If the administration gets its way and invests some Social Security receipts in
the stock market, it estimates that it will receive enough additional income to
keep the system solvent until 2055. But don't look for any details of that plan in
the president's budget; there aren't any.

"If you save it the way the president has proposed, we're increasing our ability
to pay our bills in the future," said Budget Director Jack Lew.

Of course, the expected federal surplus could be used for purposes other than
retiring debt by funneling the money through the Social Security trust fund. It
could go to cut taxes, for instance, as some Republicans would prefer. Here is
where politics colors Mr. Clinton's economics.

By reserving most of the surplus for Social Security, the government's most
popular program, the administration figures it can forestall Republican plans to
slash taxes or Democratic plans to boost spending. White House economic
adviser Gene Sperling calls it a "debt-reduction lockbox for Social Security."