WASHINGTON -The White House is considering tapping $419 billion in federal pension fund surpluses to help fund yet another tax cut package later this decade, even before President Bush has signed the biggest tax cut package in two decades.
The idea was floated by Lawrence B. Lindsey, a top economic adviser to the president. In a May 17 speech here at the annual retirement conference of Boston College and University of Michigan, Mr. Lindsey suggested using any "leftovers" from the federal budget surplus for another tax cut.
About one-quarter of the leftover money is surplus pension assets from the military and civil service retirement systems. A White House spokeswoman, however, declined to comment on any plans to tap the federal pension fund surpluses.
"These surpluses are considered on budget, and in a technical sense they are available. But in an economic sense, they are future liabilities, and it would be like a raid on a pension fund," said William G. Gale, senior fellow for the Brookings Institution in Washington.
Just the notion of such action riles some Democratic congressmen.
"If the funds are already obligated, I don't know how you can define those as being surplus," said Rep. Danny Davis, D-Ill., the ranking minority Democrat on the House Civil Service and Agency Organization subcommittee and part of a group in the House that opposes the administration's efforts to tap the federal pension fund surpluses.
"This is part of the creative bookkeeping and accounting that the administration does in an effort to make it look like as there is more expendable cash than what we actually have, which helps to justify the $1.35 trillion tax cut."
Mr. Davis said he plans to hold hearings on the potential raids, possibly as early as June.
Earlier this year, Reps. Baron Hill, D-Ind., and Gene Taylor, D-Miss., both members of the House Armed Services Committee, introduced a resolution asking lawmakers to refrain from using any of the surpluses of the Military Retirement System to finance any purpose other than to pay pensions to armed forces personnel. Mr. Taylor separately introduced a resolution that would put the Civil Service Retirement and Disability Fund and the Military Retirement System off-budget.
Moreover, a Florida Republican, Rep. Michael Bilirakis, also introduced legislation this year, as he has previously, that would take the federal retirement systems off the federal budget so the money would be insulated from any proposals to use the surpluses.
"They are not accidental surpluses. They are intentionally collected and, in the case of the Civil Service retirees, Congress appropriates money every year for current employees to pre-fund their retirement on some actuarial basis," said Brian Martin, a legislative aide to Mr. Taylor. Mr. Taylor eventually would like to see the military retirement system overhauled into a defined contribution plan along the lines of the Federal Thrift Savings Plan, Mr. Martin explained. Right now, he said, the government spends the pension fund surplus "and pretends it is being saved by carrying this paper surplus, but really it is gone. It is going to have to be paid back one day."
Not surprisingly, associations representing military and civilian federal workers, including the Enlisted Association of the National Guard of the United States, Alexandria, Va., and the Naval Reserve Association, also in Alexandria, support the Hill-Taylor legislation.
"They are sacred dollars. For political gains, you should not be messing with people's retirement," said Michael P. Cline, executive director of the National Guard employee group.
As with Social Security, the federal retirement systems do not exist as separate trust funds; contributions by employees and their employing federal agencies are used to pay current benefits and other government expenses as decided by the federal government. Also like Social Security, the systems now are taking in more contributions than they are paying out in benefits, creating surpluses. But because their liabilities eventually will overtake contributions, the government ultimately will be faced with the choice of raising taxes, cutting spending or borrowing from taxpayers to pay for the promised pensions.
The combined Civil Service Retirement System and Federal Employees' Retirement System had net assets of $486.8 billion at the end of fiscal 1999; liabilities of $1.2 trillion and a present value of future contributions of $205.1 billion, resulting in an unfunded liability of $506.6 billion at the end of 1999. However, because the CBO, in its calculations of the federal budget, looks only at the change in assets from year to year and does not include liabilities, it calculated the combined system would have a surplus of $315 billion over the next 10 years. Meanwhile, the Military Retirement System had net assets of $156 billion at the end of fiscal 1999, an unfunded accrued liability of $501.2 billion and the present value of future contributions was $91.1 billion at the end of fiscal 1999. The Civil Service plan is expected to have net assets of $10.7 trillion in 2070 (unadjusted for inflation), and the Military Retirement System is expected to wipe out its unfunded liability in 2034 and accumulate net assets of $18.1 trillion by the end of fiscal 2098.