Order Code 98-422 EPW
CRS Report for Congress
Received through the CRS Web
Social Security and the Federal Budget:
What Does Social Security’s Being
“Off Budget” Mean?
Updated July 20, 2000
David Stuart Koitz
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Social Security and the Federal Budget:
What Does Social Security’s Being “Off Budget” Mean?
Summary
As a result of a series of laws enacted in 1983, 1985 and 1990, Social Security
is considered to be “off budget” for federal budget purposes. While the meaning of
this might seem obvious — that Social Security is not to be considered as part of the
federal budget — many people are confused by the continued use of aggregate budget
figures that include Social Security’s receipts and expenditures.
Budget policymakers often talk about these aggregates, or what is commonly
referred to as the unified budget, because they summarize the government’s overall
impact on the economy — particularly the extent to which it is borrowing money from
the financial markets or paying off debt it has incurred in the past. Social Security
may be viewed as “different,” but it is still part of the government and helps to form
this overall impact. Its taxes like all other federal funds flow into the U.S. Treasury
and its benefit payments flow out of the U.S. Treasury. The Treasury Department
issues federal securities to the Social Security trust funds to reflect receipt of these
taxes, and redeems securities from the trust funds to reflect Social Security
expenditures, but the money itself flows to and from the Treasury.
While unified budget figures are often at the center of budget debates, “taking
Social Security off budget” has changed the way the budget is formally presented.
Annual congressional budget resolutions, for instance, do not show unified totals.
They show Social Security’s income and outgo separately. In addition, while budget
projections prepared by the Congressional Budget Office and the Office of
Management and Budget display unified totals, they also show so-called “on-budget”
totals, which exclude Social Security and the postal service, and “off budget” totals,
which count only the operations of Social Security and the postal service. A major
effect of this has been to highlight that Social Security has been running annual
surpluses and the rest of the government, until recently, had been running deficits.
Perhaps as significant, but less understood, is how taking Social Security “off
budget” has changed the way budget measures and Social Security legislation are
handled in Congress. A provision enacted in 1985, for instance, permits Members to
object to (or raise a “point of order” against) bills designed to achieve budget goals
— so-called reconciliation bills — if they contain Social Security measures. In the
House, a simple majority can override such an objection, but in the Senate it takes
approval by three-fifths of its Members. In addition, Social Security is largely exempt
from budget rules enacted in 1990 designed to discourage future tax reductions or
spending increases that would increase budget deficits. Key elements of these rules
include setting specific dollar limits on discretionary spending (i.e., on programs
requiring annual appropriations) and creation of a “pay-as-you-go” rule for direct
spending (i.e., entitlement programs) and revenues requiring that any new spending
increases or revenue reductions be offset by other changes. If the discretionary
spending limits or the “pay-as-you-go” rule are violated, the President may be
required to cut spending. With the exception of administrative expenses, Social
Security is exempt from such cuts. Congress also adopted new rules designed to
discourage bills that would erode the balances of the Social Security trust funds.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Social Security Is Now Considered to Be “Off Budget” . . . . . . . . . . . . . . . . . . . 2
Taking Social Security Off Budget Has Changed the Way the Budget is
Presented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Taking Social Security Off Budget Has Changed How Budget-Related Measures
and Social Security Legislation Are Handled in the Congress . . . . . . . . . . . 7
The Financial Operations of the Social Security System Have Not Been Altered
by Taking it Off Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Social Security’s Budget Treatment Under the Social
Security Amendments of 1983 . . . . . . . . . . . . . . . . . . . . . . . . . 10
Social Security’s Budget Treatment Under the 1985
Gramm-Rudman-Hollings Procedures . . . . . . . . . . . . . . . . . . . . 10
Social Security’s Budget Treatment Under The 1990 Budget
Enforcement Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Chronology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Figures
Figure 1. Social Security’s Share of Federal Spending and Receipts, FY1999 . . 2
Figure 2. CBO Projections of Surpluses Under Unified Budget and
“On-Budget” Arrays, FY 2000-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 3. Comparison of Surplus Social Security Taxes to Unified Budget
Surpluses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
List of Tables
Table 1. CBO Projections of Surpluses Under Unified Budget, “On-Budget,”
and “Off-Budget” Arrays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 2. Comparison of Projections of Surplus Social Security Taxes to
Unified Budget Surpluses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3. Projected Federal Debt, Including Debt Held by the Social Security
Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

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Social Security and the Federal Budget:
What Does Social Security’s Being
“Off Budget” Mean?
Introduction
Social Security and other federal programs that operate through trust funds were
counted officially in the federal budget beginning in FY1969. Their inclusion in the
budget, instituted by President Johnson, followed a recommendation by an expert
panel that all the financial operations of the government be consolidated into a single
budget.1 It was implemented administratively under broad authority granted to the
President by the Budget and Accounting Act of 1921 to devise the form in which the
federal budget was to be presented. In 1974, with passage of the Congressional
Budget and Impoundment Control Act (P.L. 93-344), Congress adopted a process
of its own for developing budget goals through passage of annual budget resolutions.
Up to that point, spending and revenue measures were adopted piecemeal through
appropriations laws and periodic entitlement and tax legislation. Like the budgets
then prepared by the President, the budget resolutions required under the new
congressional procedures were to reflect a “unified budget” approach that included
trust fund programs such as Social Security in the budget totals.
Beginning in the 1970s, financial problems plaguing Social Security and concern
over the program’s growing costs gave impetus to measures to curtail benefits.
Social Security cutbacks were included in the Omnibus Budget Reconciliation Acts
of 1980 and 1981 and the Social Security Amendments of 1983. However, despite
passage of these measures, resolution of the program’s financial problems, and the
buildup of surpluses in the Social Security trust funds, interest in curbing Social
Security expenditures continued because of the large federal budget deficits that arose
in the 1980s.
This routine consideration of Social Security constraints raised concerns that the
public’s confidence in the program was being eroded and gave impetus to proposals
to remove Social Security from the budget. The result was that although the program
continued to be counted in the budget throughout the decade, measures were enacted
in 1983, 1985, and 1987 explicitly stating that it was not to be included in the budget,
making it a separate part of congressional budget resolutions, and imposing potential
procedural hurdles for budgetary bills containing Social Security changes.
1 Report of the President’s Commission on Budget Concepts. Washington, GPO, October
1967.

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Then, in 1990, reacting to criticism that surplus Social Security taxes were
masking the size of budget deficits, Congress enacted further measures to separate
Social Security from formulation of the budget and from procedures designed to
discourage tax reductions or spending increases that would increase the size of the
deficits. This was done as part of changes to the budget process included in a $500
billion deficit-reduction package enacted at the end of the 101st Congress. In addition,
in recognition that removing Social Security from budget would also take away
implicit fiscal constraints that protected the Social Security trust funds, Congress
adopted new procedural hurdles for bills that would erode the trust fund balances.
The underlying concern was that lifting the constraints of the budget would encourage
proposals (i.e., Social Security tax reductions or new spending measures) that could
weaken the system’s financial condition.
Figure 1. Social Security’s Share of Federal
Spending and Receipts, FY1999
Spending
Receipts
7 7 %
76%
Rest of Government
Rest of Government
Social Security
23%
Social Security
24%
Social Security Is Now Considered to Be “Off Budget”
If loosely defined, one could say that Social Security has been removed from the
federal budget at least three times since the early 1980s, as part of:
1.
the Social Security Amendments of 1983;
2.
the Gramm-Rudman-Hollings budget act changes in 1985; and
3.
the Budget Enforcement Act of 1990.
While the meaning of Social Security being “off budget” might seem obvious —
that it is not to be considered as part of the federal budget — many people are
perplexed by the continued use of aggregate budget figures that count the program’s
receipts and expenditures. Official budget documents do display budget totals
differently than they did before this legislation was enacted. While they continue to
show aggregate or unified budget totals, they also show the financial flows of Social
Security and the postal service separately as well as the financial operations of the
government when these two functions are excluded. In addition, a number of
procedural changes have been put in place affecting how Congress deliberates and
acts on budget-related bills and Social Security legislation. All these changes were
designed to differentiate Social Security from other government activities.

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CRS-3
The continued reflection of aggregate budget figures in these documents is
largely driven by economic considerations. Those who are interested in the aggregate
financial flows of the Treasury and the impact those flows have on the economy —
particularly the extent to which the government is borrowing money from the financial
markets or paying off publicly-held debt it has incurred in the past — continue to
examine the financial affairs of the government on a unified budget basis, which means
they count Social Security in computing revenue and spending totals. 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 markets or can repay. The Congressional Budget Office (CBO) states it this way:
Social Security benefits alone account for more than one-fifth of federal spending,
and its payroll taxes account for about one-fourth of government revenues.
Therefore, most economists, credit market participants, and policymakers, when
they seek to gauge the government’s role in the economy and its drain on the credit
markets, look at the total budget figures — including Social Security.2
The Administration’s Office of Management and Budget (OMB) takes a similar
view:
The unified budget is the most useful display of the Government’s finances; it is
vital in calculating how much the Government has to borrow.3
OMB also takes the position that the additional budget displays its documents
provide — that show Social Security and the postal service separately and what the
rest of the budget looks like without them — satisfy the legal requirements enacted
in the 1983 to 1990 period that Social Security be treated off budget.

Hence, while Social Security is legally and officially considered off budget and
does have certain procedural protections in the congressional budget process, in
practice and largely because it is a federally-operated and financed program, it is
considered as part of the federal budget for economic purposes.
Taking Social Security Off Budget Has Changed the Way
the Budget is Presented
Taking Social Security off budget has changed the way the budget is presented
to a limited extent. For instance, annual congressional budget resolutions do not
show unified budget totals. However, among the various tables presented in reports
from the Budget Committees to their respective chambers, the budget summaries are
unified (and thereby include Social Security). In addition, annual and semi-annual
budget summaries of CBO and OMB show, and in fact highlight, what the overall
budget looks like with Social Security. Their documents show (1) unified budget
2 The Economic and Budget Outlook, Fiscal Years 1999-2008, CBO, January 1998,
Washington, GPO, p. 34.
3 A Citizen’s Guide to the Federal Budget, FY1999, OMB, Washington, GPO, p. 15.

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CRS-4
totals which display the financial flows of the entire federal government as a single
entity, and (2) “on-budget” totals which exclude Social Security and the postal
service. They also frequently show “off-budget” totals which count only the
operations of Social Security and the postal service. A major effect of this over the
past decade has been to highlight that the Social Security system has been running
surpluses and the rest of the government, until recently, had been running deficits (the
postal service has a minor effect on the “off budget” surplus).
Using one of CBO’s latest sets of projections for the FY2000-2010 period,
Figure 2 below and Table 1 on the following page show the growing surpluses that
result from using the unified budget array and the notably smaller ones that result
when Social Security and the postal service are excluded (i.e., under the so-called
“on-budget” array).
Figure 2. CBO Projections of Surpluses Under Unified
Budget and “On-Budget” Arrays, FY 2000-2010
$s in billions
$700
$600
Unified budget
$500
$400
$300
Budget excluding Social
S e cu rity & Postal Service
$200
$100
$0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Note about Figure 2: Data from CBO, The Budget and Economic Outlook: An Update, July 2000.
The unified budget surpluses include all programs of the government, including Social Security and
the postal service. The bottom half of the graph reflects the smaller “on-budget” surpluses resulting
from including all programs except Social Security and the postal service. The reader should note
that the figure represents only one of three alternative sets of projections made by CBO. It reflects
a scenario under which federal discretionary spending would rise with inflation after the FY 2000.
Two other CBO scenarios show larger unified and on-budget surpluses by assuming either (1) that
discretionary spending would be frozen after the year 2000 at the level provided in that year, or (2)
that discretionary spending would be held to levels prescribed by budget limits enacted in 1997 after
which it would be allowed to rise with inflation. The differences are significant, with larger
projected unified budget surpluses and Social Security surpluses that represent considerably smaller
shares of the totals (albeit the actual dollar amounts of the Social Security surpluses stay the same
as shown above and in the following table).

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CRS-5
Table 1. CBO Projections of Surpluses Under Unified Budget,
“On-Budget,” and “Off-Budget” Arrays
(by fiscal year, dollars in billions)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010 2001-
2010
Unified budgeta
232
268
312
345
369
402
469
523
565
625
685 4,561
“On-budget”b
84
102
126
143
154
169
222
260
288
332
377 2,173
“Off-budget”c
149
165
186
202
215
232
247
263
278
293
307 2,388
Source: Congressional Budget Office baseline projections, July 2000. Baseline assumes aggregate
discretionary spending rises with inflation after FY2000. See note at the bottom of Figure 2.
a Includes all programs of the government, including Social Security and postal service.
b Includes all programs except Social Security and postal service.
c Includes only the income and outgo of Social Security trust funds and the postal service.
It is important to recognize that the smaller “on-budget”surpluses shown in the
previous table and chart are not caused by simply ignoring surplus Social Security
taxes. Rather, they are caused by ignoring those taxes and, as well, by counting
interest paid to the Social Security trust funds as budget outlays. These interest
payments are not outlays from the government — they are internal transactions
between government accounts (i.e., from the government’s general fund to the Social
Security trust funds). Since Social Security is classified as “off-budget,” these
payments show up as budget outlays in the “on-budget” array even though they do
not cause an expenditure from the government. And while they represent payments
owed to the Social Security trust funds, the smaller “on-budget” surpluses resulting
from showing them as outlays do not represent surplus money that the government
must use to make payments to the Social Security trust funds.
If only surplus Social Security tax receipts (and those resulting from the taxation
of Social Security benefits) were ignored in calculating the budget totals, the “on-
budget”surpluses would be larger than currently shown. Table 2 on the next page
compares the surpluses resulting from ignoring these taxes to the official “on-budget”
line (compare lines 3 and 4 in the table).
Table 2 also compares these surplus Social Security receipts to surplus
governmental receipts. In this case only the portion of Social Security trust fund
surpluses due to payroll taxes and income taxes on Social Security benefits are
counted. (Compare the first and second lines in the table. It also is shown in Figure
3 on the next page.) Basically, this presents a cash-flow view of Social Security, i.e.,
how much receipts and expenditures it generates for the government. Said another
way, it addresses the question of how much of the projected unified budget surpluses
are due to surplus or excess Social Security receipts. Under the projections, surplus
Social Security receipts are initially projected to account for almost 40% of the
unified budget surpluses (e.g., $89 billion of the estimated $232 billion unified budget
surplus in FY2000). However, as time passes Social Security’s contribution to the
positive unified budget outlook diminishes. By FY2010, its surplus receipts would
account for only 18% of the unified budget surplus for that year.

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Table 2. Comparison of Projections of Surplus Social Security Taxes to
Unified Budget Surpluses
(by fiscal year, dollars in billions)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001-
2010
Unified budget
232
268
312
345
369
402
469
523
565
625
685 4,561
surplusesa
Surplus Social
Security taxes
89
96
105
110
112
117
120
122
123
122
120 1,147
Budget surpluses
ignoring surplus
Social Security taxesb
143
172
207
235
257
285
349
401
442
503
565 3,416
“On-budget”
84
102
126
143
154
169
222
260
288
332
377 2,173
Surplusesc
Source: Congressional Budget Office baseline projections, July 2000. Baseline assumes aggregate
discretionary spending rises with inflation after FY2000. See note at the bottom of Figure 2.
a Includes all programs of the government, including Social Security and postal service.
b Includes all programs of the government, but excludes surplus Social Security taxes.
c Includes all programs except Social Security and postal service.
Figure 3. Comparison of Surplus Social Security Taxes to Unified
Budget Surpluses
$s in billions
$700
Unified Budget Surpluses
$600
Progressively Exceed
Surplus Social Security Taxes
$500
$400
Unified Budget Surpluses
$300
$200
Surplus Social Security Taxes
$100
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Taking Social Security Off Budget Has Changed How
Budget-Related Measures and Social Security Legislation
Are Handled in the Congress
Perhaps as significant, but less understood, is how “taking Social Security off
budget” has changed the way budget-related measures and Social Security legislation
are handled in Congress. In 1990, Congress passed budget process reforms as part
of a $500 billion deficit-reduction package. They were designed largely to discourage
future tax reductions or spending increases that would erode the deficit-reduction
impact of the $500 billion package. Key elements of the reforms included setting
specific dollar limits on discretionary spending (i.e., mostly on programs requiring
annual appropriations)4 and creation of a “pay-as-you-go” requirement for direct
spending (mostly entitlement programs) and revenues. This “pay-as-you-go” rule
generally requires that any new spending increases or revenue reductions be offset by
other changes.5
For the most part, the discretionary spending limits and the “pay-as-you-go” rule
took the place of deficit-reduction targets established under the former Gramm-
Rudman-Hollings (GRH) procedures. Under the GRH procedures, Social Security’s
income and outgo were included in the budget totals for estimating budget deficits.
In contrast, under the 1990 procedures, Social Security’s income and outgo were
largely exempted. Although classified as an “entitlement” program, its taxes and
benefits were excluded from the “pay-as-you-go” rule for direct spending. The only
exception involves the system’s administrative expenses, which are counted as
discretionary spending. If the discretionary spending limits are exceeded or the “pay-
as-you-go” rule is violated, the President may be required to issue sequestration
orders to bring spending into compliance with the limits or rules. With the exception
of administrative expenses, Social Security is exempt from such sequestration orders.
Concerned that exempting Social Security from these procedures would
encourage new spending proposals or tax cuts that could weaken the system’s
financial condition, Congress also adopted procedures in 1990 intended to discourage
bills that would erode the balances of the trust funds. These are known as the Social
Security firewall rules. Different rules apply in the House and Senate.
In the House these rules permit points of order to be raised against bills that (1)
propose more than $250 million in Social Security spending increases or revenue
reductions over a 5-year period beginning with the year the legislation is to become
effective, or (2) would increase the average cost or reduce the average income of the
program over the long run (considered to be 75 years) by at least 0.02 % of taxable
payroll. In the Senate, budget resolutions must specify separate amounts for Social
Security income and outgo for a 5-year period covered by each budget resolution and
points of order can be raised against measures that would cause income to be lower
4 Notably, the limit does not apply to certain entitlement programs whose funding is subject
to annual appropriations.
5 Failure to do so can result in an end of the session sequestration of funds from programs
subject to the rule.

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CRS-8
or outgo to be higher than these amounts. Three-fifths of the Senate would have to
agree to override any objection. These procedures took effect in FY1991.
The 1990 law also continued a provision enacted in 1985 that permits points of
order to be raised against reconciliation bills or resolutions that contain Social
Security measures. In the House, a simple majority can override the objection; in the
Senate it takes approval by 3/5ths of its Members.
The rules enacted in 1990 have largely been extended through FY2002 with
passage of budget reconciliation legislation in 1993 and 1997. It should be noted that
these rules were not affected by legislation enacted in 1994 making the Social Security
Administration an independent agency.
The Financial Operations of the Social Security System
Have Not Been Altered by Taking it Off Budget
Taking the Social Security trust funds “off budget” has not changed how Social
Security funds are handled. They are treated the same way today as they were in
1937 when Social Security taxes were first levied — the tax receipts flow into the
U.S. Treasury and benefit payments flow out of the U.S. Treasury. The Treasury
Department issues federal securities to the Social Security trust funds to reflect the
receipt of these taxes, and redeems securities from the trust funds to reflect Social
Security expenditures, but the money itself flows to and from the Treasury.
While the trust funds have an important role in monitoring the finances of the
program and maintaining its fiscal discipline, they are basically accounting devices.
The federal securities they hold are not assets for the government. When an
individual buys a government bond, he or she has established a claim against the
government. When the government issues a bond to one of its own accounts, it
hasn’t purchased anything or established a claim against some other entity or person.
It is simply creating a form of IOU from one of its accounts to another. It certainly
establishes legal claims against the government for the Social Security system (i.e., it
is a legal form of government indebtedness and does count as part of the federal debt;
see Table 3 on the next page), but the system is part of the government. Those
claims are not resources the government has at its disposal to pay for future Social
Security claims. Simply put, the trust funds do not reflect an independent store of
money for the program or the government, and taking Social Security “off budget”
did not change this.

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Table 3. Projected Federal Debt, Including Debt Held by the
Social Security Trust Funds
(End of fiscal year, dollars in billions)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Debt held
by the
3409
3158
2854
2522
2165
1774
1315
800a
242a
-376a
-1054a
public
Debt held
by the
Social
1005
1171
1358
1560
1775
2007
2254
2517
2795
3087
3394
Security
trust funds
Debt held
by other
1202
1287
1384
1481
1573
1662
1762
1858
1954
2050
2145
gov’t.
accounts
Gross
Federal
5617
5616
5596
5563
5513
5444
5331
5456
5737
6024
6370
debt
Source: Congressional Budget Office baseline projections, July 2000. Baseline assumes aggregate
discretionary spending rises with inflation after FY2000. See note at the bottom of Figure 2.
a Figures reflect (or include) the net publicly-held debt of the government after subtracting excess
cash held in depository accounts from debt still outstanding at end of fiscal year. Assumes portion
of debt is not redeemable with the budget surplus of that year.

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CRS-10
Appendix
Social Security’s Budget Treatment Under the Social Security Amendments
of 1983. The Social Security Amendments of 1983 (P.L. 98-21) required that
beginning with the federal budget for FY1993, income and expenditures for Social
Security — Old-Age, Survivors, and Disability Insurance (OASDI) — and the
Hospital Insurance (HI) portion of the medicare program would be excluded from the
totals of the budget formulated by the President and Congress and would be “exempt
from any general budget limitation imposed by statute on expenditures ... .”6 The
Supplementary Medical Insurance (SMI) portion of medicare, although remaining a
component of the official budget figures, was to be more prominently displayed in the
budget as a separate functional category.
The provision also required that for FY1985-FY1992 the Social Security and
medicare programs be displayed more prominently in both the President’s and
congressional budgets as separate major functional categories of the budget.
Previously, Social Security was displayed in the category labeled income security,
which included civil service retirement and disability, railroad retirement,
unemployment insurance, food stamps, and other public assistance programs.
Medicare was displayed in the category for health activities, which included such
programs as medicaid, health block grants to the States, biomedical research, and
medical education and health training grants.
Social Security’s Budget Treatment Under the 1985 Gramm-Rudman-
Hollings Procedures. The Balanced Budget and Emergency Deficit Control Act of
1985 (Title II of P.L. 99-177) included several measures further altering Social
Security’s budget treatment. This was the original enabling legislation for the
Gramm-Rudman-Hollings (GRH) deficit-reduction provisions, the purpose of which
was to bring the federal budget into balance by FY1991. Among the changes it made
to the budget process, the act accelerated the “off-budget” treatment of Social
Security to FY1986 (from FY1993, as prescribed by the Social Security Amendments
of 1983).7 However, for the purpose of setting a schedule for eliminating the deficits,
it stipulated that the receipts and expenditures of the Social Security trust funds be
counted in calculating the budget deficits and enforcing the deficit goals established
under the Act. In effect, the 1985 law appeared to make contradictory statements
about how Social Security was to be viewed in the federal budget.
The only notable manifestation of the off-budget status of the program was that
the President’s budget and other tabulations of the budget began to show what the
figures would be with and without Social Security.
Congress altered the GRH procedures and extended the time period over which
the budget deficits would be eliminated to FY1993 (instead of FY1991) in passing
6 This provision became Section 710 of the Social Security Act.
7 The measure did not accelerate the “off-budget” treatment of HI (i.e., under the 1983 Social
Security Amendments, HI was not to be taken “off-budget” until FY1993).

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Title I of P.L. 100-119, cited as the Balanced Budget and Emergency Deficit Control
Reaffirmation Act of 1987. Except for the 2-year extension in arriving at a balanced
budget, the treatment of Social Security under the budget process was not altered.8
— Sequestration and Reconciliation To Enforce the Budget Targets: A key
element of the GRH procedures was a requirement that the President reduce (or
sequester) expenditures if projected budget deficits exceeded the targets set in the
law. The idea was that if economic or legislative developments did not lead to
meeting the targets, across-the board spending cuts would be triggered. Social
Security’s income and outgo were counted in determining the deficits; however,
Social Security benefits were exempt from any spending cuts that the President was
required to make. Social Security administrative expenses were not exempt.9
Congress could take action on its own to bring overall spending and receipts in
line with the targets (and avoid sequestration) by enacting budget reconciliation
legislation. As part of budget resolutions, specific outlays and/or revenue targets
were given to each Committee, and if it could not meet the targets under present law,
it was expected to recommend changes in its programs. The recommended changes
from the various committees would then be joined together and passed in one or more
budget reconciliation acts.10 Social Security benefits were again protected from
potential cutbacks through rules that made it out of order for either the House or
Senate to take up Social Security changes in a reconciliation bill, resolution, or
conference report thereon. If an objection were raised (a so-called Section 310(g)
objection), a separate vote, suspending the rules under which the respective bodies
operate, was required to consider a reconciliation measure containing proposed Social
Security changes. In the Senate, this required approval by three-fifths of its Members.
— Maintenance of Budget Discipline on New Legislation: Restrictions also
were enacted with the GRH procedures on bringing up legislative changes that would
violate budget resolution totals (including, with respect to the Senate, the GRH deficit
target) or the separate spending and revenue allocations made to each committee.
Social Security was affected by these restrictions in the same way as other programs;
points of order (so-called Sections 302 and 311 objections) could be raised against
8 The law also contained a provision that stated that no legislation enacted after December 12,
1985, could authorize payments from the General Fund of the Treasury to the Social Security
and HI trust funds and vice versa (with the exception of appropriation measures for which
authority existed on or before that date). This item did not create any practical changes in the
process. Basically, it was a statement of principal that no new provisions should be enacted
in the future that would authorize new forms of interfund “payments” between the
government’s General Fund and the Social Security and HI trust funds.
9 Interest earned on the holdings of the Social Security trust funds, and appropriated
“payments to the Social Security trust funds” for military wage credits and benefits paid to
certain uninsured recipients were exempted from sequestration along with regular benefits.
10 Special procedures also existed in the Senate under which a reconciliation bill could be
initiated to alter a sequestration order issued by the President.

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Social Security legislation that violated the resolution totals or committee allocations.
These, too, could be overridden only by a vote of three-fifths of the Senate.11
Social Security’s Budget Treatment Under The 1990 Budget Enforcement
Act. The Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508) made
substantial changes in the budget process (under Title XIII, entitled the Budget
Enforcement Act of 1990). Among them was a statement again prescribing the
removal of the income and outgo of the Social Security trust funds from calculations
of the federal budget, including the budget deficit or surplus. This exclusion applied
to the budgets prepared by the President, to the federal budgets formulated by the
Congress (e.g., budget resolutions), and to the budget process provisions designed
to reduce and control the budget deficits. Originally written to cover the period from
FY1991 to FY1995, these budget “enforcement” rules 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). The 1990 law also
included provisions creating new floor procedures for considering Social Security
legislation intended to protect the balances of the Social Security trust funds.
— Exclusion of Social Security Benefits From Spending Limits and Deficit-
reduction Targets: A key element of the budget process was the establishment of a
set of specific limits or “caps” on discretionary spending (encompassing most
programs requiring annual appropriations) and a “pay-as-you-go” requirement for
direct spending (mostly entitlement programs) and revenues. The discretionary
spending caps and the pay-as-you-go requirement, for the most part, took the place
of the overall deficit-reduction targets established under the former Gramm-Rudman-
Hollings procedures. Under the old procedures, the income and outgo of Social
Security were included in estimating the budget totals to determine if the deficit was
expected to fall within the targets set under the law. In contrast, under the procedures
established in 1990, Social Security’s income and outgo were to be excluded from
calculations of the new budget enforcement rules, with the exception of administrative
expenditures, which were incorporated under the discretionary spending caps.
As under the old law, if any of the discretionary spending caps or the “pay-as-
you-go” rule were violated (i.e., exceeded), the President was required to issue
sequestration orders to bring spending down to the prescribed limits. Social Security
was to be exempt from such sequestration orders as it was under the old law (again,
with the exception of administrative expenses).
The 1990 law also continued the old law provision (section 310 (g)) that permits
points of order to be raised against reconciliation bills or resolutions that contain
Social Security measures.
— Inclusion of Social Security Administrative Expenses Under the Spending
Limits and Deficit-Reduction Targets: Under the prior law Social Security
administrative expenses were subject to sequestration if the deficit targets were
exceeded. The 1990 law stated that Social Security “shall not” be counted as budget
11 A Section 311 objection existed under the original budget act for violations of the budget
resolution totals.

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CRS-13
authority or outlays for purposes of the Balanced Budget and Emergency Deficit
Control Act of 1985. The accompanying explanatory statement of the conferees
reiterated that Social Security benefits would be exempt from sequestration, but made
no mention of administrative expenses. However, Social Security was listed among
the programs subject to the limit on discretionary spending with a footnote stating
that portions of the Social Security accounts are “non-appropriated mandatory.” One
interpretation was that the only reason to list Social Security in the discretionary
domestic category was to subject its administrative expenses to the limit, since
benefits payments, interest, and payments to the trust funds were all explicitly
excluded. An alternative interpretation was that the provision in the new law stating
that Social Security was not to be counted for purposes of the Balanced Budget and
Emergency Deficit Control Act of 1985 (which the new law amended) was sufficient
language to exempt all aspects of Social Security from the limit. The lack of
specificity gave the Office of Management Budget latitude to make either
interpretation, and OMB decided it should be counted as discretionary spending.
— Procedures To Protect the Social Security Trust Funds: The 1990 law also
made changes in House and Senate procedures intended to protect the Social Security
trust funds from benefit liberalizations or revenue reductions that would erode their
balances. Under the old law, Social Security’s inclusion in the budget had the
potential effect of thwarting attempts to increase Social Security spending or cut its
revenue base. Points of order could be raised against such actions for violating the
budget resolution totals or spending and revenue allocations, if they would be
effective in the year of the budget resolution. Moreover, these violations would have
potentially threatened other programs with sequestration and posed difficulty for
Congress and the President in reaching subsequent budget targets. In effect, the
former process imposed a fiscal discipline on Social Security.
Since under the 1990 law, Social Security benefits were not to be part of the
budget, the fiscal constraints of the budget process technically no longer applied. In
their place, the 1990 law established separate rules for the House and Senate that
attempt to make it difficult to bring up measures for a vote in the respective chambers
that would weaken the financial condition of the program by reducing revenue or
increasing spending without offsetting changes.
— House firewall: In the House a point of order can be raised against a bill that
proposes more than $250 million in Social Security spending increases or revenue
reductions over the 5-year period consisting of the fiscal year in which the legislation
becomes effective and the following 4 years, unless the bill also contains other
offsetting spending reductions or tax increases that bring the net impact of the
measures within the $250 million limit. In calculating the impact, any costs from prior
legislation (i.e., enacted in the current or previous 4 years) that fall within the 5-year
period would be counted in calculating whether the pending legislation falls within the
$250 million limit. A point of order also can be raised against a measure that would
increase long-range (75 years) average costs or reduce long-range revenues by 0.02%
of taxable payroll or more. Hence, a bill whose financial impact fell within the 5-year
$250 million limit could still be subject to a point of order if its long-range costs were
equal to or greater than 0.02 % of taxable payroll.

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CRS-14
— Senate firewall: In the Senate, budget resolutions must set specific amounts
for Social Security income and outgo for the first fiscal year and 5-year period
(cumulatively) covered by the resolution. (They are separate in the sense that they are
not counted in the budget resolution totals themselves). These amounts cannot reflect
a narrowing in the surplus of income (or a larger deficit) from what is projected under
current law. Recommended resolutions or amendments that do so could draw an
objection that can be overridden only by approval of three-fifths of the Senate.12
Simply stated, Senate rules preclude consideration of budget resolutions that would
erode the near term balances of the Social Security trust funds. In addition, once a
conference agreement on the budget resolution is reached, allocations of the Social
Security amounts included in the resolution must be made to the Finance Committee
and budget act points of order (under Sections 302 and 311) can then be brought up
against subsequent Social Security measures that would cause outlays to be increased
or revenues to be reduced (without offsetting changes) from those reflected in the
allocations to the Committee. To override these objections requires approval by
three-fifths of the Senate.
— Report to Congress on the Actuarial Balance of the Trust Fund by the
Trustees: The 1990 law also added a provision requiring the Social Security board
of trustees to include in its annual report a statement as to whether the OASI and DI
trust funds are in “close actuarial balance.” Traditionally, close actuarial balance is
said to exist if projected average income over the trustees’ estimating period as a
whole (which extends 75 years into the future) falls within 95% and 105% of the
projected average cost of the program. Over the years, it has been considered a
primary indicator of the long-range soundness of the Social Security program.
Although trustees’ reports routinely have made a statement about the program’s
actuarial balance, the practice of doing so was not required by law. In their 1989
report, the trustees declined to make such a statement (the projections themselves
showed that the program was slightly outside the lower limit of actuarial balance with
average income projected to be 94.9% of average costs). Its absence drew an
objection from the chief actuary of the Social Security Administration in his
legislatively-required certification of the report. The 1990 law required a statement
by the trustees about close actuarial balance to be included in each trustees’ report
(but left discretion with the trustees to define the concept).
All reports issued since enactment of this provision have included a substantive
analysis of whether the system was projected to be in close actuarial balance and a
statement about it by the trustees.
12 In its original form this provision only precluded the Senate Budget Committee from
recommending a budget resolution that would reduce the current law balances of the trust
funds. It was not out of order to subsequently consider floor amendments to modify a pending
budget resolution to reflect measures that would reduce the trust funds’ balances. Such
amendments could be passed by a simple majority. In enacting the FY1992 budget resolution,
the Senate adopted a rule making it out of order to consider measures (including amendments
to a budget resolution) that would erode the balances of the trust funds during the period
covered by the resolution (and requiring approval of three-fifths of the Senate to suspend the
rules to do so). In enacting the FY1993 budget resolution, the Senate made this a permanent
rule.

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— Display of Retirement Trust Fund Balances: The 1990 law further required
that budget resolutions display the balances of federal retirement trust fund programs,
presumably including Social Security. This display was to show the amount of the
securities expected to be recorded to the trust funds.
Chronology
1990 —- Congress enacted P.L. 101-508, which included among its titles,
the Budget Enforcement Act of 1990. This law established new
budgeting rules to enforce a 5-year $500 billion deficit-reduction
package. It included provisions (1) largely exempting Social
Security from these rules, (2) officially taking Social Security out
of all calculations of the budget totals, and (3) creating new floor
procedures for considering Social Security legislation intended
to protect the balances of the Social Security trust funds.
Originally written to cover the period from FY1991 to FY1995,
the new budget rules 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).
1987 —- Congress enacted P.L. 100-119, which included among its titles,
the Balanced Budget and Emergency Deficit Control
Reaffirmation Act of 1987. This law made changes to the GRH
procedures including extending the point at which a balanced
budget would be reached to FY1993. The financial operations
of the Social Security trust funds remained part of the budget
calculations for purposes of estimating the overall deficits.
1985 —- Congress enacted P.L. 99-177, which included among its titles,
the Balanced Budget and Emergency Deficit Control Act of
1985, better know as the Gramm-Rudman-Hollings (GRH)
deficit reduction law. Although technically removing Social
Security from the budget totals effective for FY1986, this law
included Social Security in the budget totals through FY1991 for
purposes of estimating the overall deficits.
1983 —- Congress enacted P.L. 98-21, the Social Security Amendments
of 1983, which included a provision calling for removal of the
Social Security and Medicare HI trust funds from the budget
totals beginning in FY1993.
1974 —- Congress enacted P.L. 93-344, the Congressional Budget and
Impoundment Control Act of 1974, establishing new procedures
to formulate and control the budget that encompasses a “unified”
approach to the budget that includes Social Security and other
trust fund programs in the budget totals.

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1968 —- President Johnson issued a “unified” federal budget for FY1969.
This was done administratively (i.e., not as a result of
legislation).

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