GAO

United States General Accounting Office

Testimony

Before the Committee on Finance, U.S. Senate

For Release on Delivery

Expected at

10 a.m.

Tuesday,

February 9, 1999

SOCIAL SECURITY

What the President’s 

Proposal Does and Does 

Not Do

Statement of David M. Walker

Comptroller General of the United States

GAO/T-AIMD/HEHS-99-76

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Mr. Chairman and Members of the Committee: 

It is a pleasure to be here today to discuss the President’s recent proposal 

for addressing Social Security and use of the budget surplus. These 

proposals address some of the most important issues facing the nation, 

both now and over the longer term. The proposals have stimulated much 

controversy and dialogue in the past few weeks. 

The President’s proposal is complex, which makes it all the more important 

for us to focus our attention on what it does—and what it does not do—for 

our long-term future. In summary, the President’s proposal:

• It reduces debt held by the public from current levels, thereby also 

reducing net interest costs, raising national saving, and contributing to 

future economic growth.

• It fundamentally changes Social Security financing in two ways:

• It promises general funds in the future by, in effect, trading publicly 

held debt for debt held by the Social Security Trust Fund (SSTF).

• It invests some of the trust fund in equities with the goal of capturing 

higher returns over the long term.

• It does not have any effect on the projected cash flow imbalance in the 

Social Security program’s taxes and benefits.

• It does not represent a Social Security reform plan.

Context: Long-Term 

Outlook Is Important

It is important to look at the President’s proposal in the context of the fiscal 

situation in which we find ourselves. After nearly 30 years of unified 

budget deficits, we look ahead to projections for “surpluses as far as the 

eye can see.” At the same time, we know that we face a demographic 

tsunami in the future that poses significant challenges for the Social 

Security system and our economy as a whole. In this context, we should 

recognize that the President uses a longer-term framework for resource 

allocation than has been customary in federal budgeting. 

Although all projections are uncertain—and they get more uncertain the 

farther out they go—we have long held that a long-term perspective is 

important in formulating fiscal policy for the nation. Each generation is in 

part the custodian for the economy it hands the next and the nation’s longterm economic future depends in large part on today’s budget decisions. 

This perspective is particularly important because our model and that of 

the Congressional Budget Office (CBO) continue to show that absent a 

change in policy, the changing demographics to which I referred above will 
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lead to renewed deficits. This longer-term problem provides the critical 

backdrop for making decisions about today’s surpluses. 

Surpluses are the result of a good economy and difficult policy decisions. 

They also provide a unique opportunity to put our nation on a more 

sustainable path for the long term, both for fiscal policy and the Social 

Security program itself. Current decisions can help in several important 

respects: (1) current fiscal policy decisions can help expand the future 

capacity of our economy by increasing national savings and investment,

(2) engaging in substantive reforms of retirement and health programs can 

reduce future claims, (3) by acting now, we have the opportunity of 

phasing in changes to Social Security and health programs over a sufficient 

period of time to enable our citizens to adjust, and (4) failure to achieve 

needed reforms in the Social Security and Medicare programs will drive 

future spending to unsustainable levels. 

The Proposal Let me first briefly describe the President’s proposal. The President 

proposes to use approximately two-thirds of the total projected unified 

budget surpluses over the next 15 years to reduce debt held by the public 

and to address Social Security’s financing problem. His approach to this, 

however, is extremely complex and confusing. The President proposes to 

“transfer” an amount equal to a portion of the projected surplus to the 

Social Security and Medicare trust funds.1 This transfer is projected to 

extend the solvency of Social Security from 2032 to 2049. His proposal to 

permit the trust fund to invest in equities is expected to further extend trust 

fund solvency to 2055.

To understand and evaluate this proposal it is important to understand the 

nature of the federal budget, how trust funds fit into that budget, and the 

challenges of “saving” within the federal budget. 

Can We Save for the Future 

in the Federal Budget?

The federal budget is a vehicle for making choices about the allocation of 

scarce resources. It is different from state budgets in ways important to 

this discussion. Most states use “fund budgeting” in which pension funds 

build up surpluses that are routinely invested in assets outside the 

government. In contrast, the federal government’s unified budget shows all 

1

In this testimony, I will address only the Social Security portion of this transfer. The issues are similar 

but not identical for the Medicare trust fund transfer.
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governmental transactions and all funds are available for current activities. 

We cannot park our surplus in a cookie jar. The only way to save in the 

federal budget is to run a surplus or purchase a financial asset. When there 

is a cash surplus it is used to reduce debt held by the public. Therefore, to 

the extent that there is an actual cash surplus, debt held by the public falls.

This presents a problem for any attempt to “advance fund” all or part of 

future Social Security benefits. Advance funding within the current 

program would mean increasing the flows to the SSTF. Although it is 

officially “off budget,” the fact remains that the SSTF is a governmental fund. 

In the federal budget, trust funds are not like private trust funds. They are 

simply budget accounts used to record receipts and expenditures 

earmarked for specific purposes. A private trust fund can set aside money 

for the future by increasing its assets. However, under current law, when 

the SSTF receipts increase, they are invested in Treasury securities and used 

to meet current cash needs of the government. The increase in assets to 

the SSTF is an equal increase in claims on the Treasury. One government 

fund is lending to another. These net out on the government’s books. Any 

increase in the trust fund balances would only become an increase in 

saving if this increment were to add to the unified budget surplus (or 

decrease the unified budget deficit) and thereby reduce the debt held by 

the public. 

How do these transactions affect the government’s debt? Gross federal 

debt is the sum of debt held by the public and debt held by governmental 

accounts—largely trust funds. This means that increases in the trust fund 

surplus will increase gross debt unless debt held by the public declines by 

at least the same amount. Any reform of Social Security that increases the 

annual SSTF surplus would increase debt held by government accounts 

since, under current law, any excess of revenues over benefit payments is 

loaned to Treasury for current needs. As a result, total government debt 

would go up unless these surpluses were used to reduce debt held by the 

public by an equivalent amount. 

Debt held by the public and debt held by trust funds represent very 

different concepts. Debt held by the public approximates the federal 

government’s competition with other sectors in the credit markets. This 

affects interest rates and private capital accumulation. Further, interest on 

debt held by the public is a current burden on taxpayers. In contrast, debt 

held by trust funds performs an accounting function and represents the 

cumulative annual surpluses of these funds (i.e., excess of receipts over 

disbursements plus accrued interest). It provides the account with a claim 
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on the U.S. Treasury for the future, but it does not represent an estimate of 

the size of the account’s future transactions with the public. In particular, 

debt held by the SSTF does not represent the actuarial present value of 

expected future benefits for either current or future participants. Nor does 

it have any of the economic effects of borrowing from the public. It is not a 

current transaction of the government with the public; it does not compete 

with the private sector for available funds in the credit market. 

How Does the President’s 

Proposal Work?

This information is important to an understanding of the President’s 

proposal because in large part he proposes to, in effect, trade debt held by 

the public for debt held by the SSTF. By running a cash surplus over the 

next 15 years, debt held by the public falls. To “save” this surplus, the 

President proposes to “transfer” it to the trust fund in the form of increased 

Treasury securities. Under his proposal, debt held by the public falls, but 

debt held by the trust funds increases. Because he shows the transfer as a 

subtraction from the surplus—a new budgetary concept—he shows no 

surplus. As a result, he attempts to save it by hiding it.

The mechanics of the proposed transfer of surpluses to the SSTF are 

complex and difficult to follow. Few details have been made available, and 

there is conflicting information on exactly how it would work. Figures 1 

and 2 are flow charts representing our best understanding of the Social 

Security portion of this transfer. Since it is impossible to understand the 

changes proposed by the President without understanding the present 

system, figure 1 shows the flows under the current system. Under current 

law, annual cash flow surpluses (largely attributable to excess payroll taxes 

over benefits payments and program expenses) are invested in Treasury 

securities.2

 This excess “cash” is commingled with other revenues and 

used to finance other governmental activities. In this way, SSTF surpluses 

have helped and continue to help finance the rest of the government. This 

year, the SSTF surplus is expected to exceed the general fund deficit so 

there is also a surplus in the unified budget. Over the entire 15-year period, 

more than half of the projected unified surplus is composed of Social 

Security surpluses. Absent any change in policy, these unified surpluses 

will be used to reduce the debt held by the public. 

2

This presentation is somewhat simplified. In reality, FICA taxes are collected with income and 

corporate taxes by the Treasury and then allocated by the Treasury to Social Security, Medicare, or the 

general fund. 
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Figure 1: Current Social Security Flows

*Merged surplus = FICA surplus + General Fund surplus

Under the President’s proposal, this would continue. However, as shown in 

figure 2, at the point where total tax receipts are allocated to pay for 

government activities, a new financing step would be added to “transfer” a 

portion of the unified budget surpluses to the Social Security and Medicare 

trust funds. The unified budget would do this by providing a new set of 

securities for these trust funds. However, the excess cash would still be 

used to reduce the debt held by the public. 
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Figure 2: Social Security Flows Under President’s Proposal

In essence, this swaps debt held by the public for debt held by the trust 

funds. While there are many benefits to reducing publicly held debt, it is 

important to recognize that under the current law baseline—i.e., with no 

changes in tax or spending policy—this would happen without crediting 

additional securities to the trust funds. 

The administration has defended this approach as a way of assuring both a 

reduction in debt held by the public and giving Social Security first claim 

on what they call the “debt-reduction dividend” to pay future benefits.

However, issuing these additional securities to the SSTF is a discretionary 

act with major legal and economic consequences for the future. Some 

could view this as double counting. Importantly, to the extent it appears 

that way to the public, it could undermine confidence in a system that is 

already difficult to explain. However, the debate over double counting 

focuses on the form of the proposal rather than its substance. Although 

form is important when it interferes with our ability to understand the 
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substance—and I think this proposal falls into that trap—the important 

debate must be on the substance of the proposal.

This proposal represents a fundamental shift in the way the Social Security 

program is financed. It moves it away from payroll financing toward a 

formal commitment of future general fund resources for the program. This 

is unprecedented. Later in my statement, I will discuss the implications of 

this proposal for overall fiscal policy and for the Social Security program. 

Government Financing 

and Debt

The President’s proposals would have the effect of reducing debt held by 

the public from the current level of 44 percent of Gross Domestic Product 

to 7 percent over the 15-year period. Nearly two-thirds of the projected 

unified budget surplus would be used to reduce debt held by the public. 

Because the surplus is also to be used for other governmental activities, the 

amount of debt reduction achieved would be less than the baseline, but 

nonetheless the outcome would confer significant benefits to the budget 

and the economy. 

Our previous work on the long-term effects of federal fiscal policy has 

shown the substantial benefits of debt reduction.3 Reducing publicly held 

debt reduces payments on net interest within the budget. For example, CBO

estimates that the difference between spending the surplus and saving the 

surplus is $123 billion in annual interest payments by 2009. Lower interest 

payments lead to larger surpluses, which in turn reduce debt: the miracle of 

compound interest produces a virtuous circle. The result—future 

decisionmakers gain significant budgetary flexibility to address other 

needs in the future.

For the economy, lowering debt levels increases national saving and frees 

up resources for private investment. This in turn leads to increased 

productivity and stronger economic growth over the long term. Over the 

last several years, we and CBO have both simulated the long-term economic 

results from various fiscal policy paths. These projections consistently 

show that reducing debt held by the public increases national income over 

the next 50 years, thereby making it easier for the nation to meet future 

needs and commitments. As Treasury Secretary Rubin has noted, reduced 

3

Budget Issues: Analysis of Long-Term Fiscal Outlook (GAO/AIMD/OCE-98-19, October 22, 1997).
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debt now helps the federal government increase its capacity to handle 

borrowing in the future.

The President’s proposal, in effect, trades debt held by the public for debt 

held by government accounts, but he also spends part of the surplus. Debt 

held by trust funds goes up more rapidly than debt held by the public falls, 

largely due to the additional securities transferred to the trust funds. Gross 

debt, therefore, increases. It is gross debt—with minor exceptions—that is 

the measure that is subject to the debt limit. The current limit is

$5.95 trillion. Under the President’s plan, the limit would need to be raised 

sometime during 2001. Under either the CBO or the Office of Management 

and Budget baseline (i.e., save the entire surplus), the limit would not need 

to be raised during at least the next 5 years. This is shown in figure 3 

below.

Figure 3: Debt Subject to Limit Under Baseline and President’s Proposal

Source: Budget of the United States Government, Fiscal Year 2000. 
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While reducing debt held by the public appears to be a centerpiece of the 

proposal—and has significant benefits—as I noted above, the transfer of 

unified surpluses to Social Security is a separate issue. The transfer is not 

technically necessary: whenever revenue exceeds outlays and the cash 

needs of the Treasury—whenever there is an actual surplus—debt held by 

the public falls. The President’s proposal appears to be premised on the 

belief that the only the way to sustain surpluses is to tie them to Social 

Security. He has merged two separate questions: (1) how much of the 

surplus should be devoted to reducing debt held by the public and (2) how 

should the nation finance the Social Security program in the future. 

Let me turn now to the question of Social Security financing.

Social Security 

Financing

The President proposes two changes in the financing of Social Security: a 

pledge of general funds in the future and a modest amount of investment in 

equities. Both of these represent major shifts in approach to financing the 

program.

General Fund Financing By, in effect, trading debt held by the public for debt held by the trust funds, 

the President is committing future general revenues to the Social Security 

program. This is true because the newly transferred securities would be in 

addition to any buildup of payroll tax surpluses. Securities held by the SSTF

have always represented annual cash flows in excess of benefits and 

expenses, plus interest.4

 Under the President’s proposal, this would no 

longer continue to be true. The value of the securities held by the SSTF

would be greater than the amount by which annual revenues exceed annual 

benefits and expenditures. 

This means that for the first time there is an explicit and legal claim on the 

general fund. This is a major change in the underlying theoretical design of 

this program. Whether you believe it is a major change in reality depends 

on what you assume about the likely future use of general revenues under 

the current circumstances. For example, current projections are that in 

4

Cash flow into the SSTF is composed of payroll taxes and a portion of the income taxes paid on Social 

Security benefits. Income taxes make up a relatively small component of the surplus. Interest paid to 

Social Security is analogous to interest paid on publicly held debt. Both come from the general fund. 

Interest on publicly held debt is paid in cash while interest to the trust fund is credited in the form of 

additional treasury securities.
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2032 the fund will lack sufficient resources to pay the full promised 

benefits. If you believe that this shortfall would—when the time came—be 

made up with general fund moneys, then the shift embedded in the 

President’s proposal merely makes that explicit. If, however, you believe 

that there would be changes in the benefit or tax structure of the fund 

instead, then the President’s proposal represents a very big change. In 

either case, the question of bringing significant general revenues into the 

financing of Social Security is a question that deserves full and open 

debate. The debate should not be overshadowed by the accounting 

complexity and budgetary confusion of the proposal.

One disconcerting aspect of the President’s proposal is that it appears that 

the transfers to the trust fund would be made regardless of whether the 

expected budget surpluses are actually realized. The amounts to be 

transferred to Social Security apparently would be written into law as 

either a fixed dollar amount or as a percent of taxable payroll rather than as 

a percent of the actual unified surplus in any given year. These transfers 

would have a claim on the general fund even if the actual surplus fell below 

the amount specified for transfer to Social Security—and that does present 

a risk.5

It should be noted that any proposal to allocate surpluses—particularly 

over a long period of time—is vulnerable to the risk that those projected 

surpluses may not materialize. The history of budget forecasts should 

remind us not to be complacent about the certainty of these large projected 

surpluses. Accordingly, we should consider carefully any permanent 

commitments that are dependent on the realization of a long-term forecast.

Investment in Equities Under current law, the SSTF is required to invest in securities that are issued 

or backed by the Treasury. The President proposes changing current law to 

allow the SSTF to invest a portion of its assets in equities. His proposal calls 

for the fund to gradually invest 15 percent of its total assets in the equity 

market. According to the administration’s estimates, the SSTF’s equity 

holdings would represent only a small portion—about 4 percent—of the 

total equity market. To insulate investment decisions from political 

considerations, the administration proposes investing passively in a broad5

It is worth noting that something like this happens now. Treasury does not track how much of the 

revenues it collects are for Social Security and how much for income taxes. It credits the SSTF with 

funds equal to the appropriate tax rate applied to the taxable wage base—whether or not those FICA 

taxes were actually paid.
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based stock index and creating an independent board to oversee the 

portfolio. 

Last year, we reported on the implications of allowing the SSTF to invest in 

equities.6 In that report, we concluded that stock investing offers the 

prospect of higher returns in exchange for greater risk. We found that, by 

itself, stock investing was unlikely to solve Social Security’s long-term 

financing imbalance but that it could reduce the size of other reforms 

needed to restore the program’s solvency. We also concluded that investing 

in a broad-based index would help reduce, but not eliminate, the possibility 

of political influence over stock selections. However, the issue of how to 

handle stock voting rights could prove more difficult to resolve. If the 

government voted its shares, it would raise concerns about potential 

federal involvement in corporate affairs. If the government chose not to 

vote, it would affect corporate decision-making by enhancing the voting 

power of other shareholders or investment managers. The model 

applicable to passive private sector investment managers under the 

Employee Retirement Income Security Act may be relevant to the 

resolution of this issue. 

Stock investing would have approximately the same impact on national 

saving as using the same amount of money to reduce debt held by the 

public. Both approaches would add about the same amount of funds to 

private capital markets, meaning that national saving would essentially be 

unchanged. From a budget accounting standpoint, they are not the same. 

Under current scoring rules the purchase of equities would be counted as 

an outlay, but the proposal apparently would change that. Equity 

purchases would not be scored as an outlay since they would be made out 

of the amount transferred to Social Security, which is already scored as 

reducing the surplus.

Have Other Countries 

Tackled These 

Problems?

I should note that although the dilemma we are facing of whether and how 

to save for the future is a very difficult one, it is not unique. A look at other 

democracies shows that surpluses are difficult to sustain. However, 

several nations have succeeded in sustaining surpluses. In those nations, 

political leaders were able to articulate a compelling rationale to justify the 

need to set aside current resources for future needs. 

6

Social Security Financing: Implications of Government Stock Investing for the Trust Fund, the Federal 

Budget, and the Economy (GAO/AIMD/HEHS-98-74, April 22, 1998).
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For example, those countries that have come to the conclusion that the 

debt burden matters make it an explicit part of their fiscal decision making 

process. Australia, New Zealand, and the United Kingdom all attempt to 

define prudent debt levels as a national goal to strive for. These debt goals 

can prove important in times of surplus. New Zealand, for example, used 

its debt goals as justification for maintaining spending restraint and 

attempting to run sustained surpluses. They promised that once they met 

their initial debt target they would give a tax cut. Importantly, when they 

hit that specified debt target, they delivered on their promise of tax cuts. 

Other countries have saved for the future by separating their pension or 

Social Security-related assets from the rest of the government’s budget. 

For example, the Canadian Pension Plan is completely separate from both 

federal and provincial budgets. When the fund earns surplus cash, it is 

invested in provincial debt securities and, starting this year, in the stock 

market. Sweden also maintains a pension fund outside the government’s 

budget and invests assets in stocks and bonds.

Norway may be the most dramatic example of setting aside current 

surpluses to address long-term fiscal and economic concerns. Norway 

faces the two-edged problem of a rapidly aging population and declining oil 

revenues—a significant source of current government revenue. To address 

these long-term concerns, Norway started setting aside year-end budget 

surpluses in 1996 to be invested in foreign stocks and bonds. Their express 

intention is to draw down these assets to pay for the retirement costs for 

their baby boomers.

It should be noted that other nations that have attempted to directly 

address their debt and pension problems have usually done so during or 

shortly after a fiscal or economic crisis. Fortunately, we do not have that 

problem. Instead, we have a unique opportunity to use our current good 

fortune to meet the challenges of the future.

Social Security Reform 

Is Still Needed

Finally, it is important to note that the President's proposal does not alter 

the projected cash flow imbalances in the Social Security program. Benefit 

costs and revenues currently associated with the program will not be 

affected by even 1 cent. Figure 4, which shows Social Security's payroll tax 

receipts and benefit payments, illustrates this point. Without the 

President's proposal, payroll tax receipts will fall short of benefit payments 

in 2013; with the President's proposal, payroll tax receipts also fall short of 

benefit payments in 2013—the graph doesn't change at all. Under the 
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President’s proposal, expected stock market returns would be used to fill 

part of this gap, but from 2013 on the trust funds will be reliant on cash 

from redeemed securities, whether or not the President's proposal is 

adopted. The changes to the Social Security program will thus be more 

perceived than real: although the trust funds will appear to have more 

resources as a result of the proposal, in reality, nothing about the program 

has changed. The proposal does not represent Social Security reform, but 

rather it represents a different means to finance the current program. One 

of the risks of the proposal is that the additional years of financing may 

very well diminish the urgency to achieve meaningful changes in the 

program. This would not be in the overall best interests of the nation. 

Figure 4: SSTF Projected Cash Income and Outflow Through 2019

Source: Social Security Trustees 1998 Report, Intermediate Assumptions.
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To achieve long-term solvency and sustainability, the Social Security 

program itself must be reformed. The demographic trends that are driving 

the program's financial problems affect the program well into the future. 

The impending retirement of the baby boom generation is the most wellknown of these trends, but is not the only challenge the system faces. If 

this were so, perhaps a one-time financing strategy could be sufficient. But 

people are retiring earlier, birth rates have fallen, and life expectancies are 

increasing—all these factors suggest that Social Security's financial 

problems will outlive the baby boom generation and continue far into the 

future. These problems cannot be addressed without changes to the Social 

Security program itself.

These changes should be made sooner rather than later. The longer 

meaningful action is delayed, the more severe such actions will have to be 

in the future. Changes made today would be relatively minor compared to 

what could be necessary years from now, with less time for the fiscal 

effects of those changes to build. Moreover, acting now would allow any 

benefit changes to be phased in gradually so that participants would have 

time to adjust their saving or retirement goals accordingly. It would be 

tragic indeed if this proposal, through its budgetary accounting complexity, 

masked the urgency of the Social Security solvency problem and served to 

delay much-needed action.

There is another reason to take action on Social Security now. Social 

Security is not the only entitlement program needing urgent attention. In 

fact, the issues surrounding the Medicare program are much more urgent 

and complex. Furthermore, the many variables associated with health care 

consumption and Medicare costs and the personal emotions associated 

with health decisions make reform in this program particularly difficult. 

Let us address Social Security for the long term today so that the nation can 

turn its attention to these other more pressing and difficult issues early in 

the new millenium. Much remains to be done in reforming entitlement 

programs, and engaging in meaningful Social Security reform would 

represent an important and significant first step. The Congress and the 

administration, working together, can find a comprehensive and 

sustainable solution to this important challenge. 

I recognize, though, that restoring Social Security solvency is not easy. 

Ultimately, any reforms to Social Security will address not only the 

relatively narrow question of how to restore solvency and assure 

sustainability but will also go to the larger question of what role Social 

Security and the federal government should play in providing retirement 
Page 15 GAO/T-AIMD/HEHS-99-76

income. There are many proposals being made to address these questions; 

choosing among them will involve difficult and complex choices, choices 

that will be critically important to nearly every American’s retirement 

income.

In my view, progress is likely to be greatest if we see these choices not as 

“either/or” decisions but rather as an array of possibilities along a 

continuum. Combining elements of different approaches may offer the 

best chance to produce a package that addresses the problem 

comprehensively for the long term in a way that is meaningful and 

acceptable to the American people. For example, such a continuum may 

identify individual accounts that could serve as a voluntary or mandatory 

supplement to a financially sound and sustainable base defined benefit 

structure. In addition, master trust principles can be used to provide for 

collective investment of base defined benefit and individual account funds 

in ways that would serve to prevent political manipulation of investments. 

In order to help structure these choices, I would suggest five criteria for 

evaluating possible Social Security proposals.

Sustainable solvency: A proposal should eliminate the gap between trust 

fund resources and expenditures over 75 years, and have the ability to 

sustain a stable system beyond that time period.

Equity: A proposal should create no "big winners" or "big losers." Those 

who are most reliant on Social Security for retirement and disability 

income should continue to receive adequate support; those who contribute 

the most would also benefit from participation in the system, and 

intergenerational equity would improve. 

Adequacy: Consistent with Social Security’s social insurance feature, a 

proposal should provide for a certain and secure defined benefit promise 

that is geared to providing higher replacement rates for lower-income 

workers and reasonable minimum benefits to minimize poverty among the 

elderly.

Feasibility: A proposal should be structured so that it could be 

implemented within a reasonable time period, it could be readily 

administered, and the administrative costs associated with it would be 

reasonable. 
Page 16 GAO/T-AIMD/HEHS-99-76

Transparency: A proposal should be readily understandable to the general 

public and, as a result, generate broad support.

Applying such criteria will require a detailed understanding of the possible 

outcomes and issues associated with the various elements of proposals. 

We are working to provide the data, information, and analysis needed to 

help policymakers evaluate the relative merits of various proposals and 

move toward agreement on a comprehensive Social Security reform 

proposal.

Conclusions Budget surpluses provide a valuable opportunity to capture significant 

long-term gains to both improve the nation’s capacity to address the 

looming fiscal challenges arising from demographic change and aid in the 

transition to a more sustainable Social Security program. The President’s 

proposal offers a valuable opportunity for us to address both how much of 

our current resources we want to save for the future and how we can best 

do so. The President’s proposal is both wide ranging and complex, and it 

behooves us to clarify the consequences for both our national economy and 

the Social Security program. 

A substantial share of the surpluses would be used to reduce publicly held 

debt, providing demonstrable gains for our economic capacity to afford our 

future commitments. In this way, the proposal would help us, in effect, 

prefund these commitments by using today’s wealth earned by current 

workers to enhance the resources for the next generations. 

However, the President’s proposal does not include any Social Security 

program reforms to make the program’s commitments more affordable. 

The transfer of surplus resources to the trust fund, which the 

administration argues is necessary to lock in surpluses for the future, 

would nonetheless constitute a major shift in financing for the Social 

Security program. Moreover, the proposed transfer may very well make it 

more difficult for the public to understand and support the savings goals 

articulated. Several other nations have shown how debt reduction itself 

can be made to be publicly compelling, but only you can decide whether 

such an approach will work here.

I am very concerned that enhancing the financial condition of the trust fund 

alone without any comprehensive and meaningful program reforms may in 

fact undermine the case for fundamental program changes. Delay will only 

serve to make the necessary changes more painful down the road. The time 
Page 17 GAO/T-AIMD/HEHS-99-76

has come for meaningful Social Security reform. After all, we have much 

larger and more complex challenges to tackle. Explicitly pledging federal 

general revenues to Social Security will limit the options for dealing with 

other national issues. 

As you consider various proposals, you might focus on the following 

questions.

• How much of the unified budget surplus should go to debt reduction 

versus other priorities?

• If we are to use some portion of the surplus to reduce publicly held debt, 

is the President’s proposed approach the way to do this?

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