Jerry Heaster 12/05/2001

http://www.kcstar.com/item/pages/business.pat,business/3acd2f49.c04,.html

The Star

JERRY HEASTER:
Rainy day fund is all wet

By JERRY HEASTER - Columnist
Date: 12/05/01 page C1

Guess what? After four years of federal budget surpluses, the national debt ceiling needs to be raised.

No kidding. Uncle Sam needs his credit card limit increased despite all that extra cash he's been raking in. Not much has been made of it yet, but The Wall Street Journal recently revealed what may become the biggest political bombshell of next year's election campaign.

Senate Budget Committee Chairman Kent Conrad said he was warned last week by the Treasury that Congress next year will be asked to increase the federal debt limit.

How, you might ask, can this be? When the 1997 federal fiscal year ended, the total federal debt outstanding was $5.4 trillion. During the next four fiscal years, the total debt outstanding rose to $5.8 trillion even though Uncle Sam reported well over half a trillion dollars in budget surpluses.

While the marketable debt held by investors did decline by about $500 billion, the nonmarketable debt component, held mostly by trust funds and other government entities, rose by $900 billion. The biggest contributor to the increase in the debt government essentially owes itself was IOUs credited to the Social Security trust fund.

As Social Security tax receipts outpaced benefit payout needs, Uncle Sam used the surplus Social Security revenue to either pay down publicly held debt or pay for other government needs. The same was done with other excess trust fund revenues. The bottom-line result was that Uncle Sam expended $400 billion more than he took in during this period of putative surpluses.

Now that slower tax growth due to recession has combined with the extra expense of economic stimulus and fighting the terrorism war, Washington is reverting to its old deficit financing ways, and the Treasury apparently fears the existing legal debt limit of $5.95 trillion will be breached sooner than expected.

As word has spread of the day of reckoning drawing nigh, a political donnybrook already is developing among Democrats and Republicans. Despite what either side claims, however, the clear truth is that the budget surplus scam was a bipartisan effort in every way.

The early spin is that unexpected economic and geopolitical events are causing the surplus to suddenly evaporate, but this is silly. The fiscal year that ended only two months ago generated a $127 billion surplus. Moreover, $500 billion in extra revenues couldn't be obliterated in only a few months -- if the money had existed in the first place, that is.

In fact, the surplus existed only as a figment of Washington's imagination because the Treasury cannot save money. The world of federal accounting is the only place where spending can be counted as saving. When a dollar of excess Social Security revenue was spent, a dollar was credited to the Social Security trust fund. The money thus "saved" now exists only as a liability of the U.S. Treasury.

Apologists for this politically duplicitous accounting system claim the surplus involves real financial assets, but the exigencies of recession and war prove otherwise. If real money was involved, Uncle Sam would be drawing down the rainy day cash accumulated over the past few years instead of warning of the need to increase his line of credit.

Jerry Heaster's column appears Wednesdays, Fridays, Saturdays and Sundays. To reach him, write the business desk at 1729 Grand Blvd., Kansas City, MO 64108, call (816) 234-4297 or send e-mail to jheaster@kcstar.com.