The GULLY | U.S. | Social Security: Tax Cut Victim

AUGUST 22, 2001. Today's closed-door meeting of the Social Security Commission takes on a new urgency as the White House Office of Management and Budget prepares to reveal that the current-year surplus is only slightly more than half the $284 billion projected in April.

Even more important is the stunning August 14 report by the International Monetary Fund (IMF) roundly criticizing as fantasy the Bush administration's entire economic policy both in the short and long term.

In the short term, the IMF cautions that under current policies "the dollar might be at risk for a sharp depreciation" — badly undermining economic performance abroad, and consumer spending at home. In the long term, the IMF warns that the mammoth tax cuts which began to take effect in July, almost certainly guarantee an unbalanced budget, and a stake in the heart of Social Security and Medicare.

The biggest problem, according to the IMF, is that the tax cuts contained in Bush's ten-year plan, supposedly totaling $1.35 trillion, may be closer to twice that. Weak spots include the "sunset" provision in the act which, perhaps wrongly, assumes that the next president will have the political will to end the tax cuts in 2010.

Also at issue, relief for the wealthy from the Alternative Minimum Tax, which ensures that they pay at least some tax. Estimates again dubiously assume that both Congress and a President up for reelection will allow the relief to expire as planned in 2004.

Putting aside wishful thinking for political realities, the IMF believes the tax cut may be more like a disastrous $2.5 trillion. Considering that the U.S. economy is no longer in a boom cycle and projections of the budget surplus were outdated almost as soon as they were made, and that, according to the IMF, a variation of only 0.5% less in expected GDP growth each year will reduce the surplus by $1 trillion, Bush will have to either resume deficit spending, raise taxes, or raid both the Medicare and Social Security surplus.

A variation on the latter seems the most likely route, at least until it runs out. The groundwork will probably be laid this week during closed meetings of the high-sounding President's Commission to Strengthen Social Security. Critics are pointing to these meetings as one more example of the administration's use of secrecy as a standard operating procedure.

And just as the invisible men behind the secret machinations of Bush's energy policy are widely assumed to be Dick Cheney's oil industry cronies, who will directly benefit from these policies, the invisible forces behind Social Security policy may be those who benefit most from preserving the tax cut: the extremely wealthy, as well as those intent on systematically defunding social programs.

The practical effect on Social Security will be seen in renewed pressure to adopt questionable plans to let younger workers invest some of their Social Security payroll taxes in the stock market instead of paying straight into the federal kitty.

As both a congressional report and one by the nonpartisan Center on Budget and Policy released on Tuesday, warned against the ill effects of private investment accounts, Bush was already preparing the way for them. In a speech to a high school audience, he declared that his tax cut "will boost the economy," and that, "We must give younger workers the option to manage their money in the private sector."

If the IMF is right and the U.S. economy is headed south, Bush's private accounts may come in handy, politically, as a kind of money laundering device to explain the certain disappearance of the surplus from the coffers of the needy into the hands of the invisible rich.