Jefferson's democracy

Franklin Jefferson's thoughts on the world

Wednesday, October 11, 2006

Eight trillion dollars in debt

NEWSWEEK, Sept. 18, 2006 issue

D.C.'s Deficit Math Doesn't Add Up

By Allan Sloan

Next month the White House and its congressional allies will be taking victory laps when the deficit for fiscal 2006 is announced.

The stated deficit for the year, which ends Sept. 30, will be $260 billion or so.

[a quarter of a trillion dollars new debt, and they're talking victory laps? They should be talking sepuku!]

That will be down $58 billion from 2005 and a whopping $77 billion below what the nonpartisan Congressional Budget Office predicted in January.

The White House says this is happening largely because tax revenues have surged--which they have.

It sure sounds great.

But let me share a dirty little secret with you:

the real federal deficit isn't $260 billion.

It's more than double that.

And when you calculate what I consider the real deficit--hold on to your hats, it's $558 billion--you come out with slightly more than last year's real deficit, which I put at $551 billion.

Revenue surge, shmevenue surge.

Things are getting worse, not better.

To be sure, that $558 billion is better than the $635 billion implied by January's CBO numbers.

But it's nothing to crow about, considering that not long from now, baby boomers will begin to retire en masse and put huge pressure on the budget.

We know that numbers in Washington tend to be big and sometimes murky.

But how can the official deficit be only $260 billion while mine is $558 billion?

Am I taking strange pills?

Drinking funny water?


It's the difference between Washington Math--the unique way that the federal government accounts for itself--and real-world math.

Here's the deal.

The stated deficit is the difference between the cash that the government takes in and the cash it spends.

That's $260 billion--the number most analysts use to measure the deficit.

But Uncle Sam will also borrow almost $300 billion from federal trust funds:

$177 billion from Social Security, and an additional $121 billion from "other government accounts" such as federal-employee pension funds.

Some $78 billion of this total comes from the Treasury's taking Social Security's cash surplus this year and spending it.

Most of the rest comes from the government's paying what it owes the trust funds--primarily for interest on their $3.6 trillion of Treasury securities--with I.O.U.s, not cash.

(All my numbers, by the way, are based on public budget documents.)

If a company tried to keep books this way, its accountants would scream faster than you can say Sarbanes-Oxley.

But we're playing by the rules of Washington Math.

I readily concede that if you want to measure the deficit's effect on financial markets, using $260 billion makes sense.

After all, that's how much the government is borrowing from "public investors" such as banks, foreign governments and you and me.

But if you want to see how much deeper the fiscal hole is getting for taxpayers present and future--which is how I think we should measure the deficit--you have to include the almost $300 billion of trust-fund I.O.U.s.

Unless, of course, you expect Uncle Sam to default on his promises.

I've written about the differences between Washington Math and real-world math since the Clinton administration.

The budget situation was improving then and got to be pretty good--though not as good as the Clintonist as wanted us to believe--thanks to fiscal responsibility, a surge in revenues and partisan gridlock that reined in spending.

Now things are heading the wrong way.

Not enough people seem to care that we're hocking ourselves to the eyeballs and borrowing heavily from foreign lenders--such as Asian central banks--whose future national interests may differ from ours.

"There's a disconnect from reality," says Democratic Sen. Kent Conrad, a longtime deficit hawk who is one of the few people who calculates the budget shortfall the way I do.

"It's utterly reckless," Conrad told me.

"The debt load and our growing obligations to foreign creditors are weakening us. We're running risks we shouldn't run."

I agree.

So when the budget victory song is sung in Washington next month, I'll curb my enthusiasm.

If you're worried about our country's financial future, you'll curb yours, too.


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