Sheldon Richman
Understating the Deficit
The Associated Press reports that the current fiscal year’s federal budget deficit will fall short of a record, coming in at over $1.3 trillion, but below last year’s record $1.4 trillion, when the year ends September 30. But something is wrong with the AP’s information.
The U.S. Treasury says the national debt at the end of last fiscal year was $11.9 trillion and a year earlier was $10.02 trillion. Let’s do the math: 11.9 – 10.02 = 1.88. That means last year’s deficit was $1.88 trillion, not $1.4 trillion.
Did the AP get its incorrect number from the Office of Management and Budget?
HT: Ken Sturzenacker
Comment by Jim Agresti on 22 August 2010:
Excellent question. The most basic answer is that the federal budget, which is the “federal government’s primary financial planning and control tool,” is not bound by the same accounting principles under which publicly traded companies must operate: http://justfacts.com/nationaldebt.asp.
This can get complicated, but there are two primary reasons for the difference between the official “budget deficit” and the actual increase in national debt.
1) When the federal government lays out money for programs like TARP and student loans, this money is not fully counted in the deficit. The deficit only accounts for the money that the government expects to lose on these loans (see White House Budget Office citation below).
2) The federal government counts the surpluses of programs such as Social Security as income in the federal budget even though this money becomes part of the national debt and must be repaid with interest. In fiscal year 2009, $137 billion of the difference between the rise in national debt and the 2009 “budget deficit” was due to the Social Security surplus (again, see White House Budget Office citation below).
Incidentally, accounting for the Social Security surplus in this manner is expressly prohibited by federal law (see the heading entitled “EXCLUSION OF SOCIAL SECURITY FROM ALL BUDGETS” in the U.S. Code, Title 2, Chapter 17a: http://uscode.house.gov/download/pls/02C17A.txt.
The arcane details of federal budget accounting conventions are laid out by the White House Budget Office in this document: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/concepts.pdf.
Using figures from this report shown in the extracts below, we can calculate the rise in the national debt for 2009, which, as we will see, adds to the same total as Sheldon’s calculation above.
Page 128: “In 2009, the Government borrowed $1,743 billion from the public…. This borrowing financed the $1,412 billion deficit in that year as well as the net effect of the other means of financing, such as changes in cash balances and other accounts discussed below.”
Page 139: “The off-budget surplus consists entirely of the Social Security surplus. [Footnote: The 2009 off-budget surplus reflects a $137.3 billion surplus for Social Security and a $0.3 billion deficit for the Postal Service.]”
Calculation:
$1,412 billion “budget deficit” + $331 billion “net effect of other means of financing” + $137 billion “off-budget surplus” = $1,880 billion rise in the national debt
Feel free to contact me if you have any comments or questions: http://justfacts.com/contactus.asp
Jim Agresti
President
Just Facts
Comment by Jim Agresti on 22 August 2010:
Also, for more relevant points and primary source citations regarding the post above, see our paper about the impact of Social Security on the national debt: http://justfacts.com/news.impactSS.asp
Pingback by Deficit Watch | The Freeman | Ideas On Liberty on 4 October 2010:
[...] news media will say it is because they say last year’s deficit was $1.4 trillion. But we saw here that in fact the deficit was $1.88 trillion. So, no record. There’s always next [...]