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Whatever Happened to the Clinton Budget Surplus?

Mark Twain was reported to have warned us that, "Liars figure, but figures don’t lie!” FYI, you might want to keep that in mind when listening to any government entity talk about spending.

Maybe you haven’t seen the accompanying graphic that shows Bill Clinton’s budgets in blue, but, surely, if you follow politics at all, you’ve heard about it. We all know that Bill Clinton was a wonderful president and ran government so efficiently that his administration lived within its means even to the point of ending up with a budget surplus, right?

OK, time for some heat and light on this claim that Bill Clinton delivered a surplus to George W. Bush, who then squandered it and was responsible for all the evil that brought us to our current dismal state. From the U.S. Treasury:

Fiscal Year    National Debt     Deficit

1993             $4.411488 T   

1994             $4.662749 T      $281.26 B

1995             $4.973982 T      $281.23 B

1996             $5.224810 T      $250.83 B

1997             $5.413146 T      $188.34 B

1998             $5.526193 T      $113.05 B

1999             $5.656270 T      $130.08 B

2000             $5.674178 T      $17.91 B

2001             $5.807463 T      $133.29 B

                     T = trillions         B = billions

What is important to note here is that the National Debt in the middle column never decreases but always increases as evidenced by the last column which reports a deficit every year. What chicanery is then used in which we are told that Mr. Clinton ran a surplus that George Bush frittered away? Keep this in mind, “Liars figure, but figures don’t lie!”

Let’s look at Clinton’s best years, 1998-2000, where it was claimed he had a surplus and see what was going on.

It is instructive at this point to understand that the national debt is actually the composite of two components: the public debt and intra-governmental holdings.

Public debt is debt held by the public in such vehicles as treasury bills, savings bonds, and other instruments the government sells to finance debt. Intra-governmental holdings is the instrument by which the government borrows money from itself mostly from Social Security but from other funds, as well, like federal pension funds, etc.

It is true that the Public Debt decreased during the last four years of the Clinton presidency during which time we are told Mr. Clinton amassed a surplus, however, intra-governmental holdings increased more than the public debt decreased during those four years.

Looking at his best year (FY 2000) as a representative example of all four:

Claimed Surplus:                                         +$230.0 billion

Public Debt decrease:                                  -$230.8 billion

Intra-governmental Holdings increase:          +$248.7 billion

Total National Debt increase:                        +$17.9 billion

The bottom line is that Mr. Clinton ran a budget deficit of $17.9 billion during Fiscal Year 2000, while claiming a surplus of $230.8 billion dollars, and so increased the National Debt by that amount ($17.9 billion dollars).

So how is it that a net increase in the total national debt was, and is still being, reported as a surplus?

There are a few facts to keep in mind with regard to my argument and should be given special attention by those on Patch who continue to insist that Social Security is solvent. The SSA is legally required to use all yearly surpluses (i.e., any amount collected that exceeds benefit payouts) from collected funds, otherwise known as the payroll tax, to purchase U.S. Government Securities. This transaction immediately becomes part of intra-governmental holdings and the money becomes available for and, in fact, is used by, the government to pay its bills

So here’s what happened; remember the so-called “dot-com boom,” that more correctly is referred to as the “dot-com bubble” because it eventually exploded? This run-up in the market occurred during the years between 1997 and 2000. As a result of the dot-com bubble, with its attendant boost in earnings before the crash, Social Security tax revenue increased to the point that not only was there enough to pay out all benefits for those years, but there were substantial monies left over. This surplus, as required by law, was immediately used to buy government securities and promptly spent by the government—remember, Virginia, there is no Social Security Trust Fund, just government IOUs. The additional monies coming into intra-governmental holdings through excess payroll tax revenue resulted in no need to borrow money from the public and some of the excess was actually used to pay down a portion of the Public Debt. But it was all borrowed money (from Social Security) except that all of it was owed to the government itself in this case rather than to the public; kind of like a rob-Peter-to-pay-Paul scheme or, in this case, borrow from (but the same thing when it comes to the government and taxes). Thus, while the public debt portion of the total national debt decreased the intra-governmental holdings portion actually increased over the public debt decrease resulting in a net loss for the year.

Hello! That’s called a deficit not a surplus and anybody that tries to make you think otherwise is lying and has an agenda.

So, was anybody else aware of this and why weren’t you told?

Wall Street Journal - 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."

Democratic Sen. Ernest Hollings (October, 1999) on CSPAN referring to published reports as to a budget surplus for 1999: “So the table itself, according to the figures issued yesterday, showed the Federal Government ran a surplus. Absolutely false. This reporter (Eric Planin) ought to do his work. This crowd never has asked for or kept up with or checked the facts. All he’s got 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.”

So, my friends, the fact is that the so-called Social Security trust fund is actually contained in intra-governmental holdings and is no trust fund at all, but pure debt. If the SSA needs money to pay benefits and attempts to draw upon the so-called trust fund, the government has to borrow money elsewhere to make up the shortfall of the SSA because there is no pot of Social Security Fund money; and that, the Social Security Ponzi scheme, my friends, is the topic of a future blog.

As always, I would be more than happy to consider anyone’s facts to the contrary concerning anything I’ve written. Please, show me where I’m wrong.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Pete Heinbaugh December 04, 2012 at 06:32 PM
Great write-up, Paul. This is something everyone should know and understand.
Pete Heinbaugh December 04, 2012 at 06:38 PM
Regarding Social Security, instead of the claim that the Trust Fund is solvent, would you be happy with the statement "the social security payroll taxes collected are adequate to cover its benefits and obligations"?
Pete Heinbaugh December 04, 2012 at 06:41 PM
I agree that Clinton is overly worshiped by Progressives , much like Reagan is by Conservatives. But George W was atrocious for our country.
Paul J. DiBartolo December 04, 2012 at 06:57 PM
Unfortunately, there is no actual real money (if you consider paper to be real money) in the Fund. It is all obligatory notes representing money that has all been spent. Currently all S.S. benefits are paid in real time in that 2012 benefits are paid by 2012 collected payroll taxes. Any surplus is immediately turned over to the government and spent. As the ratio of workers to retirees continues to skew we will eventually reach point where payroll tax revenue will not cover benefits. At that point the SSA will turn to the government and ask for funds to cover the shortfall, you know, given the government owes S.S. over $2.5 trillion dollars. And where do you think that money will come from? The government will have to borrow elsewhere (or print money) to cover the shortfall. Now given all that we are paying now including the billions of dollars of interest we pay on the National Debt, adding to that a National Debt probably nearing $20 trillion dollars by then, where do you think the needed money to meet S.S. obligations will come from and how long will we be able to cover what is seen as the $100 trillion dollar unfunded liability known as Social Security and Medicare? I empathize with your concern, Pete, but no matter how much you want to believe the money for our retirements is intact... Go to Thomas Sowell's home page and search for articles on Social Security. Or, Google "how much does the government owe the Social Security administration" and see what comes back.
Paul J. DiBartolo December 04, 2012 at 07:06 PM
History will tell us the final story on George Bush especially after we look back and see who and what followed him. While I was very disappointed with his spending habits the only point of this article was to expose the truth about the "Clinton budget surpluses." Additionally, whatever Bush spent has been doubled by Obama and now Obama is asking for permission to unilaterally raise the debt ceiling on his request alone unless stopped by a 2/3-rds vote of the Congress. When you already owe nearly ten times what you earn (yearly tax revenue = approx. $2 to $2.5 trillion dollars; national debt approaching $16.5 trillion with estimates it will reach $20 trillion under Obama), how long will anybody be willing to keep lending you money? The fact is that China and Japan are already in the process of dumping our debt because of the promise of hyper-inflation and the ensuing worthlessness of the U.S. dollar.
Pete Heinbaugh December 04, 2012 at 07:25 PM
Paul, that is a very good explanation, and I understand what you're saying. But I guess my point is, because the Social Security revenues collected are enough to cover the attendant benefits, that when our leaders finally get around to the near-impossible, overdue job of reducing debt, Social Security benefits, by rights, should be the last place they look. (I know, I know, a naive notion.)
Paul J. DiBartolo December 04, 2012 at 07:49 PM
You are correct, Pete; currently the S.S.A. collects enough to cover its obligations; emphasis on "currently." Consider that this will not be the case soon as the balance of payees to retirees continues to approach 1:1 with 10,000 baby-boomers reaching age 65 PER DAY! Somebody questioned me on this; "Do you mean per month?" No! Google it, 10,000 people PER DAY are reaching 65 years of age. Secondly, we have been doing additional damage to the fund due to the recession. Remember, it is two years now since workers' contributions to S.S. have been reduced from 6.2% to 4.2%. Given employers' obligation at 6.2% plus the reduced workers' rate of 4.2%, that is a 15% reduction in collected payroll taxes for two years. The question is whether the Congress will renew this reduction in 2013 or allow rates to return to normal. The point is that S.S. has been hit for two years with a 15% reduction in revenue. Finally, Pete, maybe you don't understand the term "unfunded liabilities." Theoretically, if the fund had not been run as a Ponzi scheme and been raided by the Congress every year there would be funds aplenty to pay retirees who have been paying in all their lives. If we take the existing retirees (increasing by 10,000 every day) and caclulate what they might require in S.S. and Medicare benefits until death, we come up with a number in the hundreds of trillions. Unfunded Liabilities; money that has been promised but does not exist. In reality, what can you envision as an outcome?

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