Originally Written by Craig Steiner
Time and time again, anyone reading the mainstream news or reading articles on the Internet will read the claim that President Clinton not only balanced the budget, but had a surplus. This is then used as an argument to further highlight the fiscal irresponsibility of the federal government under the Bush administration.
The claim is generally made that Clinton had a surplus of $69 billion in FY1998, $123 billion in FY1999 and $230 billion in FY2000 . In that same link, Clinton claimed that the national debt had been reduced by $360 billion in the last three years, presumably FY1998, FY1999, and FY2000–though, interestingly, $360 billion is not the sum of the alleged surpluses of the three years in question ($69B + $123B + $230B = $422B, not $360B).
While not defending the increase of the federal debt under President Bush, it’s curious to see Clinton’s record promoted as having generated a surplus. It never happened. There was never a surplus and the facts support that position. In fact, far from a $360 billion reduction in the national debt in FY1998-FY2000, there was an increase of $281 billion.
Verifying this is as simple as accessing the U.S. Treasury (see note about this link below) website where the national debt is updated daily and a history of the debt since January 1993 can be obtained. Considering the government’s fiscal year ends on the last day of September each year, and considering Clinton’s budget proposal in 1993 took effect in October 1993 and concluded September 1994 (FY1994), here’s the national debt at the end of each year of Clinton Budgets:
|FY1994||09/30/1994||$4.692749 trillion||$281.26 billion|
|FY1995||09/29/1995||$4.973982 trillion||$281.23 billion|
|FY1996||09/30/1996||$5.224810 trillion||$250.83 billion|
|FY1997||09/30/1997||$5.413146 trillion||$188.34 billion|
|FY1998||09/30/1998||$5.526193 trillion||$113.05 billion|
|FY1999||09/30/1999||$5.656270 trillion||$130.08 billion|
|FY2000||09/29/2000||$5.674178 trillion||$17.91 billion|
|FY2001||09/28/2001||$5.807463 trillion||$133.29 billion|
As can clearly be seen, in no year did the national debt go down, nor did Clinton leave President Bush with a surplus that Bush subsequently turned into a deficit. Yes, the deficit was almost eliminated in FY2000 (ending in September 2000 with a deficit of “only” $17.9 billion), but it never reached zero–let alone a positive surplus number. And Clinton’s last budget proposal for FY2001, which ended in September 2001, generated a $133.29 billion deficit. The growing deficits started in the year of the last Clinton budget, not in the first year of the Bush administration.
Keep in mind that President Bush took office in January 2001 and his first budget took effect October 1, 2001 for the year ending September 30, 2002 (FY2002). So the $133.29 billion deficit in the year ending September 2001 was Clinton’s. Granted, Bush supported a tax refund where taxpayers received checks in 2001. However, the total amount refunded to taxpayers was only $38 billion . So even if we assume that $38 billion of the FY2001 deficit was due to Bush’s tax refunds which were not part of Clinton’s last budget, that still means that Clinton’s last budget produced a deficit of 133.29 – 38 = $95.29 billion.
Clinton clearly did not achieve a surplus and he didn’t leave President Bush with a surplus.
So why do they say he had a surplus?
As is usually the case in claims such as this, it has to do with Washington doublespeak and political smoke and mirrors.
Understanding what happened requires understanding two concepts of what makes up the national debt. The national debt is made up of public debt and intra-governmental holdings. The public debt is debt held by the public, normally including things such as treasury bills, savings bonds, and other instruments the public can purchase from the government. Intra-governmental holdings, on the other hand, is when the government borrows money from itself–mostly borrowing money from social security.
Looking at the makeup of the national debt and the claimed surpluses for the last 4 Clinton fiscal years, we have the following table:
|FY1998||09/30/1998||$69.2B||$3.733864T $55.8B||$1.792328T $168.9B||$5.526193T $113B|
|FY1999||09/30/1999||$122.7B||$3.636104T $97.8B||$2.020166T $227.8B||$5.656270T $130.1B|
|FY2000||09/29/2000||$230.0B||$3.405303T $230.8B||$2.268874T $248.7B||$5.674178T $17.9B|
|FY2001||09/28/2001||$3.339310T $66.0B||$2.468153T $199.3B||$5.807463T $133.3B|
Notice that while the public debt went down in each of those four years, the intragovernmental holdings went up each year by a far greater amount–and, in turn, the total national debt (which is public debt + intragovernmental holdings) went up. Therein lies the discrepancy.
When it is claimed that Clinton paid down the national debt, that is patently false–as can be seen, the national debt went up every single year. What Clinton did do was pay down the public debt–notice that the claimed surplus is relatively close to the decrease in the public debt for those years. But he paid down the public debt by borrowing far more money in the form of intragovernmental holdings (mostly Social Security).
“Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller,” said Andrew Biggs, a resident scholar at the American Enterprise Institute.
Interestingly, this most likely was not even a conscious decision by Clinton. The Social Security Administration is legally required to take all its surpluses and buy U.S. Government securities, and the U.S. Government readily sells those securities–which automatically and immediately becomes intragovernmental holdings. The economy was doing well due to the dot-com bubble and people were earning a lot of money and paying a lot into Social Security. Since Social Security had more money coming in than it had to pay in benefits to retired persons, all that extra money was immediately used to buy U.S. Government securities. The government was still running deficits, but since there was so much money coming from excess Social Security contributions there was no need to borrow more money directly from the public. As such, the public debt went down while intragovernmental holdings continued to skyrocket.
The net effect was that the national debt most definitely did not get paid down because we did not have a surplus. The government just covered its deficit by borrowing money from Social Security rather than the public.
Consider the following quotes (and accompanying links) that demonstrate how people have known this for years:
In the late 1990s, the government was running what it — and a largely unquestioning Washington press corps — called budget “surpluses.” But the national debt still increased in every single one of those years because the government was borrowing money to create the “surpluses.”
So the table itself, according to the figures issued yesterday, showed the Federal Government ran a surplus. Absolutely false. This reporter ought to do his work. This crowd never has asked for or kept up with or checked the facts. Eric Planin–all he has to do is not spread rumors or get into the political message. Both Democrats and Republicans are all running this year and next and saying surplus, surplus. Look what we have done. It is false. The actual figures show that from the beginning of the fiscal year until now we had to borrow $127,800,000,000. – Democratic Senator Ernest Hollings, October 28, 1999 Video: CSPAN
An overall “downsizing” of government and a virtual end to the arms race have contributed to the surplus, but the vast majority is coming from excess Social Security taxes being paid by the workforce in an attempt to keep Social Security benefit checks coming once the “baby-boomers” start to retire.
Of the $142 billion surplus projected by the end of 2000, $137 billion will come from excess Social Security taxes.
When these unified budget numbers are separated into Social Security and non-Social Security components, however, it becomes evident that all of the projected surplus throughout this period is attributable to Social Security. The remainder of the budget will remain in deficit throughout the next decade.
Despite a revenue shortfall, full benefits are expected to be paid out between 2017 and 2041. The system will draw on its trust fund, a collection of special-issue bonds from the government, which borrowed prodigiously from the program’s surplus over the years. But since the country is already running a deficit, the government will have to borrow more money to pay back its debt to Social Security. That’s a little like giving with one hand and taking away with the other.
The surplus deception is clearly discernible in the statistics of national debt. While the spenders are boasting about surpluses, the national debt is rising year after year. In 1998, the first year of the legerdemain surplus, it rose from $5.413 trillion to $5.526 trillion, due to a deficit of $112.9 billion… The federal government spends Social Security money and other trust funds which constitute obligations to present and future recipients. It consumes them and thereby incurs obligations as binding as those to the owners of savings bonds. Yet, the Treasury treats them as revenue and hails them for generating surpluses. If a private banker were to treat trust fund deposits as income and profit, he would face criminal charges.
Read More: http://www.craigsteiner.us/articles/16