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Myth of Clinton Surplus Officially Dead   March 31st, 2009
Current recession highlights the fact that Clinton Surplus was a myth       

 
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At the risk of beating a dead horse, I can't help but highlight the fact that current economic conditions have revived the issue of whether or not Clinton actually had a surplus. He didn't.

As I wrote back in 2007, the Clinton "surplus" was a myth. In that article, as well as a follow-up article, I explained the government accounting that permitted Clinton to claim a surplus when there actually wasn't one. In a nutshell, the government borrowed money from Social Security but called the borrowed money "income" and said there was a surplus. But the national debt continued to go up because, even though they called it a surplus, the reality was they were borrowing the money from Social Security and other trust funds and it had to eventually be paid back.

Needless to say, Clinton supporters have been skeptical. However, an article today at CBSNews pretty much entirely confirms what I wrote in the two Clinton Surplus Myth articles, as well as what I wrote two years ago about the future of Social Security. But the current economic situation has caused the reality to hit home years earlier than expected.

The entire article is worth reading and I'd like to just quote the whole article here, but the highlights are:

The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes....

The trust fund has long taken in more in revenue from payroll taxes and other sources than it pays out in benefits...

"Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller," said Andrew Biggs, a resident scholar at the American Enterprise Institute. "Now they've essentially got to pay their own way, at least a little more fully."

"Instead of Social Security subsidizing the rest of the budget," he said, "the rest of the budget will have to subsidize Social Security."


Seldom is so much of what I've written vindicated in a single mainstream media article. This single article essentially validates the premise of the following articles: Clinton Surplus Myth, Clinton Surplus Myth Part 2, and Social Security is a Ponzi Scheme. It also partially confirms what I mentioned as a significant risk inherent in trying to Stimulate the Economy with Deficit Spending: We're going to be adding trillions of stimulus debt to our national debt just as our federal budget is strained by having to subsidize Social Security.

Reviewing the Myth of the Clinton Surplus

For a full explanation I would encourage you read the two Clinton Surplus Myth articles mentioned above.

But basically what happened was akin to you having an income of $10,000 and expenses of $11,000 (a deficit of $1000). But at the same time a friend has an income of $20,000 and expenses of $15,000 (a surplus of $5000). So the friend gives you the $5000 with the understanding that you'd pay it back when he needed it. You take the $5000, add it to your $10,000 and say, "Look, my $15,000 is more than $11,000 so I have a $4000 surplus." You say that even though you borrowed $5000 of that from a friend and you know you'll have to pay it back.

The problem is that now your friend has income of $15,000 and expenses of $20,000--a deficit of $5000. So, knowing he gave you money to hold on to, he asks you for his money back. So now you have income of $10,000 and expenses of $11,000, but you also have to give back the $5000 your friend is asking for each year. So suddenly your $11,000 expenses turn into $16,000 in expenses, and you now have a $6000 deficit rather than a $4000 surplus. Even though nothing has changed in your income and expenses.

In this example you are the federal government and Social Security is your "friend."

Social Security has been subsidizing the federal budget for decades. It--along with other trust funds--is also what allowed Clinton to claim a surplus under nonsensical government accounting rules. But now the economic crisis is such that Social Security will no longer provide free money and subsidize the federal budget... now the federal budget is going to have to pay back all that money and essentially subsidize Social Security.

Clinton Surplus Myth vs. Reality

Liberal myths have a way of eventually running into the concrete wall of reality. That's essentially what this CBSNews article amounts to.

Whether it starts happening next year or in 2017, more and more people will wonder why their federal taxes have to subsidize Social Security. That's when many of them will be confronted with the reality that the federal government isn't subsidizing Social Security but rather just paying back what it borrowed from Social Security... including the money Clinton borrowed from Social Security and other trust funds when he was claiming a "surplus."

Granted, the issue can be ducked. Social Security benefits can be cut, retirement ages can be increased, or Social Security taxes can be increased--perhaps just on high-income earners so most people don't notice. This may help keep a lid on the myth a bit longer. But the very existence of this article at CBSNews today shows that the reality is already starting to bubble to the surface.

I expect as the looming Social Security crisis becomes discussed more often, it will be more and more clear that the Clinton Surplus was, indeed, a myth.

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