WASHINGTON – A battle over how to divide up a smaller budget pie will begin when Congress returns next week from its August recess knowing that President Bush's tax cut and the struggling economy have combined to snap the lock on the Social Security lockbox.
New projections from the nonpartisan Congressional Budget Office, which show that $9 billion of Social Security reserves will be tapped this year because of the shrinking surplus, raise grave doubts about additional spending or tax relief in the fiscal year that begins Oct. 1.
"It is going to be a very difficult fall period for the Congress and the administration," Senate Budget Committee Chairman Kent Conrad, D-N.D., told reporters Tuesday.
The fight on Capitol Hill will center on items not already planned for in the fiscal 2002 budget, among them Bush's $18.4 billion defense spending increase request and up to $17 billion extra to overhaul education.
Other priorities include a $2 billion extension of popular expiring tax breaks and a package of energy tax incentives to costing $1.7 billion in 2002. It's possible as well that Congress could revisit its earlier decision to budget about $7 billion next year for a new farm subsidy bill, according to budget committee aides.
The overriding goal, particularly for Republicans, will be to avoid breaching Social Security again in 2002 to pay for other government operations. Bush and GOP congressional leaders had cherished their Social Security lockbox until CBO projected this week that it would be broken open by $9 billion in 2001, leaving a still-large surplus of $153 billion.
Now White House budget director Mitch Daniels is calling the lockbox "symbolic." And House Budget Committee Chairman Jim Nussle, R-Iowa, pointed out that it never became law despite repeated and overwhelming approval by the House.
"You know, it's not a Holy Grail to be right at zero," Nussle said.
CBO projects a scant $2 billion non-Social Security surplus next year, but that assumes little growth in spending. Social Security itself remains on solid financial ground under the new projections, running surpluses in each of the next 10 years for a total of $2.5 trillion.
Nussle said Republicans knew all along that spending would be tight in 2002 because of Bush's 10-year, $1.35 trillion tax cut. GOP leaders, he said, preferred returning the surplus to taxpayers to another round of increased government spending.
"Getting that money out of town was the best thing we've done," Nussle said. "The only question left on the table is ... are we going to be able to restrain spending?"
Some Republican aides found a ray of hope in the new CBO numbers. Because of previous actions by Congress, CBO raised by $9 billion the amount available for spending or tax cuts in fiscal 2002 compared with its estimate in May. That could give lawmakers enough room to give Bush a chunk of his defense request, pay for the tax extenders and begin funding the education measure.
"What it says is, `There's a deal to be struck here,"' said Bill Hoagland, Republican staff director at the Senate Budget Committee.
Even if Congress squeaks by in 2002, Democrats predict the government will dip into Social Security repeatedly in the future. CBO projects an invasion of $18 billion in 2003 and $3 billion in 2004, followed by growing non-Social Security surpluses.
Conrad estimated the Social Security tab at $500 billion over 11 years if lawmakers pass Bush's defense proposal, give older Americans a Medicare prescription drug benefit, fix a problem in the alternative minimum tax and have to deal with just an average number of natural disasters.
That means the government won't be able to pay down debt as quickly and will incur higher interest costs, Democrats say. That could have a long-term effect on the costs of private capital and interest rates.
"It is not, as the White House has decided, a temporary blip," Conrad said.
One thing about CBO projections that has been constant has been change. Just as the massive surpluses forecast a few months ago were not foreseen, nobody predicted such a quick economic downturn — and it's possible that robust growth estimates projected by the White House could improve the budget picture.
"The books aren't closed. This is a weather report," Nussle said. "You've got to wait for the weather to happen."