Earlier this month, Bill Clinton publicly took a dig at President Donald Trump’s 2018 tax reform plan. He did so while speaking at Georgetown University to celebrate the 25th anniversary of his 1992 presidential victory, something that his wife certainly will never be able to do.
Regarding tax reform, Bill said, “I can’t figure out how come we’re about to spend one and a half trillion dollars on a tax cut that will mostly benefit people in my income group instead of — if we’re going to run the debt up, we ought to at least spend it on infrastructure where there’s a high rate of return and we’ll get the money back.”
As we reported in the past regarding the particular balance of tax cuts and increases, deduction expansions and eliminations, reform hardly amounts to “tax cuts for the rich.” It’s entirely upper-income earners paying the brunt of tax increases resulting from the elimination of the state-income tax write-off. Those earning over $1 million also see a tax surcharge on the first $200,000 they earn above that threshold, too.
Clinton can at least pretend to have some authority on the issue of tax reform, given how often we hear that talking point about how he’s the last president who ran a budget surplus. But did he really? Well, that depends on what your definition of a surplus is.
Take a look at the deficit in nominal terms, and the claims of a surplus do appear true on the surface.
But wait just a second – look at what happened to the national debt as we supposedly were racking up surpluses – it increased.
So what the heck happened? How do we post budget surpluses and yet the national debt increases at the same time?
And with that, I welcome you to the wacky world of government accounting. While we traditionally think of a budget deficit of what it usually is, the government’s spending minus taxes collected, there was an additional variable in the case of Clinton: the Social Security trust fund.
Tabled below are the components of the national debt – public debt plus intragovernmental holdings. Public debt is the discrepancy between taxes and spending (accumulated deficits), and intragovernmental holdings is money borrowed from government trust funds, such as the Social Security and Medicare funds. An increase in intragovernmental holdings would signify that more money is owed to the Social Security/Medicare/etc.
And, indeed, changes in those holdings explain the entirety of the Clinton “surplus.” In fact, you can take the claimed surplus in any given year, add intragovernment holdings to that balance, and you’ll get the exact dollar amount that was added to the national debt that year!
Liberals for the past two decades have pushed the mythical Clinton surplus as evidence of liberal fiscal policy’s superiority – but in reality, it’s nothing more than creative accounting.
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