The debate surrounding the anticipated budget surplus.
February 19, 1998
in this forum:
Is the Clinton administration using smoke and mirrors to create this so called surplus? If there is a budget surplus, wouldn't it be beneficial to pay down the national debt? What are the key assumptions in the projection of a Federal budget surplus? If a surplus does exist, wouldn't it make sense to give it back to the American people in the form of a tax cut ? Wouldn't it make sense to use this surplus to bolster the long-term solvency of the Social Security system?
February 2, 1998
Budget Director Franklin Raines and Senator Pete Domenici (R-NM) discuss the possible budget surplus.
January 9, 1998
Exploring the possiblities and plausibility of a budget surplus.
August 5, 1997
President Clinton signs a budget deal that will balance the books by 2002.
Experts analyze the budget deal.
Sen. Pete Domenici and Budget Director Franklin Raines discuss the budget agreement .
Browse the NewsHour's coverage of the budget, the White House and the Political Wrap index
Office of Management and Budget
U.S. Senate and House of Representatives
The Urban Institute
Citizens for a Sound Economy
Tim Starkey of Sumner, WA, asks: I've been told that if Social Security is taken out of the equation, that there is no surplus. In fact, the U.S. would have a 100 billion dollar deficit. Is the Clinton administration using smoke and mirrors to create this so called surplus?
Dr. Rudolph Penner, the Arjay and Frances Miller Chair in Public Policy at the Urban Institute, responds:
You are right that there will be a surplus in the social security trust funds in 1999 of about $100 billion. It will be used to finance a deficit of a similar amount in the rest of government. However, it is too harsh to say that combining social security with the rest of government and reporting a small overall net surplus amounts to using smoke and mirrors.
The so-called "unified budget" that basically records all cash inflows and outflows of the entire government, including social security, provides highly useful information. The fact that the unified budget has a small surplus means that the government will not have to engage in net borrowing from the public for the first time since 1969. This is a very important development. It means that government will not be drawing on any private saving to finance its activities. Consequently, more savings will be available to finance private sector, productivity-enhancing investments.
Nevertheless, the non-social security part of government is borrowing about $100 billion from the social security trust funds. Because one part of government is borrowing from another part of the government, the amount of debt in the hands of the public does not change, but the transaction has important implications for the future. When the baby boomers retire, the social security trust funds will cash in the bonds that they are now accumulating unless benefits are cut or payroll taxes raised. The non-social security part of government will have to redeem the bonds by borrowing more, taxing more, or cutting other expenditures.
The amounts now being accumulated by the social security trust funds are very large, but not large enough to fund the benefits promised to baby boomers. Significant social security reforms are necessary to keep the system viable.
It would be possible to run social security without a trust fund. Benefits would be paid out of operating accounts and payroll tax revenues would be treated like any other tax. That might be more honest. It would destroy the illusion that current trust fund balances have any relationship to the amounts really required to fund the system.
Mr. James Miller, counselor at the Citizens for Sound Economy, responds:
You are correct. For fiscal years 1999 through 2002, the President claims surpluses of $9.5 billion, $8.5 billion, $28.2 billion, $89.7 billion, and $82.8 billion respectively. Yet, the Administration estimates that over the same years payments into the Social Security program will exceed outlays by $113 billion, $123 billion, $130 billion, and $139 billion respectively. Since, by law, these surpluses are exchanged for Treasury debt, they immediately go into the general fund and are used to support ordinary spending. In other words, there is nothing in the Social Security trust fund but IOUs on future generations. To the extent that people assume that the trust fund contains real assets (or something other than Treasury debt), the claim that the budget will be in surplus is phoney. Indeed, the way ordinary people think the books are kept, under the President's budget the federal government will run deficits of $104 billion, $114 billion, $102 billion, and $49 billion respectively.
A note about the Administration's proposal to "Save Social Security First:" this is no more than a slogan. From all appearances, the idea was a last-minute insert into the President's State of the Union Address. The actual budget contains no discussion of the proposal, and virtually none of the tables even include the fund as a line item; instead, they simply show a surplus (rather than budget balance). Nor did the President provide any details in his heralded speech on Social Security on February 9th. Perhaps the New York Times editorial of February 3rd identified the intent correctly: "By cloaking his plan under the guise of "saving" Social Security. . . the President has put an obstacle in the way of Republican plans [for a] sweeping tax cut."