The Budget-Surplus Myth

With all the current talk about huge budget deficits, it may be hard for some people to remember that, less than a decade ago, our government leaders were talking about alleged huge budget surpluses as far as the eye could see. In fact, much of the 2000 presidential election campaign revolved around the claim that the United States government had huge budget surpluses that would continue for years to come. President Bill Clinton gave birth to the myth by announcing on June 26, 2000 that, over the next decade, the federal budget surplus would total nearly $1.9 trillion.

The American people wanted Clinton’s mythical surplus to be real, and cunning politicians began building schemes to further mislead the people into believing that surplus money was available for new programs and/or for cutting taxes. Both Al Gore and George W. Bush added fuel to the fire by making promises that they could not possibly keep. Clinton, Gore, and Bush led the public to believe that the government had somehow stumbled onto such a windfall of surplus money that government spending could be increased, taxes could be cut, and the budget could be balanced, all at the same time. But it was all a big lie. Unfortunately, there was no “real” budget surplus in any meaningful sense of the term.

There was a tiny $1.9 billion surplus in the operating budget in 1999, and a more substantial $86.4 billion surplus in 2000, at the peak of the business cycle. But these two modest surpluses were preceded by 38 consecutive years of budget deficits, and they were followed by all-time record deficits. The 1999 and 2000 budget surpluses were the only two annual surpluses in the government’s operating budget in the past 50 years. Furthermore, Clinton had run more than $1 trillion in deficits during the preceding six years, and ran an average annual deficit of more than $125 billion per year during his entire eight years as president.

The surpluses that everyone was talking about during the 2000 presidential election campaign were “projected” surpluses. They were figments of President Bill Clinton’s imagination. Except for 1999 and 2000, the only government surplus that existed was the planned Social Security surplus that was off budget and earmarked for funding the baby boomers’ retirement. Both Bush and Gore made it clear that they were not talking about the Social Security surplus, and both promised not to spend a single dollar of Social Security revenue for non-Social Security purposes.

President Bill Clinton and candidates Al Gore and George W. Bush played American voters for fools during the 2000 campaign. Both Gore and Bush promised to cut taxes, increase government spending, and pay off the national debt within a few years. Bush promised to pay down $2 trillion in debt within 10 years, and to protect “all $2.6 trillion of the Social Security surplus for Social Security, and for Social Security alone.” Gore promised to eliminate the national debt by 2012 while at the same time putting all Social Security surplus revenue in an “iron-clad lockbox.” The national debt was $5.6 trillion in 2000, when these promises were made. Today, it is more than $12 trillion.

When George W. Bush became president, the public was very receptive to his proposal to use the alleged budget surplus to fund tax cuts. By that time, almost everyone seemed to believe that the government actually had large surpluses in the operating budget that would continue for at least 10 years. During his first State of the Union address on February 27, 2001, President Bush declared, “The growing surplus exists because taxes are too high and government is charging more that it needs. The people of America have been overcharged and, on their behalf, I am here asking for a refund.” President Bush, who was asking for the trust and support of the American people, deliberately deceived them during his very first State of the Union address. He did so in order to pass a massive tax cut that he had to know was not in the best interest of the nation or the economy.

Despite Bush’s continuing claims that there was plenty of non-Social Security surplus to fund his tax cut, and despite his pledge not to use any of the Social Security surplus for anything but Social Security, when the numbers were in for fiscal 2001, the government ran a $32.4 billion deficit. The modest surpluses during the last two years of the Clinton presidency would be the last surpluses for a very long time, if not forever. The 2002 deficit was $317.4 billion, and the 2003 deficit was a whopping $538.4 billion. So what happened to the alleged budget surplus that was supposed to continue for years? It never existed. It was all a big lie.

Dr. Allen W. Smith is a Professor of Economics, Emeritus, at Eastern Illinois University. He is the author of seven books and has been researching and writing about Social Security financing for the past ten years. His latest book is The Impending Social Security Crisis: The Government’s Big Dirty Secret. Read other articles by Allen, or visit Allen's website.

2 comments on this article so far ...

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  1. Deadbeat said on December 30th, 2009 at 12:12pm #

    This article b Dr. Smith is much better than his previous one whereby he essentially claimed that the bonds in the SS trust fund are worthless.

    Here Dr. Smith explains about the alleged budget surpluses claimed by the Clinton administration and the policy plans of both Bush and Gore result from this claim. Dr. Smith is correct to point out how Social Security revenue was applied to “balance” the budget but I think Dr. Smith article would be strong is he supplied addition context.

    For example:

    [1] There is great confusion about the government budget. Social Security is a “government” program and is presented as a “line item” on the government “budget”. Therefore it would help if the Dr. Smith explains the implication of having Social Security “on budget” and provide some historical background of Social Security budgeting. Explaining this would provide context that would clarify this confusion.

    [3] The rhetoric of “government spending”. According to the IRS booklets, SS is the “largest” budgetary spending item.

    [3] Why is it necessary for the U.S. to “balance” its budget. Who benefit and who is harmed from a “balanced” budget. For example in order for Clinton to achieve his “balanced” budget was the elimination of the Welfare program.

    [4] The heavy reliance on the regressive payroll taxes to offset the progressive income taxes; the elimination of progressive tax brackets; and the reduction of Capital gains taxes.

    [5] The continuous rising military spending.

    In other words “balancing the budget” is too abstract a term and missing from this article are the concrete aspects OF the budget and its beneficiaries and interests which will provide real context.

  2. juliensa said on January 1st, 2010 at 3:49pm #

    The bugdet deficit problem will be solved as soon as the state stops spending such hug money on war …
    John Memory