Social Security's Treatment Under the Fed4eral Budget: A Summary
CRS Report for Congress
Received through the CRS Web
Social Security’s Treatment Under the
Federal Budget: A Summary
Updated by Dawn Nuschler1
Domestic Social Policy Division
Social Security’s treatment in the federal budget is often confusing. Legislation
enacted in 1983, 1985 and 1990 excluded the program from official budget calculations
and largely exempted it from procedures for controlling budget revenues and outlays.
However, because Social Security represents more than a fifth of the government’s
revenues and outlays, it is often included in summaries of the government’s financial
flows, or what is referred to as the “unified” budget. It is also confusing because people
mistakenly perceive that the program’s removal from the budget changed how its funds
are handled. It did not. As has been the practice since Social Security’s inception, its
taxes are deposited in the federal Treasury (with appropriate crediting of federal
securities to its trust funds), and its expenditures are paid from the Treasury.
With the emergence of unified budget surpluses over the past few years, there was
a growing sentiment for reserving a portion of them equal to Social Security and
Medicare Hospital Insurance trust fund surpluses. Budget resolutions enacted for
FY2000, FY2001, and FY2002 incorporated totals setting such sums aside, with the
intent being that these amounts would be used for debt reduction pending reform of
Social Security or Medicare. Congress also considered proposals to create procedural
obstacles for bills that would use the set asides for other tax cuts or spending increases.
Among them were measures to create new points of order against bills that would do so,
to require new limits on publicly-held federal debt that would decline by the amount of
annual Social Security surpluses, and to amend the Constitution to require a balanced
federal budget without counting Social Security. Although taken up in the 106th
Congress, none of these so-called “lock box” measures were ultimately passed. The
107th Congress began considering similar legislation with House passage of H.R. 2 on
February 13, 2001. Attempts to consider related measures in the Senate failed on March
13 and July 10, 2001. Since the September 2001 terrorist attacks, the budget debate has
focused on increased spending for the war on terrorism and economic stimulus efforts.
This report will be updated periodically.
1 This report was written by former CRS staffer David Koitz.
Congressional Research Service ˜ The Library of Congress
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 benefit cutbacks in 1980, 1981, and
1983. However, because the federal budget deficit remained large, interest in curbing
Social Security spending continued. This in turn ignited 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 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 budget deficits. In response, Congress in 1990 excluded
it from official calculations of the budget 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 adopted 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 (1) explicit dollar limits on discretionary
spending (mostly for programs requiring annual appropriations) and (2) 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 budget deficit
or reduce the surplus. Originally written to cover the FY1991-FY1995 period, these
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)). 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 (“reconciliation” bills) that contain Social Security measures.
“Lock Boxes” to Set Aside Social Security Surpluses
While Social Security is by law considered “off budget” for many key aspects of
developing and enforcing 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 former President Clinton’s urging that future budget surpluses be reserved
until Social Security’s problems were resolved, and his various proposals to use a portion
of the projected surpluses (or the interest thereon) to shore up the system, Social
Security’s treatment in the budget became a major policy issue in the past two Congresses.
In his State of the Union message in 1998 he had urged setting the entire amount of future
budget surpluses aside for debt reduction. Later in the 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 to which 90% of the next 11 years’ surpluses would have been credited. The
underlying principle was that 10% of the surpluses be used for tax cuts and the remainder
used for debt reduction until Social Security reform was enacted. Both bills, however,
were opposed by Democratic Members, who argued for setting all of the budget surplusesth
aside. The Senate did not take up either measure before the 105 Congress adjourned.
The idea re-emerged, however, in the 106th Congress with substantial support shown
by both parties for setting aside a portion of the budget surpluses equal to the Social
Security and, in some instances, Medicare Hospital Insurance (HI) trust fund surpluses.
Budget resolutions for both FY2000 and FY2001 incorporated totals setting aside an
amount equal to the Social Security surpluses for those years, as well as reserving funds
for Medicare reform. By setting them aside, the resolutions in effect dedicated theseth
amounts to debt reduction. The 106 Congress went on to consider other so-called “lock
box” measures, intended to create additional procedural obstacles for bills that would
cause the budget surpluses to fall below a level equal to the Social Security (and, in some
cases, Medicare) surpluses if not used for Social Security or Medicare reform. Among
them were measures to create new points of order that could be lodged against bills that
would cause budget surpluses to be less than Social Security and Medicare HI surpluses,
to require new limits on federal debt that would decline by the amount of annual Social
Security surpluses, and to amend the Constitution to require a balanced federal budget
without counting Social Security. While the House approved three specific “lock box”
bills consisting primarily of procedural points of order (H.R. 3859, H.R. 5173, and H.R.
The 107th Congress passed a similarly structured budget resolution for FY 2002, and
has again considered various “lock box” measures. The House passed H.R. 2 on February
13, 2001, a bill that again attempts to create points of order against measures that would
cause the budget surpluses to be less than Social Security and Medicare HI surpluses. In
the Senate, similar Democratic and Republican provisions were offered as amendments to
S. 420, Bankruptcy Reform Act of 2001. One offered by Senator Conrad would have
taken Medicare HI off-budget and enhanced procedural points of order for Social Security.
Another offered by Senator Sessions contained provisions similar to H.R. 2. Neither
amendment was adopted having been set aside due to procedural points of order raised
against them during Senate debate on March 13, 2001. Subsequent attempts in the Senate
on July 10, 2001 also failed (see CRS Report RS20165). Since the terrorist attacks on
September 11, 2001, the focus of the budget debate in Congress has shifted from “lock
box” measures to other priorities, particularly on spending for the war on terrorism and
economic stimulus. Also, the budget outlook has changed dramatically over the past year
with a sharp decline in projected budget surpluses. In August 2001, CBO projected a
cumulative budget surplus of $3.4 trillion over the 2002-2011 period (down from $5.6
trillion projected in May 2001). CBO’s latest projections, revised on March 18, 2002 to
reflect enactment of the economic stimulus package (P.L. 107-147), show a cumulative
surplus of $1.6 trillion over the same period, with unified budget deficits projected for
fiscal years 2002 and 2003 (see table on page 6).
Social Security and the Balanced Budget Amendment
Action in the 104th Congress. The 104th Congress twice considered a
constitutional amendment that would require 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 the budget totals. Members
concerned that including Social Security would lead to future cuts in its 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 its benefits to achieve
reductions in outlays that would make the deficit smaller. They stressed that the system
is running surpluses with its own dedicated tax receipts and is therefore not contributing
to the deficit, and argued 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.
Those who wanted to keep Social Security in the calculations argued that their
purpose was not to cut Social Security but to recognize that the program represented 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 more difficult. They averred that the real goal of
those who wanted Social Security excluded was to defeat the amendment by making
senior citizens fear that their benefits were in jeopardy and by making the deficit targets
unrealistically large. They argued 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. It called for including Social Security in the budget
totals. Before the final vote, the House rejected four attempts to remove the program
from the calculations. However, the House did pass a non-binding 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 non-binding 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,
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 1995 defeat, the majority leader, Senator Dole, said he would bring up the
amendment later in the 104th Congress. He did so again on June 6, 1996, and the measure
failed a second time, on a 64-35 vote, to get the requisite two-thirds Senate approval.
Action in the 105th Congress. The amendment was brought up again in the 105th
Congress with the Senate taking the lead. The Senate Judiciary Committee reported it as
S.J. Res 1 in a form similar to the amendment the Senate considered in the 104th Congress
that included Social Security in 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 59-39. It was similar to
one he offered in the 104th Congress that would have required 3/5 approval by both
Houses 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
Under budget rules that existed before 1991, Social Security was included in
calculations of budget deficits. Since there were limits on the size of permissible budget
deficits imposed by the Gramm-Rudman-Hollings deficit reduction rules enacted in 1985,
attempts to expand Social Security’s benefits or cut its taxes were discouraged if not
accompanied by measures to offset the cost or revenue loss. Floor objections could be
raised against such actions if the budget totals or allocations were violated, 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 (except administrative expenses) as a result the budget rules that took effect
in 1991, these implicit constraints no longer apply. In their place, however, are rules
intended to make it difficult to bring up measures 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 the system’s long-range average
costs (i.e., over 75 years) or its 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 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.
Projected Budget Surpluses and Federal Debt
Federal Budget Surpluses With and Without Social Securitya (by fiscal year, $ in billions)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003-12
March 6, 2002 Baseline
With Social Security56611111351752132633094546532,380
Without Social Security-152-170-133-100-90-65-43-821150335-102
Revised Baseline of March 18, 2002b
With Social Security-46-40261001441852232713134566532,332
Federal Debt (end of fiscal year, $ in billions)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
March 6, 2002 Baseline
Debt held by the public3,3553,3613,3143,2193,0992,9382,7392,4892,1931,7501,107
Debt held by the Social
Security trust funds1,3301,5071,7011,9112,1372,3782,6342,9053,1923,4963,813
Debt held by other govt.
accounts 1,337 1,424 1,545 1,681 1,825 1,974 2,126 2,285 2,451 2,625 2,808
a Also includes the Postal Service, although its impact is very small.
b The revised total budget deficit/surplus projections of March 18, 2002, reflect enactment of the economic
stimulus package (Job Creation and Worker Assistance Act of 2002, P.L. 107-147, signed March 9, 2002).
Source: CBO, An Analysis of the President’s Budgetary Proposals for Fiscal Year 2003, March 2002.