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Where is that federal budget surplus?

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Charles W. Jones
International President Emeritus

We don't actually have one yet, and claiming that we do is a deceptive and dangerous practice

Here's a little mathematical puzzle for you to ponder while you're digesting all that holiday turkey and pie.

No doubt you've heard that President Clinton has proudly proclaimed a $69 billion surplus for fiscal year 1998, and a $120 billion surplus for 1999. It is all over the newspapers and television.

By anyone's math, that means the federal government took in $189 billion more than it spent between October 1, 1997 and September 30, 1999 (the federal fiscal year runs Oct. 1 to Sept. 30).

So we should have $189 billion left over somewhere.

Yet the U.S. Treasury Department's Bureau of the Public Debt tells us that the federal debt grew from $5.413 trillion to $5.656 trillion during that same time period. In other words, we borrowed an additional $243 billion.

Can you explain that math? If we have a surplus, why did we need to borrow more money?

This is a trick question, of course. The answer has nothing to do with arithmetic and everything to do with politics. The answer lies in an accounting trick known as the "unified federal budget."

Back in the 1960s, the federal government began running up larger deficits than they'd ever seen before, caused in part by the expense of the war in Vietnam. At the same time, the Social Security funds were beginning to show some very sizable surpluses as the post-war baby boom generation began going to work for the first time.

President Lyndon Johnson's advisors pointed out to him that he could make his budget deficit disappear simply by throwing the Social Security surpluses into the pot when he calculated the budget. He did so for the first time in 1969, and generated the first surplus since Eisenhower.

He called this the "unified" budget, because it unified the federal budget with Social Security trust funds. Until 1969, Social Security income and expenses had been "off budget;" that is, they weren't counted for or against the federal budget.

Every president since Johnson has used his little trick when discussing the budget. Why not? It makes them look good. The unified budget disguises just how far in the red our government has been going each year.

For example, in 1998, the "on budget" portion of the unified budget was $30 billion in the red, but the unified budget was in the black by $69 billion. In 1999, federal revenues fell $5 billion short of paying all of the bills, but Clinton claimed a $120 billion surplus. That is why our federal debt continued to grow even while the president crowed about budget surpluses.

The good news is that we will begin seeing some true budget surpluses soon, maybe as early as fiscal year 2000. The bad news is that the size of these surpluses will be enormously exaggerated by the unified budget.

Using unified budget is deceptive and dangerous

It is no secret why presidents and Congress prefer the unified budget. But this method of accounting poses many problems that they don't like to talk about.

The unified budget is deceptive. By claiming to have a surplus, the president makes taxpayers believe he is reducing our federal debt when the truth is that it continues to grow.

This false surplus also confuses the issue when we try to talk meaningfully about the future of Social Security and other government programs. By lumping everything together, we run the risk of taking actions that jeopardize the future of Social Security.

The actions of Congress this past year are a good example. Republican leaders pushed through a tax bill that contained nearly one trillion dollars in tax cuts. As usual with Republican-sponsored tax cuts, these would have benefited mainly the wealthy and businesses. For that reason alone, we would have opposed the bill. If anyone needs a tax break, it's the working stiff, not the rich corporate executive or stock speculator.

But that tax bill was dangerous for another reason that wasn't as obvious: it would have spent every cent of the projected surpluses over the next ten years. There would have been nothing left over to pay down the federal debt or to strengthen Social Security and Medicare.

And make no mistake about it, Social Security and Medicare need strengthening. Medicare needs a prescription drug component. Too many retirees cannot afford the exorbitant prices drug companies charge for maintenance drugs to control such conditions as high blood pressure, arthritis, and Alzheimer's disease. Few people make it to retirement without needing regular medication of some kind. Too often they are forced to choose between drugs and food.

We also need to ensure that money is set aside for Social Security. In about 15 years, as the baby boomers begin retiring in large numbers, Social Security will no longer be taking in more than it pays out. It will begin paying out more than it brings in. We need to take steps now to meet that eventuality.

The time has come for the federal government to abandon the use of the unified budget when discussing the federal budget. Taxpayers need to know the real figures, not the ones that make the president and Congress look good.

Politicians in Washington owe us the truth. Even when it hurts.

Reporter  V38N6
Published on the Web: June 14, 2007

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