Clinton’s “Balanced Budget”

As the battle over the increasing national debt continues, among the multitude of falsehoods that are often spread one argument that is more frustrating to hear than others is the claim that the U.S. had a balanced budget under Bill Clinton.  Not only is this claim misleading, it also is used as supposed proof that Democrats run a tight ship when it comes to government spending and are proven to be fiscally responsible.  Putting aside the disastrous record of the Republicans (especially, but not limited to, the Bush years), Democratic regimes are responsible for the biggest budget whoppers of all: Social Security, Medicare, and Medicaid.

Leaving aside any partisan disputes, let’s examine more closely the claim that Bill Clinton “balanced” the budget and expose it for the myth that it is.

First off, if a budget is balanced you are spending as much (or I suppose you could argue, less) than the revenues you are bringing in.  That is, for any meaningful definition of the federal government having a “balanced budget” we must assume that the national debt would decrease or stay the same during that year.  However, a quick look at the national debt at the end of each year of Clinton’s budget indicates that the debt actually increased every single year.

Fiscal
Year
Year
Ending
National Debt Deficit
FY1993 09/30/1993 $4.411488 trillion
FY1994 09/30/1994 $4.692749 trillion $281.26 billion
FY1995 09/29/1995 $4.973982 trillion $281.23 billion
FY1996 09/30/1996 $5.224810 trillion $250.83 billion
FY1997 09/30/1997 $5.413146 trillion $188.34 billion
FY1998 09/30/1998 $5.526193 trillion $113.05 billion
FY1999 09/30/1999 $5.656270 trillion $130.08 billion
FY2000 09/29/2000 $5.674178 trillion $17.91 billion
FY2001 09/28/2001 $5.807463 trillion $133.29 billion

Clearly no surplus existed.  While there were some years in which the deficit shrunk, in no one year were expenditures less than revenues.  So what did Clinton do?  Is there any honest truth to these claims of Clinton as a responsible spender?  Honest truth?  No.  Political double speak?  Certainly.

During the height of the dot-com bubble of the mid 1990s payments into Social Security were outpacing its expenditures.  These excess funds, which were supposed to have been placed in the Social Security trust fund, were immediately used to purchase short term U.S. Government securities in an attempt to fund the nation’s debt on short term debt that carried lower interest rates.

However, this action not truly lower total debt.  What the government did was pay down the public debt by increasing its holdings of intra-governmental debt securities, which is still ultimately an obligation for the American taxpayer.  The assets (surplus of money) of Social Security trust fund were spent and replaced with obligations in the form of U.S. Treasuries.

Not only did this maneuver not truly reduce the national debt, it created a smokescreen through which the average American cannot see.  By replacing the Social Security surplus with government I.O.U.s, the Clinton administration effectively moved these items “off budget” and allowed for the real assets to be used elsewhere in the budget to “decrease the deficit”.

Despite the smoke and mirrors, the fact remains that Social Security is now backed by nothing more than government I.O.U.s.  That is to say, when it comes to the Social Security trust fund the government is counting its own debt obligations as assets.  However, while this accounting gimmick might work in the books, the only way the government can actually use these Treasuries is by  1.) Selling them to the public and using the proceeds;  2.) Raising taxes to pay for them;  3.) Borrowing money (ie. going into more debt);  or  4.) using inflation to wipe out the debt.

This is the legacy of Clinton’s so-called “balanced budget”.  Political gimmickry aimed as masking the true state of the government’s budget.

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