95-206 EPW
Updated March 24, 1999
CRS Report for Congress
Social Security’s Treatment Under the Federal
Budget: A Summary
David Stuart Koitz
Specialist in Social Legislation
Domestic Social Policy Division
Summary
The treatment of Social Security in the federal budget is often confusing. In
legislation enacted in 1983, 1985 and 1990, Congress excluded the program from official
calculations of the budget and largely exempted it from congressional procedures for
controlling budget revenues and expenditures. However, because Social Security
represents more than a fifth of federal revenues and expenditures, it often is included in
summaries of the government’s financial flows. It also is confusing because people
mistakenly perceive that the program’s removal from official budget calculations changed
how its funds are handled. It did not; as has been the practice since the government first
collected Social Security taxes in 1937, its taxes continue to be deposited in the federal
treasury (with appropriate crediting of federal securities to its trust funds), and its
expenditures continue to be paid from the treasury.
While Social Security is by law considered to be “off budget” for many key aspects
of developing and enforcing congressional budget goals, it is still a federal program and
its income and outgo help to shape the year-to-year financial condition of the
government. As a result, fiscal policymakers often focus on “unified” or overall budget
figures that include Social Security. With the President’s urging last year that future
unified budget surpluses be reserved until Social Security’s problems are resolved, and
his proposal this year to use 62% of the next 15 years’ projected surpluses to shore up
the system, Social Security’s treatment in the budget has become a major policy issue.
Congressional views about what to do with the budget surpluses are diverse — ranging
from “buying down” the outstanding federal debt to cutting taxes to increasing spending.
However, support for the President’s proposition is substantial and to a large extent has
made Social Security reform a place holder in much of the current fiscal policy debate.
Both the House and Senate are now considering budget resolutions for FY 2000
(H.Con.Res.68 and S.Con.Res. 20), as well as other so-called “lock box” measures that
would set aside the portion of the projected budget surpluses attributable to Social
Security until Social Security reform legislation is enacted.
Congressional Research Service ˜ The Library of Congress

---

CRS-2
History
Social Security and other federal programs that operate through trust funds were
counted officially in the budget beginning in FY1969. This was done administratively by
President Johnson. At the time, Congress did not have a budget-making process. In 1974,
with passage of the Congressional Budget and Impoundment Control Act (P.L. 93-344),
Congress adopted procedures for setting budget goals through passage of annual budget
resolutions. Like the budgets prepared by the President, these resolutions were to reflect
a “unified” budget that included trust fund programs such as Social Security.
Beginning in the late 1970s, financial problems confronting Social Security and
concern over its growing costs led to enactment of a number of benefit cutbacks in 1980,
1981, and 1983. However, because the federal budget deficit remained large, interest in
curbing Social Security spending continued. This consideration of Social Security
constraints led to concerns that cuts in Social Security were being proposed for budgetary
purposes rather than programmatic ones. In response, measures were enacted in 1983,
1985, and 1987 making the program a more distinct part of the budget and permitting
floor objections (points of order) to be raised against budget bills containing Social
Security changes.
Later in the decade, when Social Security surpluses emerged, critics argued that the
program was masking the size of the budget deficits. In response, Congress in 1990
excluded it from calculations of the budget, separated it from the rest of the budget in
congressional budget resolutions, and largely exempted it from procedures for controlling
spending (Omnibus Budget Reconciliation Act of 1990, P.L. 101-508). By these actions,
however, Congress excluded Social Security from procedural constraints designed to
discourage measures that would increase the deficits. Concerned that this would
encourage Social Security spending increases and tax cuts that could weaken Social
Security’s financial condition, Congress also included provisions in that legislation
permitting floor objections to be raised against bills that would erode the balances of the
Social Security trust funds.
Current Budget Rules Pertaining To Social Security
Two key elements of the budget process are explicit dollar limits on discretionary
spending (mostly for programs requiring annual appropriations) and a “pay-as-you-go”
rule that requires that increases in direct spending (mostly for entitlement programs) and/or
cuts in revenues must be offset by other changes so as not to increase the deficit.
Originally written to cover the period from FY1991 to FY1995, these budget rules will
now apply through FY2002 (as a result of provisions in the Omnibus Budget
Reconciliation Act of 1993, P.L. 103-66, and the Balanced Budget Act of 1997, P.L. 105-
33). If the explicit spending limits or “pay-as-you-go” rules are violated during this period,
the President may be required to sequester funds (i.e., cut spending). Social Security is
not to be included in these calculations and is exempt from any potential sequestration,
with the exception of administrative expenses (which are counted as discretionary
spending). The law further permits floor objections to be raised against budget bills (so-
called “reconciliation” bills) that contain Social Security measures.

---

CRS-3
“Walling Off” Social Security Surpluses
While Social Security is by law considered to be “off budget” for many key aspects
of developing and enforcing budget goals set each year by Congress, it is still a federal
program and its income and outgo help to shape the year-to-year financial condition of the
government. As a result, fiscal policymakers often focus on “unified” or overall budget
figures that include Social Security. With the President’s urging last year that future
unified budget surpluses be reserved until Social Security’s problems are resolved, and his
proposal this year to use 62% of the next 15 years’ projected surpluses to shore up the
system, Social Security’s treatment in the budget has become a major policy issue.
Congressional views about what to do with the budget surpluses are diverse — ranging
from “buying down” the outstanding federal debt to cutting taxes to increasing spending.
However, support for the President’s proposition is substantial and to a large extent has
made Social Security reform a place holder in much of the current fiscal policy debate.
Both the House and Senate are now considering budget resolutions for FY 2000
(H.Con.Res. 68 and S.Con.Res. 20), as well as other measures that would set aside the
portion of the projected budget surpluses attributable to Social Security until Social
Security reform legislation is enacted. More than 20 bills introduced in the 106 Congress
th
would do so either through constitutional amendments to balance the federal budget
without counting Social Security or by changing how Social Security is viewed and treated
in the congressional budget-making process. Most call for creation of a so-called budget
“lock box” through which a portion of projected budget surpluses would be earmarked for
federal debt reduction pending legislative action to reform the system.
Last year the House Republican leadership attempted to set alternative parameters
with passage of a tax cut bill, H.R. 4579, and a companion measure, H.R. 4578, that
would have created a new Treasury account (the “Protect Social Security Account”) to
which 90% of the next 11 years’ projected surpluses would have been credited pending
Social Security reform. The underlying principle was that 10% of the budget surpluses be
used for tax cuts and the remainder held in abeyance until Social Security reform was
enacted. However, both bills were heavily opposed by Democratic Members, who argued
for 100% of the surpluses being held in abeyance pending Social Security reform. The
Senate did not take up either measure before the 105 Congress adjourned.
th
Social Security and the Balanced Budget Amendment
Action in the 104 Congress.
th
The 104 Congress twice considered an amendment
th
to the Constitution requiring the federal government to achieve and maintain a balanced
budget. Both the House and the Senate versions of the amendment — H.J.Res. 1 and
S.J.Res. 1— included Social Security in calculations of the budget totals for purposes of
the amendment. Members concerned that including the program in the totals would lead
to future cuts in Social Security benefits proposed that it be exempted. They argued that
because Social Security would be counted in computing the budget deficit, there would
be incentives to cut Social Security benefits to achieve outlay reductions that would make
the deficit smaller. They further argued that the system is running surpluses with its own
dedicated tax receipts and is therefore not contributing to the deficit. They contended that
including those surpluses in the totals would cause them to be used to finance the deficit
in the rest of the budget and thereby hide its “true” size.

---

CRS-4
Those who wanted to keep Social Security in the calculations argued that it was not
their purpose to cut Social Security but that the program represents too large a share of
federal revenues and expenditures to be ignored. They contended that removing Social
Security from the calculations would be fiscally misleading and make the goal of achieving
a balanced budget much more difficult. They contended that the real goal of those who
wanted Social Security excluded was to defeat the amendment by making senior citizens
fear that their benefits would be in jeopardy and by making the deficit targets
unrealistically large. They further contended that if Social Security were removed,
advocates of future spending measures would attempt to expand the program’s features
to achieve other social purposes (since Social Security would be exempt from the balanced
budget requirements) and that this would threaten the program’s ultimate survival.
On January 26, 1995, the House passed its version of the Balanced Budget
Amendment by a vote of 300 to 132. The measure included Social Security in calculations
of the budget. Prior to the final vote, the House rejected four attempts to remove the
program from the calculations. However, the House did pass a nonbinding resolution,
H.Con.Res. 17, by a vote of 412 to 18 on January 25, 1995, stating that, for purposes of
achieving a balanced budget, the appropriate congressional committees shall not report out
legislation that would alter the receipts and disbursement of Social Security. A similar
measure was passed the same day by the Senate in its consideration of S. 1, a bill to curb
the imposition of “unfunded mandates” on the states.
The Senate version of the amendment, as reported by the Senate Judiciary
Committee, also included Social Security in the budget calculations. However, after
lengthy floor deliberations, the amendment failed to get the requisite two-thirds approval
of the Senate. The final vote taken on March 2, 1995 was 65 to 35. In the weeks of
consideration leading up to the vote, Social Security was a major part of the debate. On
February 9, 1995, the Senate agreed by an 87-10 vote to instruct the Senate Budget
Committee to develop a nonbinding plan to achieve a balanced budget without altering
Social Security. However, in later action the Senate rejected four measures to either
remove Social Security from the calculations or otherwise alter its treatment under the
amendment. On February 14, 1995, by a vote of 55-41, the Senate tabled a measure
offered by Senator Reid to exempt the program from the amendment. On February 28,
1995, the Senate tabled three other related measures. One, offered by Senator Feinstein,
tabled by a vote of 60-39, would have taken Social Security out of the calculations in a
fashion similar to the earlier defeated measure offered by Senator Reid. Another, offered
by Senator Bob Graham, tabled by a vote of 59-40, would have required three-fifths of
both houses of the Congress to approve an increase in the total outstanding debt of the
government, including the portion held in federal trust funds such as the Social Security
funds. The version of the amendment reported by the Senate Judiciary Committee
required three-fifths approval to raise only the portion of the debt held by the public. The
Graham amendment would have had an effect similar to the other defeated measures that
excluded Social Security from the budget calculations. A third measure, also offered by
Senator Graham, tabled by a vote of 57-43, would have permitted the portion of the debt
held by the public to rise without three-fifths approval to the extent the rise reflected a
reduction in the portion held by the Social Security trust funds.
After its defeat in 1995, the majority leader, Senator Dole, said that he would attempt
to bring up the amendment again later in the 104 Congress. It was voted on again in the
th

---

CRS-5
Senate on June 6, 1996, and failed a second time, on a 64-35 vote, to get the requisite
two-thirds approval of the Senate.
Action in the 105 Congress.
th
The amendment was brought up again in the 105th
Congress with the Senate taking the lead. The Senate Judiciary Committee reported it out
as S.J. Res 1 in a form similar to the amendment the Senate considered in the 104th
Congress that included Social Security in the budget calculations. The Senate began
deliberations on February 5, 1997. On February 25, 1997, by a vote of 55-44, it tabled a
measure offered by Senator Reid to exclude Social Security. It tabled a similar measure
by Senator Dorgan the next day by a vote of 59-41, as well as one offered by Senator
Feinstein by a vote of 67-33. (The Feinstein measure included other alterations of S.J.Res.
1 as well.) Yet a fourth alternative, offered by Senator Bob Graham, was tabled by a vote
of 59-39. It was similar to one he offered in the 104 Congress that would have required
th
three-fifths approval by both houses of Congress to increase the total outstanding debt of
the government, including the portion held in the Social Security trust funds. In a vote on
final passage on March 4, 1997, the amendment in its original form was defeated by a vote
of 66-34.
Current House and Senate Procedural Rules to Protect Social Security’s
Financial Condition
Under the budget rules that existed before 1991, Social Security was included in
calculations of the budget deficit. This had the effect of potentially thwarting attempts to
expand its benefits or cut its taxes if they were not accompanied by measures to offset the
cost or revenue loss. Floor objections could be raised against such actions if they violated
the budget totals or allocations, and if enacted, other programs were potentially threatened
with sequestration because the deficit would be made larger. In effect, the old process
imposed the same fiscal discipline on Social Security as applied to other programs. Since
Social Security is now exempt from the budget limits (excepting its administrative
expenses), these fiscal constraints no longer apply. In their place are rules intended to
make it difficult to bring up measures for a vote that would weaken the program’s financial
condition.
In the House, a floor objection can be raised against a bill that proposes more than
$250 million in Social Security spending increases or tax cuts over 5 years (counting the
fiscal year it becomes effective and the following 4 years) unless the bill also contains
offsetting changes to bring the net impact within the $250 million limit. Costs of prior
legislation that fall within the 5-year period must be counted. An objection also can be
raised against a measure that would increase long-range average costs (i.e., over 75 years)
or reduce long-range revenues by at least 0.02% of taxable payroll (i.e., national earnings
subject to Social Security taxes).
In the Senate, budget resolutions must include separate amounts for Social Security
income and outgo for the first year and the 5-year period covered by the resolution (i.e.,
separate from the budget totals). These amounts cannot cause the balances of the Social
Security trust funds to be lower than projected under current law. Measures that would
do so could draw an objection, which can be overridden only by three-fifths approval of
the Senate. Once the resolution is enacted, subsequent measures that on balance would

---

CRS-6
cause Social Security outlay increases or revenue reductions could draw an objection,
which again can be overridden only when three-fifths of the Senate votes to do so.
Table 1. Projected Budget Deficit (-) or Surplus (+) With and Without
Social Security
(by fiscal year, dollars in billions)
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
With
Social
107
131
151
209
209
234
256
306
333
355
381
Security
Without
Social
-19
-7
6
55
48
63
72
113
130
143
164
Security
Source: Congressional Budget Office baseline projections, January 1999.
Table 2. Projected Federal Debt, Including Debt Held by the
Social Security Trust Funds
(End of fiscal year, dollars in billions)
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Debt held
by the
3630
3515
3378
3183
2989
2770
2529
2237
1917
1574
1206
public
Debt held
by the
Social
857
994
1139
1291
1453
1624
1807
2000
2204
2416
2633
Security
trust funds
Debt held
by other
1092
1160
1227
1298
1368
1437
1503
1567
1633
1692
1784
gov’t.
accounts
Source: Congressional Budget Office baseline projections, January 1999.
For additional reading, see: CRS Report 98-422, Social Security and the Federal Budget:
What Does Social Security’s Being “Off-budget” Mean? by David Koitz, and Issue Brief 98048,
Social Security Reform, by David Koitz.

---