How Did A Surplus Result In The National Debt Going Up?

Earlier tonight, former President Bill Clinton took to the stage at the Democratic National Convention and gave his endorsement to President Barack Obama.

Since Bill Clinton is in the news tonight, I thought that it would be a good time to try and answer one of the questions that I receive most often through this site. That question is:

Why did the US national debt continue to increase during the Clinton surplus years?

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The Clinton era surplus numbers look something like this:

1998 - $69.2 billion surplus
1999 - $125.6 billion surplus
2000 - $236.4 billion surplus
2001 - $127.3 billion surplus

Let's take one year to focus on - 2000. The "official" surplus number for that year was $236.4 billion. So the national debt must have declined that year, right?

Wrong.

Let's take a look at the numbers.

The total national debt on October 1st, 1999 was:

$5,540,570,493,226.32

The total national debt on September 30th, 2000 was:

$5,656,270,901,633.43

That's an INCREASE of over $100 billion, despite the fact that the country posted a surplus.

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So what gives?

There are two things that happened here:

1) The "on-budget" surplus was actually much smaller than the number that included both the "on-budget" and "off-budget" numbers, which is the number that is widely reported by the media.

2) Any excess revenues from the Social Security trust funds are automatically invested in government-issued debt:

"Federal law requires that all excess funds be invested in interest-bearing securities backed by the full faith and credit of the United States."

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Let's look at the first point.

There are currently three things that are considered to be "off-budget" in this day and age. They are:

-the two Social Security trust funds (Federal Old-Age and Survivors Insurance Trust Fund)
-operations of the Postal Service

Now, you could make a strong argument that an accurate picture of the budget of the United States would leave out the "off-budget" items, but the "official" number that is given out and reported by the media includes both the on and off-budget items.

Let's take a look at the 2000 numbers, courtesy of WhiteHouse.gov:

TOTAL

Receipts - $2,025,191,000,000
Outlays - $1,788,950,000,000

Surplus - $236,241,000,000

So, $236 billion surplus - Google it and this is the number that you will find as being the surplus for the 2000 fiscal year in the United States. It wasn't just the media that reported the $236 billion surplus - this number came from President Bill Clinton himself.

Now, let's take a look at strictly the "on-budget" numbers:

Receipts - $1,544,607,000,000
Outlays - $1,458,185,000,000

Surplus - $86,422,000,000

Still a surplus, but not quite as rosy as the $236.24 billion surplus.

Now, let's look at the "off-budget" numbers from that year:

Receipts - $480,584,000,000
Outlays - $330,765,000,000

Surplus - $149,819,000,000

Combine the surplus from "off-budget" items (mainly the two Social Security trust funds) and the "on-budget" items, and you are left with a surplus of $236.24 billion.

According to the OASDI Trustees Report, the OASDI (OASI and DI Trust Funds) brought in $568.4 billion and paid out $415.1 billion during the 2000 calendar year (source: 2001 OASDI Trustees Report). If you add this into the general budget number, you get a number that is quite a bit rosier.

From 1998 until 2012, let's look at the "official" surplus/deficit numbers vs the "on-budget" numbers:

1998

Official - $69.27 billion surplus
On-Budget - $29.92 billion deficit

1999

Official - $125.6 billion surplus
On-Budget - $1.92 billion surplus

2000

Official - $236.2 billion surplus
On-Budget - $86.4 billion surplus

2001

Official - $128.2 billion surplus
On-Budget - $32.4 billion deficit

2002

Official - $157.8 billion deficit
On-Budget - $317.4 billion deficit

2003

Official - $377.6 billion deficit
On-Budget - $538.4 billion deficit

2004

Official - $412.7 billion deficit
On-Budget - $567.9 billion deficit

2005

Official - $318.3 billion deficit
On-Budget - $493.6 billion deficit

2006

Official - $248.1 billion deficit
On-Budget - $434.5 billion deficit

2007

Official - $160.7 billion deficit
On-Budget - $342.2 billion deficit

2008

Official - $458.6 billion deficit
On-Budget - $641.8 billion deficit

2009

Official - $1.41 trillion deficit
On-Budget - $1.55 trillion deficit

2010

Official - $1.29 trillion deficit
On-Budget - $1.37 trillion deficit

2011

Official - $1.299 trillion deficit
On-Budget - $1.366 trillion deficit

2012

Official - $1.326 trillion deficit (estimate)
On-Budget - $1.393 trillion deficit (estimate)

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So, based on the "on-budget" numbers, there were just two surpluses during the Clinton years (1999 and 2000), and both were significantly smaller than what the "official" number was.

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Now, as mentioned, any excess money from the Social Security trust funds (and any number of other different government funds) MUST be invested in government-issued debt. Any excess money is kept to meet the future obligations of the Social Security program.

The Federal Old-Age and Survivors Insurance Trust Fund, for instance, currently lists approximately $2.6 trillion in assets. However, this money is not just sitting as cash in some account. Instead, it has been invested in government debt - an IOU from the government. This is why, whenever there is a budget crisis, the possibility of people not receiving their Social Security checks arises. It's because the Social Security trust funds is stuffed with IOUs from the federal government, and not cash.

Of the $16 trillion that the US government currently owes, approximately $4.7 trillion is in the form of intragovernmental holdings, while the rest is "public debt". Intragovernmental holdings is the money that the government owes to programs such as Social Security, the Civil Service Retirement and Disability Fund, the Department of Defense Military Retirement Fund and others.

So, in the 2000 calendar year, the OASDI took in about $140 billion more than what it spent. This $140 billion was automatically invested in government debt, which caused the "intragovernmental debt" number to increase.

When Clinton talks about paying down the debt, he is talking about paying down the "public debt" of the country, and not the overall debt.

For instance, let's take a hypothetical scenario:

Public Debt is paid down by $100 billion
Intragovernmental Holdings increase by $200 billion

In this scenario, "public debt" is paid down, but the overall debt load of the nation increases by $100 billion. This is what happened during the Clinton years, and this is why the national debt load of the country never actually decreased during any year that the Clinton administration put together the budget.

Source: WhiteHouse.gov - Deficit/Surplus Table (Table 1.1)

Filed under: General Knowledge