The real deficit

In Sen. Tom Coburn's book Breach of Trust he says something interesting about the federal deficit. He notes that while people talked excitedly about the disappearing deficits of the 1990s that turned into surpluses were mostly an illusion, with the 2001 federal budget the only one to post an actual surplus. This may come as a surprise to some people.

The reason for this is because the federal budget includes revenue from Social Security and Medicare taxes. Officially, revenue from these taxes are placed into special trust funds that will be used to pay for these programs in the future. The reality is that the federal government has been removing money out of these funds and replacing them with IOUs. So the deficit figures that we look at are calculated by taking ALL federal revenue, including Social Security and Medicare taxes, and then subtracting ALL federal expenditures. The picture changes considerably when you leave Social Security revenue out of the picture.

Suffice to say, we are in for major problems with Social Security shifts from surplus to deficit starts paying out more than it takes in, which should occur in the next 10 years.

George Will writes about this in today's column:

President Lyndon Johnson, to make the deficit numbers during the Vietnam War less scary, adopted the "unified budget," under which Social Security's surplus was mingled with general revenues, thereby reducing -- disguising, really -- the deficit's size. That, [Rep. Jim] Cooper says, was the "original sin" in the budgeting sleight-of-hand that prevents the public from knowing, and Congress from being compelled to act on, facts about the entitlement programs' unfunded liabilities -- promises to future beneficiaries that future taxpayers may not be willing to pay.

Cooper, who has an unshakable appetite for unappetizing numbers, wishes more Americans were similarly eccentric and would read the 188-page 2008 Financial Report of the United States Government -- the only government document that calculates what deficit and debt numbers would be if the government practiced, as businesses must, accrual accounting.

Under such accounting, future outlays to which beneficiaries are entitled by existing law are acknowledged as expenditures before they are paid. Were the Social Security surplus sequestered for accounting purposes, reflecting the truth that it is already obligated, and were there similar treatment of the other entitlement programs' liabilities, the deficit for the fiscal year that ended Sept. 30 would have been $3 trillion rather than $454.8 billion. The report's numbers show that the true national debt is $56 trillion, not the widely reported $10 trillion.

So, really, things aren't as bad as they seem. They're worse.