U.S. Senate Republican Policy Committee - Larry E. Craig, Chairman - Jade West, Staff Director
Publications Issue List Vote Analysis Main Page
June 15, 1999

RPC Talking Points on S. 605

Hollings Amendment to Social Security Lockbox

S. 605, a bill by Senator Hollings, which may be offered as an amendment to the Social Security lockbox bill, states in part: ". . . The Secretary of the Treasury shall maintain, in a secure repository or repositories, cash in a total amount equal to the total redemption value of all obligations issued to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund pursuant to section 201(d) of the Social Security Act that are outstanding on the first day of such month."

  • The Mechanics: In short, the Hollings Amendment would require the federal government to come up with cash equal to the amount of the Social Security trust fund balance -- an amount which at the end of this fiscal year (FY 1999) is estimated by the Congressional Budget Office to be $857 billion.

  • The amendment would require an $857 billion payment on October 1, 1999. This money presumably would have to be borrowed -- thus driving up interest rates to incredible levels -- since that amount could not be raised through taxation in the next three months.

  • In addition, over the next 10 years (2000-2009), CBO estimates Social Security will run a surplus of $1.78 trillion. And so, the costs of this proposal are enormous.

  • The Costs: The desire to stockpile hard currency is more than just problematic -- it is costly in both direct and indirect economic costs.

  • If this money were not used to pay down the public debt, the federal government would incur a cost of $467.8 billion over 10 years in lost debt service savings.

  • This stockpiling concept would also have implications for monetary policy. Without the Federal Reserve re-liquidating (i.e., issuing an equivalent quantity of money), the American economy (and thereby the world's) would come under severe deflationary financial pressure -- slower economic growth. Of course, when the Social Security funds reentered circulation, the effect would be just the opposite -- inflationary pressure from an over-supply of money.

In short, the Hollings amendment would not only have enormous costs for the federal budget, but for the American and world economy as well.

Top Publications Issue List Vote Analysis Main Page