Whatever Happened to the Clinton Budget Surplus?

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.