WASHINGTON—The U.S. government closes the books on fiscal 2006 Saturday, and politicians are likely to trumpet that the federal deficit came in almost $60 billion below projections. Problem is, they won't be using the same math you use.
The nonpartisan Congressional Budget Office has projected that the federal deficit for the fiscal year ending Sept. 30 will total around $260 billion, aided by a surge in revenues. That's $58 billion lower than last year's deficit and about $77 billion lower than projections at the beginning of the fiscal year.
Great news? Budget experts in Washington and on Wall Street say it's a welcome development, but misleading. Washington's funny math excludes the Social Security trust fund, which is running a $177 billion surplus this year. Washington spends it, but doesn't count it as spending. It's officially listed as "off-budget" borrowing.
"In practice, all the money Washington collects goes into the same pot and gets spent the same. On paper, we say we'll pay Social Security back later," said Brian Riedl, chief budget analyst for the Heritage Foundation, a conservative research center.
So the deficit is actually about $437 billion, the CBO calculates: the $260 billion official deficit plus the $177 billion borrowed from the trust fund. Since the money is "borrowed," it adds to the gross federal debt, which is expected to reach about $8.5 trillion by Jan. 1.
This is why New York investment bank Goldman Sachs & Co. issued a dour report Sept. 22 titled "The U.S. Budget Outlook: No Lasting Improvement."
Spending trust-fund money to mask the true size of the federal deficit is a longtime Washington gimmick, but even so, Heritage calculates that the Bush administration and the Republican-led Congress have increased government spending by 45 percent since 2001. Heritage uses spending numbers from the White House Office of Management and Budget.
Federal spending increased by 9 percent in fiscal 2006, the biggest jump since 1990. It's risen sharply for education, agriculture and several nondefense programs as well as for the war on terrorism and homeland security.
"It's really been a guns-and-butter spending spree," Riedl said. "Of all the federal spending increases since 2001, defense and homeland security combined are responsible for less than a third."
Heritage calculates that discretionary spending, excluding defense and homeland security, has increased by 7 percent annually during the Bush presidency. That nearly doubles the 4.2 percent annual growth under President Clinton.
The current spending increases appear less dramatic, however, when they're viewed as a percentage of gross domestic product, the total value of U.S. goods and services produced in a year. In its midyear review, the White House projected fiscal 2006 spending in the ballpark of 20 percent of the GDP. That's about the same as it was for most of the 1990s, although up sharply from 18.4 percent in 2000.
"We're in a situation where the immediate cash budget isn't the issue. People shouldn't focus too much on that," said Robert Bixby, the executive director of the Concord Coalition, a bipartisan grassroots organization that advocates balanced federal budgets. "The real issue we need to start paying more attention to is what sort of enormous balloon payment are we setting ourselves up for in the future."
Looming just over the horizon is a huge demographic shift that'll strain the federal budget enormously. On Jan. 1, 2008, the first baby boomers—76 million Americans born from 1946 to 1964—become eligible for Social Security benefits. From that point on, a two-decade assault on federal finances begins. The federal government will turn to an ever-declining number of active workers to pay for the health and retirement benefits it's promised to baby boomers.
"For people who think that's a long ways off, the first baby boomer collects their first Social Security check in 14 months," Riedl said. "No economic boom can make up for Medicare rising 9 percent, Medicaid rising 8 percent and Social Security rising 6 percent."
There's another important way that Washington math differs from yours. The nation's books are done on a cash basis: money coming in and going out. Most American business and family budgets don't look only at the flow of money. They use accrual-based accounting, in which liabilities, or commitments, are factored in.
When you buy something with a credit card, you incur those liabilities immediately even if you intend to pay off your debt in the future. The federal cash-basis budget doesn't treat things such as promised future pension benefits to veterans as immediate liabilities.
Buried deep in the nation's financial report, issued every December, is an alternative accrual-basis deficit calculation. For the fiscal year that ended Sept. 30, 2005, that deficit totaled $760 billion. It has grown every year of the Bush presidency. It will grow in the 2006 fiscal year too, approaching $800 billion or more.
Comptroller General David Walker, the nation's chief accounting auditor, has added up all the federal government's unfunded liabilities, or promises, and offers a present-day figure of $46 trillion. Think of that as promises to the tune of $155,932.18 for each of the 295 million Americans.
For more on the CBO's budget outlook, go to www.cbo.gov/ftpdocs/74xx/doc7492/08-17-BudgetUpdate.pdf
For historical data on the federal budget, go to www.cbo.gov/budget/historical.pdf
For the Government Accounting Office's latest budget update, go to www.gao.gov/new.items/d061077r.pdf
(c) 2006, McClatchy-Tribune Information Services.
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