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.
Note: There is a discrepancy that I have not yet been able to resolve: Table 2 of the September 2000 MTS indicates that the public debt was reduced by \$222.7 even though the public debt was reduced by \$230.8 billion (a difference of \$8.1 billion); additionally, table 6 schedule D reports increased intragovernmental debt of \$246.4 billion even though intragovernmental debt actually increased by \$248.7 billion (a difference of \$2.3 billion). This represents a net discrepancy of \$5.8 billion. I'm certain this can be resolved with the numbers in the MTS but, at this point, I have not been able to get the numbers to add properly to account for the difference. If anyone is able to account for the mysterious \$5.8 billion, please let me know.

Note: The Clinton administration is not the only one that has used this rather deceptive form of accounting. All modern presidents have. To see the real deficits of Carter, Reagan, Bush Sr., Clinton, and G.W. Bush, please read this article.

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