Hans F. Sennholz, “Balancing the Budget” (1997)

This short March 1997 policy essay is a polemical fiscal commentary. Sennholz’s scope is the federal balanced-budget debate of the late 1990s, but his target is broader: the political accounting by which deficits appear to shrink while public indebtedness rises. His central thesis is that a “balanced” budget achieved by consuming Social Security and other trust-fund surpluses is not fiscal discipline but disguised borrowing, and that real balance requires dismantling the transfer-state incentives that generate chronic deficits.

They want us to believe that the annual budget deficits are declining although the national debt continues to soar.

The essay opens by framing federal budget rhetoric as deception. Sennholz contrasts the reported deficit with the continued increase in the national debt, arguing that the apparent improvement rests on a distinction between the public deficit and the government’s internal borrowing from trust funds. The moral register is deliberately sharp: what would be criminal misrepresentation in private finance becomes routine political technique.

In politics, deceit and hypocrisy often are the royal road to success on which political statistics are assembled and propagated.

The first conceptual move is thus accounting-based: Sennholz separates headline deficit numbers from total federal obligation. He argues that Social Security surpluses are being used to pay for ordinary spending, leaving future claimants with government IOUs rather than assets.

The politicians who practice this deception are using trust funds, in particular, Social Security revenue, to finance some of the deficits.

This critique leads to his objection to the Balanced Budget Amendment then before Congress. Instead of constraining expenditure, he contends, its definition of receipts and outlays would legitimate the very practice he condemns. A budget could be formally balanced while the government accumulated larger obligations to trust funds.

In short, the amendment would permit the spenders to incur trillion-dollar debts to the trust funds, call their budgets "balanced," and ignore the soaring national debt.

The essay then pivots. Sennholz insists that exposing trust-fund borrowing is not a defense of Social Security. On the contrary, he treats Social Security as the institutional center of the American welfare state and as the model for other redistributive programs.

This observation of growing federal indebtedness to trust funds must not be interpreted as a defense of the Social Security system in any form.

For Sennholz, the problem is not merely administrative solvency but political morality. Social Security converts majority power into claims on the earnings of others, especially younger workers. Its popularity makes it politically untouchable, and its rationale teaches every other transfer constituency how to resist cuts. His second major conceptual move is to redefine the budget crisis as a transfer-system crisis: deficits are symptoms of a deeper democratic bidding process in which groups compete for benefits financed by taxpayers and future generations.

To restore a commonplace truth and realism to the transfer system and enhance the prospects for balanced budgets, we must reject all transfer schemes.

The final section sketches routes out of the welfare state. Sennholz names privatization of welfare services, freezes on transfer spending, and legal exit rights for conscientious objectors and young people. These proposals vary in pace and mechanism, but all share one premise: fiscal balance cannot be secured by accounting rules alone if transfer entitlements remain politically protected.

Genuine budget control necessitates an early abolition of all political transfer programs.

The most striking proposal is the exit principle. By allowing the young or morally opposed citizens to withdraw, Sennholz imagines dissolving compulsion from within: a transfer system that must compete for voluntary participants would cease to function as redistribution by political force.

A system which allows its victims to go free is no longer a transfer system.

The relevance of the essay lies in its diagnosis of fiscal illusion. Sennholz reads balanced-budget politics not as austerity but as a struggle over definitions: what counts as a deficit, what counts as debt, and who bears the burden. His conclusion is pessimistic. Public demand for benefits, he argues, overwhelms official rhetoric about restraint, making larger deficits politically predictable rather than accidental.

Public pressures for ever more transfer benefits signal the coming of ever larger deficits.