NCPA - National Center for Policy Analysis

EPF: Feds Deeper In Debt, Even With "Surplus"

April 6, 1998

President Clinton's proposed 1999 budget projects a negligible deficit for 1998 and growing surpluses to be placed into "a reserve pending Social Security reform" for the next five years. However, economists warn the total federal debt will increase at the rate of nearly $200 billion a year for the next five years even as the federal budget is "balanced."

If we have a surplus, why is our debt growing? The reason why stems largely from the way in which Social Security is counted in the budget.

Including only "on-budget items" -- the budget without the revenues or expenses associated with Social Security -- the budget is actually $100 billion in deficit, and no balance in on-budget items will occur anytime soon. It is largely the inclusion of the Social Security trust fund surpluses that makes the deficit seem to disappear in the "unified" budget.

  • To date, the government has "borrowed" $1.75 trillion from various trust funds, which is included in calculation of the total federal debt.
  • Social Security is the largest source, but the government also borrows from Medicare, military retirement and other trust funds -- and this year it will borrow another $184 billion.
  • However, this borrowing from trust funds also gets counted in the unified budget as revenue, which is why we appear to have a growing surplus.

To repay the funds borrowed from Social Security and Medicare, say economists, the government must raise taxes, cut spending, go further into debt, default on its obligations, or choose some combination of these actions.

Thus, some would say President Clinton's proposal to "reserve 100 percent of the surplus -- that's every penny of any surplus -- until we have taken all the necessary measures to strengthen Social Security" is misleading.

Source: Max Lyons, "Save Social Security With the Budget Surplus? Not Any Time Soon," E-Mail Trends, April 6, 1998, Employment Policy Foundation, 1015 15th St., N.W., Suite 1200, Washington, D.C. 20005, (202) 789-8685.


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