Hans F. Sennholz, “The Budget Surpluses” (2000)

This file is a short polemical policy essay. Written in November 2000, it examines the Clinton-era federal budget surpluses and argues that they are largely an accounting illusion produced by treating trust-fund balances and Federal Reserve remittances as ordinary fiscal resources. Sennholz’s main thesis is that the apparent surplus masks continuing debt growth, future entitlement liabilities, taxation, and monetary expansion.

A budget reflects a president’s aspirations and hopes, his wishful thinking as well as his philosophy of politics.

That opening conceptual move frames the federal budget not as neutral arithmetic but as political theater. Sennholz calls this “fiscal legerdemain”: the conversion of taxes into supposed benefits, deficits into surpluses, and debt transfers into debt reduction. He presents the late-1990s surplus as a case study in this rhetorical and accounting transformation, stressing that the national debt continued to rise even while officials claimed surplus.

The surplus deception is clearly discernible in the statistics of national debt.

The essay’s structure follows the mechanisms of that deception. First, Sennholz points to rising national-debt figures in 1998–2000; then he turns to the treatment of Social Security and other trust funds. His argument is that these funds represent obligations to future beneficiaries, not free revenue available for current spending. To spend them while calling the result a surplus is, in his view, analogous to a private fiduciary treating deposits as profit.

It consumes them and thereby incurs obligations as binding as those to the owners of savings bonds.

Sennholz does acknowledge one limited benefit of trust-fund surpluses: when they offset Treasury borrowing, they can reduce pressure on capital markets. Yet this concession is subordinate to his larger claim that such surpluses are still “tax exactions” and do not abolish the government’s obligations. The key distinction is between marketable debt held by the public and non-marketable intragovernmental IOUs. Clinton’s proposal to use Social Security surpluses to retire publicly held debt is therefore interpreted as a shift in creditors, not a liberation from indebtedness.

The Treasury calls it “debt reduction”; it actually is mere “debt shifting” from bill and bond holders to Social Security claimants.

The essay then broadens from trust funds to Federal Reserve accounting. Sennholz treats “Miscellaneous Receipts” as another instance of fiscal illusion, because Federal Reserve earnings arise from Treasury securities purchased with newly created money and then remitted back to the Treasury. This allows government finance to appear circular and costless, while concealing the inflationary base beneath it.

“Miscellaneous Receipts” of the Treasury are legerdemain revenues created by the U.S. Congress.

Here Sennholz’s Austrian and hard-money assumptions come into view most clearly. The power to finance government through central-bank money creation is not merely technical; it is, for him, a coercive monetary privilege that redistributes wealth by reducing the dollar’s purchasing power. The budget omits these depreciation gains to the Treasury, just as it omits the real burden imposed on holders of money and future taxpayers.

The power to print money and force it on the people is the power to engage in inflation, which is one of the political evils of our time.

The essay closes by turning from accounting criticism to political forecast. Sennholz expects future administrations to spend the trust-fund surpluses, while demographic pressures from Social Security and Medicare will convert temporary balances into large deficits. The relevance of the piece lies in its insistence that budget balance cannot be judged by headline surplus figures alone: one must ask whether liabilities are being shifted, whether taxes are being disguised, and whether monetary expansion is silently financing public expenditure.

When economic activity declines and unemployment rises, most politicians are likely to go into overdrive spending.