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.
|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|
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