16 Jan 1998 Budget Watch #33: January 16, 1998

Social Security Funds to be Raided to Fund President’s Medicare Expansion ProposalAll the talk about a budget surplus as early as the end of this year has the Clinton Administration scrambling for new ways to spend government revenues. For example, the President proposed expanding the Medicare system by offering early retirees between the ages of 62 and 64 and displaced workers 55 and older who can’t afford health insurance access to the government’s health care program for the elderly. The proposal would cost an estimated $20 billion per year. The problem is, the $20 billion would come straight out of the Social Security Trust Fund. Despite statements to the contrary, there will be no budget surplus in 1998 nor, for that matter, will there be surpluses any time in the foreseeable future. The only reason the federal budget appears to approach balance is that the federal government uses Social Security surpluses to offset budget shortfalls. According to the Concord Coalition, the federal government has borrowed $647 billion from the Social Security Trust Fund since 1983 to create the illusion that the budget deficit is lower than it really is. This borrowing could have serious implications for Social Security system. By 2012, when baby-boomers begin to take their toll on the system, the Social Security will start running a deficit. In a somewhat ironic twist, many of the near-elderly who will benefit from the President’s proposed Medicare expansion now will become eligible for Social Security in 2012 — the year the system begins to unravel. It’s a clear-cut case of robbing Peter later to pay Peter now.

Massive Bureaucracy Called for in Kyoto Protocol Jeopardizes Balanced Budget ProspectsThe bureaucratic requirements of the global warming treaty signed last month in Kyoto, Japan could further jeopardize chances for a balanced budget. If ratified by the U.S. Senate, the treaty would require the United States to reduce its greenhouse gas (GHG) emissions by seven percent below 1990 levels by 2010, or 30% or more below projected emissions in 2010. But the treaty also calls for the development of an international emissions trading scheme to allow nations like the United States to exceed their emissions targets through purchases of unused emissions permits from overseas. While the costs of developing such a trading scheme are difficult to estimate given that many details have yet to be worked out by international negotiators, a preliminary schematic of the trading bureaucracy circulating on Capitol Hill (see figure at right) suggests the costs would be enormous. A plethora of new agencies, reminiscent of President Clinton’s ill-fated national health care proposal, would be required to establish a permit trading system, much of it funded by the U.S. taxpayer. And this is only the tip of the iceberg. The U.S. has agreed to: 1) Establish a national system for estimating GHG emissions as well as so-called counter-balancing “sinks,” 2) Provide an as yet unspecified amount of funding for technology transfers to the developing world and 3) Establish special training and educational programs designed to reduce GHG emissions.