The Washington Post

August 16, 2001, Thursday, Final Edition

SECTION: A SECTION; Pg. A10

Administration Implements Accounting Change; Move Allocates $4 Billion for Additional Spending

Without Dipping into Social Security Funds

by Glenn Kessler, Washington Post Staff Writer

Faced with Democratic charges that the recently enacted tax cut may force the government to again tap Social Security funds for spending, the Bush administration has adopted an accounting change that would release more than $ 4 billion for additional spending this year without directly affecting the retirement program.

Administration officials described the accounting change as an effort to bring greater accuracy to the government's books. But it came as Democratic congressional leaders yesterday sent President Bush a sharply worded letter warning his tax cut "will have exhausted all of the surplus in the near term" and calling on the president's "immediate attention and engagement on this most serious matter."

In the context of a $ 2 trillion budget, a shift of just $ 4 billion might seem relatively minor. But for politicians from both parties, a return to the days of using Social Security surpluses for routine government functions would be politically perilous. Later this month, the White House budget office and the Congressional Budget Office are expected to release sharply lower estimates for the budget surplus in the current fiscal year, which ends Sept. 30.

Administration officials declined to comment on whether the new estimate would show that the budget surplus, originally projected to be $ 90 billion higher than the Social Security and Medicare hospital trust fund surpluses, has shrunk to all but the Social Security surplus. But the administration's close attention to relatively minor flows of money suggests that the new projection will be very tight.

"The heightened scrutiny on the Social Security surplus warrants the most accurate accounting possible," anadministration official said.

The overall surplus still may be the second-highest in history, but that fact is likely to be lost in the focus on whether Social Security or Medicare taxes are being used to fund government operations.

The accounting change involves the collection of Social Security payroll taxes from employers. The Treasury Department receives such huge sums of money that it just estimates what it receives, taking several years to reconcile the books with the accurate amount. Previously, the reconciled amounts were credited to Social Security in the year they were discovered. (TUFF: If you swallow that one, you need help)

But administration officials, figuring Social Security receipts would decline slightly in the slowing economy, were surprised to discover that the estimate for the Social Security surplus was growing because Treasury had credited Social Security with $ 5.6 billion less in 1998, 1999 and 2000. So administration officials decided to reopen the old books and reallocate the money in previous years, rather than take a hit in the current fiscal year.

Another accounting change involving the treatment of the Postal Service brought the overall shift in money to $ 4.3 billion.

Budget experts said there were practical reasons for the old method. The White House decision will require the government to revise historical tables in budget documents and also allocate interest that the Social Security trust fund should have been earning with this additional money. The White House estimates that Social Security will also receive about $ 200 billion to $ 300 billion in additional interest lost through the previous method. (TUFF: Isn't that just great. They're going to burden us with more debt passed out like candy from Santa Claus.)

"The conventional way of doing this has been in place for 65 years," said Robert Reischauer, former director of the CBO and president of the Urban Institute. "The question is, why shift, and why shift now? The answer is they realized they were going to come too close to dipping into the Social Security trust fund."

Democrats are gearing up for a battle over how to reconcile the new surplus estimates with the spending priorities of the administration and Congress. But Bush administration officials say they had little to do with any problems in the current fiscal year. "The surplus this year is $ 34.5 billion smaller than it should be because Congress last year busted the budget," White House spokesman Ari Fleischer said.

At a fundraiser Tuesday night, Bush dismissed Democrats' complaints. "You hear a lot of them talking in Washington about, 'Oh, the tax cut might cause a deficit,' " he said. "No. What causes a deficit is too much spending. . . . They try to over-spend. . . . You'll have a president who will veto those budget-busting bills."