Regarding President Clinton's 09/27/99 Statement About the Budget Surplus and the National Debt
Last week, President Clinton announced that the surplus for the fiscal year ending on Sept 30, 1999 would be $115 billion. He also stated that we can expect the national debt to be paid off in 15 years. The statements made by President Clinton are deceptive, and he does this nation a disservice by making them.
The $115 billion number Clinton uses refers to what is called the "unified budget." The unified budget takes the excess of receipts over disbursements from the Social Security System and adds that number to the general budget. It's an irrelevant number that has been and continues to be abused. It's a number that is used to make our financial affairs look better than they really are. The funds accumulating in the Social Security System are in no way discretionary. We have deliberately set payroll tax rates so that excess funds accumulate in the Social Security Trust Fund now so that they are available when the Baby Boomers start retiring. If you take away the Social Security set-a-side, you'll find the surplus vanishes, and that the general budget is roughly in balance.
We have politicians pushing the tax-cut agenda now talking glowingly about a $3 trillion surplus over the next decade. What they are talking about is a $3 trillion unified budget surplus over the next decade. And I repeat, this is an irrelevant number. The number that should be used in any kind of honest discussion is $1 trillion. That's roughly the projected surplus for the general budget. The $2 trillion difference is the increase in funds set aside in the Social Security Trust Fund. (The 2034 date at which Social Security will run short of funds assumes this set-a-side. Without this, the crisis date would come much sooner.)
The $1.9 trillion difference represents the amount of government IOUs held by the Federal Reserve System and government trust funds. The Federal Reserve System is holding about $500 billion. The largest of the trust funds is the Social Security Trust fund, which is currently holding about $800 billion.
The gross national debt is the number that should be used in most cases. If you say our national debt is $5.6 trillion, then you can legitimately say that we have $800 billion in the Social Security Trust fund. If you say our national debt is $3.7 trillion, then you'd have to say we have nothing set aside in the Social Security Trust Fund.
What Clinton should have said is that the national debt held by the public would be eliminated in 15 years. That's far different from what he said, to the tune of about $4 trillion, the amount of national debt that will be held by the Federal Reserve and the government trust funds at that point in time. Again if you say in 15 years that we'll have eliminated the national debt, you'd have to conclude that the IOUs held by the Social Security Trust Fund were worthless, and hence we will have nothing set aside for retirees in 15 years. In other words, you can't claim the asset in the Social Security Trust fund unless you acknowledge the liability to the U.S. Treasury.
The spread between the gross national debt number and the debt held by the public number is growing at a fast pace, because right now the Social Security System is taking in a lot more than it's spending. The difference is used to buy government IOUs. If the general fund is in balance, as is likely in the fiscal year beginning Oct 1, the $100 billion or so of surplus funds from the Social Security System will displace $100 billion of national debt held by the public. In other words, one year from now you may see gross national debt still at $5.6 trillion, but debt held by the public reduced from $3.7 trillion to $3.6 trillion.
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Prepared and paid for by James Gibson for U.S. Senate
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