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The Clinton Surplus Myth (Part 1)
Townhall ^ | 08/11/2011 | Craig Steiner

Posted on 08/15/2012 4:54:45 PM PDT by SeekAndFind

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:

National Debt Deficit
FY1993  09/30/1993  $4.411488 trillion  
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 almosteliminated 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 intragovernmental 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. Intragovernmental 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:

Total National
FY1997 09/30/1997   $3.789667T $1.623478T $5.413146T
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 publicdebt--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).

The following quote from an article at CBS confirms my explanation of the Myth of the Clinton Surplus, and the entire article essentially substantiates what I wrote.

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 
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 taxesbeing 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.

Are intragovernmental holdings really debt?

Yes, intragovernmental debt is every bit as real as the public debt. It's not "a wash" simply because the government owes the money to "itself."

As I explained in a previous article, Social Security is legally required to use all its surpluses to buy U.S. Government securities. From Social Security's standpoint, it has a multi-trillion dollar reserve in the form of U.S. Government securities. When the Social Security system starts to falter due to insufficient contributions to pay for all the benefits of retiring baby-boomers, probably around 2017, it will start cashing those securities and will expect the U.S. Government to pay it back, with interest. The problem is, the government doesn't have the money. The money has already been spent--in part, effectively, to pay down the public debt under Clinton.

The Federal Government cannot just wave a magic wand and somehow "write off" the intragovernmental debt. Essentially, citizens invested money in Social Security and Social Security invested that money in the Federal Government. Now Social Security effectively owes you money (in the form of future retirement benefits) and won't be able to pay you that money if the Federal Government just cancels the intragovernmental debt. The only way the Federal Government can "write off" intragovernmental debt is if it simultaneously eliminates the Social Security system. That might very well be a good idea, but it isn't likely. And Social Security will start running out of money in about 2017 if the Federal Government doesn't honor those intragovernmental holdings as real debt.

In short, if the government doesn't pay back intragovernmental holdings, other government agencies (like Social Security) will fail. Since allowing Social Security to fail is not a politically viable option, the debt represented by intragovernmental holdings is just as real as the public debt. It can't just be eliminated by some fancy accounting trick or political maneuvering. If it were possible, believe me, politicians would have done it already and taken credit for reducing the national debt by trillions of dollars.

Trust Funds = Intragovernmental Debt

Social Security isn't the only trust fund in the federal budget. There are a number of others including the civil service retirement fund, federal supplementary medical insurance trust fund, unemployment trust fund, military retirement trust fund, etc. All of these trust funds, like Social Security, invest their surpluses in U.S. government bonds and increase intragovernmental debt. And like Social Security, their surpluses really shouldn't count toward a "surplus" because the excess money they contribute to federal coffers actually has to be borrowed by the government from the trust funds.

When the government declared a $236 billion surplus in fiscal year 2000, it literally borrowed $248 billion from trust funds and considered that borrowed money "income" which it counted towards a "surplus."

For a more detailed explanation of how the government borrowed from trust funds and used the borrowed money to count towards an alleged surplus, please read this follow-up article which goes into more detail on the subject of government accounting.

The reality of the national debt

The only debt that matters is the total national debt. You can have a surplus and a debt at the same time, but you can't have a surplus if the amount of debt is going up each year. And the national debt went up every single year under Clinton. Had Clinton really had a surplus the national debt would have gone down. It didn't go down precisely because Clinton had a deficit every single year. The U.S. Treasury's historical record of the national debt verifies this.

A balanced budget or a budget surplus is a great thing, but it's only relevant if the budget surplus turns into a real surplus at the end of the fiscal year. In Clinton's case, it never did.


TOPICS: Business/Economy; History; Society
KEYWORDS: budget; clinton; clintonsurplus; debt; surplus
This article was written about a year ago. However it is talking about recent history ( the 1990's ). It would be helpful for us to know what REALLY HAPPENED.
1 posted on 08/15/2012 4:54:52 PM PDT by SeekAndFind
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To: SeekAndFind
Here is PART II of this series...


Ever since I wrote an article that demonstrated that President Clinton never had a surplus, people have been skeptical. After all, Clinton's alleged surpluses have been accepted by the media and repeated so much that it's taken as gospel truth.

The claim is made that in Fiscal Year 2000, President Clinton ran a budget surplus of $236 billion. My previous article demonstrates that far from a surplus, the government had to increase the national debt by $18 billion. How can you claim a surplus when you have to borrow more money?

Indeed, citizens that hear about the Clinton "surplus" but also know the national debt never went down may legitimately ask, "How can the national debt increase even when the government supposedly has a surplus?" This article will provide a detailed explanation of how Clinton claimed a surplus even when the government borrowed $18 billion more the same year.

Going to the Source: Monthly Treasury Statements

Once per month the U.S. Treasury's Financial Management Service releases a Monthly Treasury Statement. This is a 32-page document that reports all of the government's financial activities for the previous month along with year-to-date totals. It also provides information about the government's borrowing activities or, in the case of a surplus, an explanation of what was done with the surplus. The current issue can be found here while historic reports for previous months can be found here.

In order to analyze what happened in fiscal year 2000 (the year with the claimed $236 billion surplus) we need to refer to the MTS for September 2000. The government's fiscal year runs from October of the previous year to September of the year in question--so Clinton's fiscal year 2000 went from October 1, 1999 to September 30, 2000. By looking at the monthly report for September 2000 we're looking at the summary for the last month of the fiscal year; thus all the "year-to-date" totals in this report reflect the totals for fiscal year 2000.

Right away we can find references to the claimed $236 billion surplus: In table 1 on page 2 we can see the $236,993 surplus on the "year-to-date" surplus value at the bottom of the table. However, there's more to the story.

How the National Debt Is Calculated

The national debt obviously isn't calculated the same way we would think. If there's a $236 billion surplus then most people would think the national debt would go down by $236 billion. Instead it went up by $18 billion. This is the difference that must be explained.

Public Debt is calculated by taking the previous year's public debt and adding the total unified budget deficit (or subtracting the surplus), and then adding any "other means of financing."

Intragovernmental Debt is calculated by taking any trust fund surpluses and adding it to the previous year's intragovernmental debt.

Total National Debt is calculated by adding the public debt to the intragovernmental debt. As a result, the national debt can increase even when the public debt decreases if the intragovernmental debt increases by a larger amount.

Why? When a trust fund (such as social security) takes in more money than it pays out in benefits, it takes the extra money and "invests" it in government bonds. Essentially social security says "We received $100 billion in social security contributions but only paid out $80 billion in benefits, so we take the extra $20 billion and buy U.S. government bonds." Social security doesn't keep the extra cash but rather loans it to the U.S. government and, in return, it gets a U.S. government bond. That means the U.S. government can immediately spend that $20 billion on normal government operations but owes that $20 billion to Social Security. Hence one part of the government (the U.S. Federal Government general fund) owes $20 billion to another part of the government (Social Security). That is intragovernmental debt.

Whenever a trust fund has a surplus intragovernmental debt will increase because the surplus money is automatically loaned to the federal government's general fund. That money is then used by the federal government for its normal operations. The fact that a trust fund has a surplus simply means the federal government doesn't need to borrow as much money directly from the public since it's receiving extra money from the trust funds. It's still borrowing money--just from a trust fund rather than the public.

If the combined surplus from general taxes plus the total surplus of trust funds actually results in a surplus, that means the government received more money than it needs that year. In that case it will pay down the public debt--even if intragovernmental debt has increased. That's what happened in 2000. The combined total of taxes and trust fund surpluses exceeded the amount of money the government needed that year, and some of the extra amount was used to pay down the public debt.

Isn't That a Surplus?

No, that's not a surplus.

If in a given year you earn $30,000 and a friend loans you $5,000, and you spend $32,000, is that a surplus? While you can claim "I received $35,000 and only spent $32,000, thus I have a surplus," that's a pretty weak argument when you know that $2,000 of the money you spent was actually borrowed and has to be paid back later. That's pretty much what happened in 2000.

An article at Factcheck is often used to respond to my original article. The article cites Congressional Budget Office (CBO) numbers that cite an on-budget surplus of $87.2 billion and an off-budget (Social Security) surplus of $149.8 billion. The Factcheck article says: "But even if we remove Social Security from the equation, there was a surplus of $1.9 billion in fiscal 1999 and $86.4 billion in fiscal 2000."

The above Factcheck statement acknowledges the fact that Social Security trust fund surpluses really don't have anything to do with the president's budget, nor can they really be considered part of a surplus since they'll have to be paid back to Social Security later. So they argue that even if you don't count the $149.8 billion Social Security surplus, President Clinton was still responsible for an "on-budget" surplus of $86.4 billion (actually the numbers are $87.2 billion on-budget and $149.8 billion off-budget/Social Security according to to table 2 of the MTS ; I'm not sure where Factcheck got its numbers... but their numbers are close enough).

What Factcheck does not mention, however, is that while Social Security is the only off-budget trust fund, it's not the only trust fund. Just as surpluses caused by Social Security should not be considered a real surplus caused by a president's budget, nor should surpluses caused by other trust funds be considered. The following table shows the major trust funds that contributed to surpluses in 2000. These numbers come from Table 6 Schedule D of the MTS for September 2000 . That table contains a complete list of all the trust funds and government accounts that contributed to the "surplus" due to their excess funds.

TRUST FUND SURPLUSES IN 2000 (table 6 schedule D)
Social Security $152.3 billion
Civil Service Retirement Fund $30.9 billion
Federal supplementary medical insurance Trust fund $18.5 billion
Federal Hospital Insurance Trust Fund $15.0 billion
Unemployment Trust Fund $9.0 billion
Military Retirement Fund $8.2 billion
Transportation Trust Funds $3.8 billion
Employee life insurance & retirement $1.8 billion
Other $7.0 billion
TOTAL $246.5 billion

As can be seen from Table 6 Schedule D of the Treasury Department's MTS , all the government's trust funds contributed a total of $246.5 billion to the "surplus." That is extra money that was contributed to trust funds for the specific trust fund purposes, not as taxes, and is $246.5 billion that the U.S. government now owes to those trust funds and will have to pay back in the future. And although the government took in that extra $246.5 billion in non-tax revenue from those trust funds, the MTS indicates it only reduced the public debt by $223 billion. That's why even with all the excess money coming in from the trust funds, the national debt went up. The government received extra money from trust funds but didn't use all of it to reduce the public debt. Some of it was used on normal government spending during 2000.

If all of the extra money coming from trust funds had been used to pay down the national debt, intragovernmental debt would have increased by $248.7 billion and the public debt would've decreased by the same amount--and it would have resulted in no change to the total national debt from 1999 to 2000; that would have arguably been balanced government spending (though not a surplus). Instead, the government received $248.7 billion in extra trust fund income but only spent $230.8 billion of that on reducing the public debt. The remaining $17.9 billion was spent and represents, as indicated in my original article, a deficit.

The Confusion: On-Budget/Off-Budget vs. Trust Funds

I believe the underlying confusion comes from the fact that the government produces financial reports that differentiate between "on-budget" and "off-budget" spending. People (including Factcheck, apparently) then mistakenly believe that "off-budget" represents all the government income that "doesn't count" and isn't controlled by a president's budget while "on-budget" represents all the government income that does count and is controlled by the president's budget.

The reality, though, is that that's not the case. As shown above, most trust funds are "on-budget" even though they generate revenue that the government literally has to borrow in order to use. The government is actually borrowing money from trust funds and then reporting that borrowed money as income!

It would be far more reasonable for the government not to report on-budget/off-budget income and spending but rather to report non-trust fund/trust-fund income and spending. That would provide the public with a far more accurate picture of the fiscal responsibility of the government.

There Was No Surplus

There is no two ways about it: A real surplus would cause the total national debt to go down.

Had the trust funds contributed $248.7 billion in excess funds and the government had reduced the public debt by $250 billion, that would mean it used all of the trust funds' excess funds to reduce the public debt and also used a real $1.3 billion federal surplus to reduce the public debt. That would've reduced the national debt by $1.3 billion and been a real surplus.

But if intragovernmental debt goes up faster than the public debt goes down (as it did in 2000), it means the government is simply borrowing and spending money from trust funds and will have to pay it back later. That's not a surplus, it's just borrowing money from trust funds instead of the public. The money was still borrowed to make up a deficit in the government's general fund.

The bottom line is that there was never a real surplus. As I said in my original article, Clinton's best year still represented a $17.9 billion deficit. Only by using misunderstood government accounting that doesn't clearly disclose trust fund income can one presume to claim there was a surplus.

The most accurate and useful way to calculate a surplus or deficit is simply to look at net change in the total national debt. It really is that simple. Since the total national debt went up every year under Clinton, there wasn't a real surplus. The government just borrowed money from trust funds instead of from the public, called the borrowed money income, and claimed to have a surplus.

2 posted on 08/15/2012 4:57:19 PM PDT by SeekAndFind (bOTRT)
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To: SeekAndFind

Possibly the best explanation I have seen to date. A must read for FReepers of all persuasions.

3 posted on 08/15/2012 5:07:52 PM PDT by andyk (Go Juan Pablo!)
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To: SeekAndFind
Clinton appeared in an EBay endorsement film in 2000.

The bursting of the Internet bubble beginning April 15, 2000 opened the gates to the deficit increasing once again.

9/11 completed the fall of the economy, the resulting effect on tax receipts would have been the same for a Pres. Gore as it was for GWB.
4 posted on 08/15/2012 6:42:15 PM PDT by kenavi (Obama doesn't hate private equity. He wants to be it with our money.)
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To: SeekAndFind

Clinton surplus was produced by the Clinton bubble, which collapsed in the spring 2000 when the Nasdaq fell from 5000 to 1000, and by spending the “Peace Dividend” i.e. cutting the military by one-third......

5 posted on 08/15/2012 9:23:11 PM PDT by Intolerant in NJ
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To: SeekAndFind

Good stuff but it’s all meaningless.

The simple reality is that we don’t generate enough revenue to stay alive AND pay off the 4 billion credit cards we’ve maxed out. And we won’t in two generations.

Someone call Dave Ramsey! Or a decent accountant.

The fortunate part is the vast majority of our problems are in unfunded promises. Promises will have to be broken because they were stupid to begin with.

But you have to cut off the outflow. It’s like your worthless brother in law borrows $500 because he says he can’t pay his rent. Then he calls back a week later saying he can’t pay his rent and can you loan him $500. You ask what happened to the first $500 and you’ll get a novel of excuses.

Those are Dems and RINO’s. Cut them off. Buy off the “promises” on a sliding scale depending on age and eliminate the schemes of Soc Sec and Medicare.

Pretty simple if you ask me.

6 posted on 08/15/2012 9:37:03 PM PDT by Fledermaus (Democrats are dangerous and evil. Republicans are useless and useful idiots.)
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