The question is often asked: "Why is Social Security even discussed in terms of the federal budget? Benefits are paid out of the trust funds, not general revenues." The answer to this question requires knowledge of some complicated history. Here it is from Social Security
office agency history:
... From the beginning of the Social Security program its transactions were
reported by the administration as a separate function in the budget. This
is sometimes described in present usage by saying that the Social Security
program was "off-budget." This was the budget representation
of the Social Security program from its creation in 1935 until 1968. ...
In early 1968 President Lyndon Johnson made a change in the budget presentation
by including Social Security and all other trust funds in a"unified
budget." This is likewise sometimes described by saying that Social
Security was placed "on-budget."
This 1968 change grew out of the recommendations of a presidential commission
appointed by President Johnson in 1967, and known as the President's Commission
on Budget Concepts. The concern of this Commission was not specifically
with the Social Security Trust Funds, but rather it was an effort to rationalize
what the Commission viewed as a confusing budget presentation. ...
In the 1983 Social Security Amendments a provision was included mandating
that Social Security be taken "off-budget" starting in FY 1993.
This was a recommendation from the National Commission on Social Security
Reform (aka the Greenspan Commission). The Commission's
report argued: "The National Commission believes that changes
in the Social Security program should be made only for programmatic reasons,
and not for purposes of balancing the budget. Those who support the removal
of the operations of the trust funds from the budget believe that this
policy of making changes only for programmatic reasons would be more likely
to be carried out if the Social Security program were not in the unified
budget." ...
[I]n the Omnibus Budget Reconciliation
Act (OBRA) of 1990 the law was changed to stop the use of the Trust Funds
for any function in the unified budget, including calculations of the
deficit. ...
The BEA budget treatment of Social Security basically remains the law
to the present day. Specifically, present law mandates that the two Social
Security Trust Funds, and the operations of the Postal Service, are formally
considered to be "off-budget" and no longer part of the unified
federal budget. ...
However, those involved in budget matters often produce two sets of numbers,
one without Social Security included in the budget totals and one with
Social Security included. Thus, Social Security is still frequently treated
as though it were part of the unified federal budget even though, technically,
it no longer is. ...
One crucial way that Social Security is treated as part of the budget is in the way that Congress handles appropriations for Social Security's administrative budget. Technically, Social Security doesn't receive an appropriation. It's called a Limitation on Administrative Expenditures (LAE). Social Security's LAE is lumped in with the Labor-HHS appropriations bill, probably because Social Security used to be part of HHS. The Labor-HHS bill is the one that's always most controversial with Republican legislators. They work hardest at keeping the Labor-HHS bill as low as possible, which hurts Social Security. The agency could be moved out of the Labor-HHS bill. Probably, a statute could even be passed allowing administrative expenditures as needed without a specific annual LAE but that's not going to happen since it would reduce the powers of the appropriations committees in Congress, not that those powers have been exercised to any significant extent apart from keeping the agency on a starvation diet.
