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2012-09-06 05:30:00 - By

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




U.S. National Debt - 3D Illustration 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?

--

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.

--

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."

--

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)

--

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.

--

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



16 COMMENTS - What Say You?

Comment by matt on October 13, 2012 @ 9:22 pm

more in the form of a question; the 4.7 trillion in intra governmental holdings. does this represent a form of tangible wealth? are their particularities that one could utilize to trigger certain images of wealth/dedt that are their in the day to day lives of Americans?

--

Comment by janet spence on October 18, 2012 @ 4:28 pm

When you look at the runnig US debt accumulating...sometimes it actually goes down a little...so does that mean we are paying it down somewhat?

--

Comment by Ken on October 20, 2012 @ 5:48 pm

Mr Manuel,

Thank you for this interesting article. Your Year 2000 example explained it to me, though I I got lost near the end. The On-Budget surplus was $86.4B. Social Security revenue exceeded expenditures by $140B. I assume the quotation marks around that paragraph near the start of your column mean that it is BY LAW that the Treasury department must issue $140B in interest-bearing securities backed by the full faith and credit of the United States. (I assume this is in the form of Savings Bonds, etc.) So does the national debt then increase by $56B ($140B additional liabilities in securities - $86.4B in on-budget surplus)? If Social Security revenue had been lower, to within $56B of Social Security expenditures, the national debt would have been reduced in 2000? Or if the on-budget surplus had been $56B more, the national debt would have also been reduced in 2000?

Ken

--

Comment by Ken on October 20, 2012 @ 6:02 pm

And as a followup, the quoted portion of your essay is ""Federal law requires that all excess funds be invested in interest-bearing securities backed by the full faith and credit of the United States."

What is the purpose of this law? It seems that having a Social Security surplus causes the government the increase its expenditures. The government has to issue interest-bearing securities, with their interest adding to the debt.

--

Comment by J on October 27, 2012 @ 2:18 pm

I really wish this made sense to me.

--

Comment by Willy Ghost on October 28, 2012 @ 12:22 pm

In other words, there was NO surplus. We can play semantic games and use fuzzy accounting all we want, but if the national debt kept going up, there was no surplus. The money got spent. Period.

--

Comment by David Franks on November 30, 2012 @ 5:39 pm

Willy Ghost--

You said "In other words, there was NO surplus."
The facts say: Every year that the government takes in more revenue than it spends, there is a surplus. Depending on which figures you look at, Clinton had budget surpluses in either two or four years.

You said "We can play semantic games and use fuzzy accounting all we want"
The fact say: There's no need. A budget deficit is not the same thing as the debt, and a budget surplus isn't, either.

You said "...if the national debt kept going up, there was no surplus."
The facts say: The budget is an annual phenomenon, as is a budget surplus or a budget deficit. The debt is an accrued, ongoing phenomenon consisting of budget deficits and other obligations. There is no way that Clinton or any other president-- especially George W. Bush-- could cover his own expenses and catch up with the payments for the interest on Reagan's profligacy.

Each president is responsible for his own budgets, and each president gets credit for his surpluses and blame for his deficits. The debt, on the other hand, is a joint venture, and blame is apportioned. Clinton's slowing of the growth of the debt gets credit as well, particularly in comparison to Reagan and Bush the Lesser.

Your claim shows a basic lack of understanding of the big words you are trying to use. There's no point in learning to tie your shoes before you learn which one goes on which foot.

--

Comment by Speak Plainly on December 13, 2012 @ 2:20 am

David Franks--

Ok, so Clinton did generate a budget surplus. But he did it by BORROWING FROM SOCIAL SECURITY. Happy now?

--

Comment by Curious on January 06, 2013 @ 12:41 am

Something doesn't quite sound right. If Clinton ran supluses in multiple years but net debt went up because the gov't was forced to give out bonds for the Social Security surplus, wouldn't that mean the next year that amount less money would have to be borrowed?

Or is that already factored in?

For example, if in one year you run a $100B on budget surplus but have a $250B SS surplus, then you have to issue $250B in extra bonds and your net debt goes up by $150B. But doesn't that mean the next year you are already $250B ahead in borrowing, and so if your on-budget surplus is $0 and SS surplus is $0 then your net debt would drop by the extra $250B you got from last year?

--

Comment by Diane H on January 12, 2013 @ 2:35 am

Thank you for your explanation. It was very informative and easy to understand.

--

Comment by Peter H S on February 01, 2013 @ 6:12 pm

Your explanation misses a fundamental point. When the Government "invests" excess "trust fund" revenues in "interest-bearing securities backed by the full faith and credit of the United States" and thus "borrows" those revenues to finance other governmental programs, it is borrowing the money from itself because the "trust funds" are a part of and controlled by the government. Stated differently, the securities are IOme's, not IOUs.

As IOme's, the securities do not satisfy the fundamental requirement of real debt - that it be a contractually binding promise to repay money borrowed from someone else. You cannot enter into a contract with yourself, or sue yourself for nonperformance, or “default” for failing to repay yourself that money when no other person has a legally enforceable right to or interest in the money. As a result, the gussied up "full faith and credit pledge" backing is legally meaningless when the pledgor and pledgee are the same.

The perverse artificiality of the IOme's is further underscored by the fact that, until there is a deficit in the "trust fund," interest on the IOme's is "paid" through the issuance of more IOme's. In the case of the social security trust fund, this game was played from 1983 through 2009 where each year social security taxes greatly exceeded social secvurity payouts. The resultant compounding of interest caused the aggregate principal amount of IOme's held in that fund to climb exponentially to the current amount of $2.7 trillion.

In 2010, 2011 and 2012, where the payouts from the social security trust fund exceeded revenues coming in, the aggregate principal amount of the IOme's continmue to grow because compunded interest payable in each of those years continued to exceed the payouts.

Of course, when the Teasury had to "redeem" enough IOme's cure the shortfall in those years, it did so by actually borrowing money in the open market and incurring real debt.

So the real story is not just that Clinton "balanced the budget" by "borrowing" the excess revenues from the governements trust funds, but more importantly that the IOme's are bogus debt that cries out for Congress to exclude all these so-called "intragovernmental holdings" (amounting to about $4.8 trillion)from the limits placed on the "national debt" and the debate about what should be done about this debt. In short, only publicly held debt - real debt - should be of concern to Congress and the President - a point that the Congressional Budget Office and the Fix-the-Debt folks implicitly acknowledge when they focus on the ratio of only publicly held debt to GDP.





--

Comment by Waitaminute on February 06, 2013 @ 7:43 pm

David,

You failed to mention that it wasn't Clinton's policies that slowed the growth of the debt. It was the unprecedented capital gains tax revenue the government took in due to the dot com boom as well as fiscal policies set in motion by Bush senior. Now the picture is more clear.

--

Comment by Mike on February 12, 2013 @ 2:45 pm

Interesting article, one thought to ponder. If during the Clinton years (dot com boom years) a time that can be compared to the railroads or radio from a boom era, we were only able to surplus a measly 100 billion dollars or so. How the heck is this country ever going to pay down 16 Trillion? The number is staggering, we should have to stop spending all together for 8 years just to get there, at the rate if the Clinton surplus (assuming there is another game changing technology coming to the market anytime soon) it will take over 150 years to pay it off, assuming 0% interest rates….Every budget deficit of 1.3 Trillion is another 13 years’ worth of Clinton era budget surpluses.

--

Comment by mike wells on February 15, 2013 @ 4:16 am

Your surplus report is in fiscal year, and your oasdi report is in calander year? Is that correct?

--

Comment by john on February 20, 2013 @ 6:46 pm

Clinton never had a surplus because he never counted intra-governmental debt, the money the govt owes itself.
He started with a 4 trillion debt and left with a 6 trillion debt.

--

Comment by Al on February 26, 2013 @ 9:45 pm

No, the way I understand it, if they give out a ten year bond then the next ten years will receive the payments on that bond. So it would help out the next budget, but not by the entire principal. And it will only help on the net balance on the social security "trust fund." So it would help lead to more bonds being issued. I am fine with that as long as the interest from the bonds bought is it more than the sold.

OK after typing this, I am a little confused. Are we buying/selling bonds to ourself? How does that help anything besides adding bureaucracy?

--

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