The Phony Issue of Double-Counting

Henry J. Aaron
Henry J. Aaron The Bruce and Virginia MacLaury Chair, Senior Fellow Emeritus - Economic Studies

February 1, 1999

The president’s budget proposal announced in his State of the Union Address has provoked a good deal of confusion about how the numbers fit together. Some people are criticizing the plan for allegedly “double counting” the Social Security surpluses. The purpose of this note is to explain how the president’s proposal would work from an accounting perspective. The message is simple: the double-counting issue is bogus. The president’s address outlined a bold plan that stands in striking contrast to alternative proposals that would use projected budget surpluses to justify large tax cuts or spending increases. Faced with a once-in-a-generation choice about how to spend large and unanticipated surpluses, the nation should confront the big issue “save the surplus or spend it” and not get mired in accounting pettifoggery.

My explanation is built around four tables. The first lays out the president’s program in the terms he presented it. The second shows how some can treat it as double counting. The third shows the effect of the president’s plan on debt obligations and debt holdings from various perspectives. The fourth recasts the president’s plan in terms of the unified budget with an important change in budget rules and shows that the charge of double counting is based on confusion.

Initial Situation

Because I do not have access to the specific numbers in the budget forecast, I illustrate the accounting for the proposal with a hypothetical initial situation. I assume that the budget faces a projected unified budget surplus of 150, consisting of a surplus in Social Security of 100, and a surplus in other operations of government (“on-budget”) of 50.

Initial Balance
Social Security + 100
On-budget + 50
Unified Budget + 150

The President’s Plan

To keep the numbers whole, I assume that the president proposes to allocate 90 to Social Security, 22 to Medicare, and 38 to other purposes (including tax cuts, USA accounts, defense, and non-defense discretionary programs). These amounts happen to be equal to 60 percent of the unified budget surplus for Social Security, approximately 15 percent for Medicare, and approximately 25 percent for other purposes. These numbers correspond approximately to the proportions the president presented in his State of the Union address. As with the president’s proposal, however, the appropriations for these purposes would be stated as hard numbers, not as fractions of the projected unified budget surplus.

Table 1 shows the budget accounting for these transactions. Note that the term “unified budget” does not appear in table 1. I have omitted it because I believe that the budget initiative of the president implicitly adopts a budget framework, used by some but not all Republicans in 1998 to motivate tax cuts, but the president employs that framework to motivate a quite different policy. In 1998, CBO projections indicated that the unified budget would be in surplus over the succeeding decade, but that virtually all of that surplus would be accounted for by Social Security surpluses. That is, the cumulative “on budget” surplus over the succeeding decade was essentially zero. Nonetheless, the Republicans claimed that projected “surpluses” justified a tax cut.

Table 1: The President’s Plan

On-budget surplus

Social Security surplus



Allocation to Social Security (set at 60 percent of balance

Allocation to Medicare (set at 15 percent of Balance) 22
Available for other uses (tax cuts, USA accounts, defense, non-defense discretionary 38
Balance available for various uses 150 Total uses of funds 150

The president seems to be saying: “OK. If you want to treat the unified budget surplus as up for grabs, so will I. But I shall allocate it for my purposes, not yours.” One should keep in mind also that the president, as well as many Republicans, have made much of their success in “balancing the budget.” But this claim makes sense only if “the budget” refers to the unified budget, as the “on-budget” accounts—that is, the unified budget less Social Security—remain in deficit. To treat only projected “on-budget” surpluses as available for saving Social Security or any other purpose would mean admitting that these “on-budget” surpluses have not yet been realized.


This approach has led to the charge by some budget analysts that the president is double counting the Social Security Surplus. Table 2, a”reconciliation” table, indicates how one might reach this conclusion. The Social Security surplus of 100 appears twice: once by itself and once as part of the unified budget surplus. The president could well respond that it was the Republicans who began this approach by claiming that Social Security surpluses justified tax cuts, even when the “on-budget” accounts were projected in 1998 to have no surpluses until 2005. As indicated below, however, there is a more fundamental answer.

Table 2: Reconciliation

Sources Uses
Unified budget surplus 150 Additions to Social Security reserves 190
Social Security Surplus 100 Additions to Medicare reserves 22
    Available for other uses 38
Total 250 Total 250

Debt Transactions

Table 3 shows the changes in debt and asset holdings arising from the president’s proposal. It reveals that debt in the hands of the public falls by the amount of the unified budget surplus less uses of funds for purposes other than adding to Social Security and Medicare reserves, while debt obligations of the Treasury (which are subject to the debt limit) actually increase.

Table 3: Debt Reconciliation under President’s Plan

of Government
Trust Funds Treasury Debt
(subject to
debt limit)
Social Security Reserves

Medicare Reserves

Initial Social Security Surplus (100) ?   100 +   100    
Transfer to Medicare (22)     +  22 +  22
Transfer to Social Security (90)   +  90   +  90
On-budget surplus (50, less 38) –  12     –  12

–  112

+  190

+  22

+  100

This increase in debt owed by the Treasury does not correspond to an actual growth of government debt, if one takes benefit commitments under Medicare (part A) and Social Security as given. From this perspective, the federal government has a “shadow” debt, in addition to the official debt, equal to the difference between a) the present value of promised Medicare (part A) and Social Security benefits and b) the present value of payroll taxes expected at current rates. President Clinton’s proposal replaces a part of this implicit debt with explicit government debt deposited with the Trust Funds of these two programs. The president’s plan reduces the projected long-term deficit in these two programs. If the president had wished, he could have proposed closing the deficit in these two programs entirely by depositing newly created Treasury obligations in the Trust Funds—that is, he could have replaced implicit debt entirely with explicit debt. Instead, he declared that additional steps are necessary—presumably benefit cuts or tax increases—are necessary to close the projected long-term deficit entirely and invited members of Congress to join him in fashioning such changes.

A Modified Unified Budget Framework

To see why the charge of double-counting is bogus, one need only translate the president’s program into the traditional framework of the unified budget.

Table 4:
A Unified Budget Accounting of the President’s Program
“On-budget” Accounts—initial situation +  50
New discretionary spending ?  38

Transfers to

Social Security ?  90
Medicare ?  22
Medicare—transfers from Treasury (+ 22)
Subtotal—On-budget ?  100
Social Security—initial situation +  100
Transfer from Treasury (+  90)
Subtotal—Social Security +  100
Grand total—Unified Budget +  0

Under the modified unified budget rules, the transfers of bonds from the Treasury to Medicare and Social Security would count as “on-budget” outlays but not as income to either program (hence the deposits are put in parentheses in Table 4). These transfers, along with the increase in discretionary spending, fully exhaust the budget surplus. This change in rules is essential for achievement of the president’s stated purpose of reserving the surplus to increase national saving. Under the old rules, the receipts to the Medicare and Social Security Trust Funds would count as receipts, leaving a unified budget surplus of 112. This sum would be available for tax cuts or increased spending, both of which would boost national consumption, not saving. And if taxes were cut or spending increased by this amount, the federal government would not repurchase any debt from the public. But it is these repurchases that free resources for investment.

Casting the President’s program in terms of a modified unified budget does not in any way change the substance of the program. Afficionados of traditional unified budget accounting may wish that the president had presented his program in that form. To have done so would have defeated the objectives of the program. The modified unified budget framework preserves the substance of the program. The key point is that one should not allow the form of the presentation to divert one from the substance of the program, which is where debate should focus. Confronted with truly enormous projected surpluses, unprecedented since the indexation of the personal income tax, should the nation cut taxes or boost spending, two ways of increasing current consumption? Or should the nation save these surpluses to help reduce the deficits of the two largest and most popular programs of the federal government, Social Security and Medicare? This choice is a big issue that should be settled by the electorate in a mature democracy. Legitimate disagreements are possible on the future role of social insurance and on the importance of boosting national saving and economic growth relative to supporting current consumption, private and public. But the nation should confront these issues, not spend its time on a petty and misplaced concern about double-counting.