Feds' budget
tricks hide trillions in debt
Every year, tens or
even hundreds of billions of dollars are quietly added to the
national debt -- on top of the deficits that we hear about. What's
going on here?
By
Scott Burns
11/21/2007
When it comes to financial magic, the
government of the United States takes the prize. Sleights of hand
and clever distractions by purveyors of line-of-credit mortgages,
living-benefit variable annuities and equity-indexed life insurance
are clumsy parlor tricks compared with the Big Magic of American
politicians.
Consider the proud trumpeting that came
from Washington at the close of fiscal 2007. The deficit for the
unified budget was, politicians crowed, down to a mere $162.8
billion.
In fact, our government is overspending
at a far greater rate. The total federal debt actually increased by
$497.1 billion over the same period.
But politicians of both parties use
happy numbers to distract us. Democrats routinely criticize the
Republican administration for crippling deficits, but they politely
use the least-damaging figure, the $162.8 billion. Why? Because
references to more-realistic accounting would reveal vastly greater
numbers and implicate both parties.
You can understand how this is done by
taking a close look at a single statement on federal finance from
the president's Council of Economic Advisers. The September
statement shows that the "on-budget" numbers produced a deficit of
$344.3 billion in fiscal 2007. The "off-budget" numbers had a
surplus of $181.5 billion. (The off-budget figures are dominated by
Social Security, Medicare and other programs with trust funds.)
Combine those two figures and you get
the unified budget, that $162.8 billion. In the past eight years
we've had two years of reported surpluses and six years of reported
deficits. Altogether, the total reported deficit has run $1.3
trillion.
Some numbers don't add up
But if you examine another figure, the
gross federal debt, you'll see something strange. First, the debt
has increased in each of the past eight years, even in the two years
when surpluses were reported. Second, the gross federal debt, which
includes the obligations held by the Social Security and Medicare
trust funds, has increased much faster than the deficits -- about
$3.3 trillion over the same eight years.
That's $2 trillion more than the reported
$1.3 trillion in deficits over the period. Can you spell "Enron"?
In other words, while our reported
deficits averaged $164 billion over the past eight years, government
debt increased an average of $418 billion a year. That's a lot more
than twice as much.
How could this happen?
Easy. The Treasury Department simply
credits the Social Security, Medicare and other trust funds with
interest payments in the form of new Treasury obligations. No cash
is actually paid. The trust funds magically increase in value with a
bookkeeping entry. It represents money the government owes itself.
So what happens if we take out the funny
money?
When the imaginary interest payments are
included, Social Security and Medicare are running at a
tranquilizing surplus (that $181.5 billion mentioned earlier). But
measure actual cash, and the surplus disappears.
In 2005, for instance, the Social
Security Disability Income program started to run at a cash loss.
2007 is the first year that Medicare Part A (the hospital insurance
program) benefits exceeded income.
The same thing will happen to the Social
Security retirement-income program in six to nine years, depending
on which of the trustees' estimates you use. During the same period,
the expenses of Medicare Part B and Part D, which are paid out of
general tax revenue, will rise rapidly.
Despite this, the Social Security
Administration writes workers every year advising them that the
program will have a problem 34 years from now, not six or nine
years. In fact, the real problem is already here. It will be a
big-time problem in less than a decade.
Count on it.
Federal deficits versus
increases in the federal debt
| Fiscal year |
Reported
surplus/deficit |
Debt increase |
Debt at start of year |
Debt at year's end |
| 2000 |
$236.2 billion surplus
|
$23.2 billion
|
$5.606 trillion
|
$5.629 trillion
|
| 2001 |
$128.2 billion surplus
|
$141.2 billion
|
$5.629 trillion
|
$5.770 trillion |
| 2002 |
$157.8 billion deficit |
$428.5 billion
|
$5.770 trillion
|
$6.198 trillion
|
| 2003 |
$377.6 billion deficit |
$561.6 billion
|
$6.198 trillion
|
$6.760 trillion |
| 2004 |
$412.7 billion deficit
|
$594.7 billion
|
$6.760 trillion |
$7.355 trillion
|
| 2005 |
$318.3 billion deficit |
$550.6 billion
|
$7.355 trillion
|
$7.905 trillion
|
| 2006 |
$248.2 billion deficit |
$546.1 billion
|
$7.905 trillion
|
$8.451 trillion
|
| 2007 |
$162.8 billion deficit |
$497.1 billion
|
$8.451 trillion
|
$8.949 trillion
|
