Federal Finance: having it both ways

To the dismay and disappointment of conservatives, the Republican Congress set a record "unified budget" deficit of $412 Billion in FY 2004.

This departure from fiscal conservatism may have been an under-appreciated factor in the GOP's loss of Congress in 2006. But Republicans did make 3 years of progress and got the deficit down to $162B in FY 2007 -- a reduction of $250B.

In the first complete fiscal year Democrats were the majority (FY 2008), the deficit exploded to an estimated $455B, nearly tripling the deficit they inherited and setting a new all-time record.

This fiscal year (FY 2009) the deficit is expected to nearly triple again and perhaps hit $1.2 Trillion, breaking into 13 digits for the first time.

Do you see a pattern here?

In a press conference on January 7, Representative John Spratt (D-SC) said this:

Well, thank you for coming. This is sort of the last chapter in the fiscal history of the Bush administration, and Senator Conrad and I thought it was an apt occasion to talk about the legacy they're leaving behind.


CBO's latest numbers are a grim epitaph for the outgoing administration. They stand certainly in stark contrast to the budget it inherited, $236 billion in surplus the year before it took office. When it came to office in 2001, the Bush administration stepped into the largest surpluses in American history in nominal terms. The Bush administration then proceeded to convert $5.6 trillion in projected surpluses, its number, $5.6 trillion, into nearly $4 trillion in projected deficits -- all of it added to the national debt. ...

"They're leaving behind?" "Grim epitaph?"

This is really rich. You see Rep. Spratt was the Chairman of the House Committee for the Budget of the 110th Congress. Budgets come out of his committee. It was Spratt who oversaw the FY 2008 budget, which produced the largest deficit in history.

Since budgets are legislation, had "Bush's budgets" been balanced do you suppose Spratt would have given President Bush the credit for it? ("Grim epitaph" my eye.)

The quote above is a stark reminder of why the American people have such contempt for Congress -- they seldom take ownership of their failures, it's always someone else's fault. But not only does Spratt deflect blame for his deficits, he takes credit for the surpluses that happened when his predecessor, Republican John Kasich, was chairman. Just amazing. And Spratt fudges elsewhere, too:

The surpluses Spratt refers to are products of the "unified budget", where 2 budgets are merged -- the on-budget side and the off-budget side. The off-budget side isn't really subject to the budgetary process, however. It covers items that have their own dedicated taxes, which pay for their own programs, like Social Security. (In an Orwellian inversion, the off-budget items are called "mandatory", while on-budget items, like Defense, which I do believe is mandated by the Constitution, are called "discretionary".)

It is the "unified budget" that allows Spratt to report a $236B surplus for FY 2000. But that surplus consisted of an on-budget surplus of $86.4B, and an off-budget surplus of $149.8B, which came mainly from Social Security taxes.

But here's the kicker: With the "unified budget", off-budget surpluses are counted as an asset when reporting deficits but as liability when reporting the accrued deficits, the national debt.

In other words, Congressmen like Spratt can have it both ways: When it suits them a dollar is revenue, and when it doesn't suit them it is debt. The "unified budge" makes the deficit look better than it is while simultaneously making the national debt look worse than it is.

No business would ever be allowed to claim a dollar as being both an asset and a liability. But if the feds do it, it's legal. Instituted in 1969, the "unified budget" is the fraud that is at the heart of federal finance and budgeting -- and Congress should throw it out.

And that would entail changing what is reported as the national debt.

The national debt consists of the publicly held debt and the trust funds. You'd think that trust funds would be assets, but they're actually liabilities, IOUs, whose "redemptions" require Congress to raise funds twice. (Another Orwellian inversion.)

Congress should man up and tell the folks that they, Congress, spent the off-budget surpluses and that consequently the "trust funds" are empty, and though off-budget surpluses will continue to flow into the treasury's general fund, the "publicly held debt" will henceforth be reported as the official national debt.

The "trust funds" should never have been thrown in with the "publicly held debt" in the first place. That's because the treasuries that comprise the "trust funds" are different from regular treasuries; they're not marketable. Whereas regular treasuries have maturity dates and repayment schedules, the "trust fund" treasuries need never be "redeemed". They can sit there forever. Indeed, if off-budget revenues are sufficient to cover expenditures, the "trust funds" will, in fact, be left unredeemed. (Sorta like Congress.)

And Congress has the means to keep from having to "redeem" the "trust funds". Take Social Security, for instance: Congress can raise retirement ages, hike payroll tax rates, lift the cap on what's FICA-taxable, means test, and/or cut benefits, any of which would postpone having to "tap" the Social Security "trust fund". Also, Congress can even end Social Security -- see Flemming v. Nestor (1960) -- which would take the Social Security "trust fund" off the books. But if the feds don't pay back the "regular" treasuries in the "publicly held debt", then America is in default...bankrupt.

But I'm not through with Spratt just yet, as he cites "projected surpluses".

Projections of future surpluses or deficits are seldom reliable. The projections at the end of the Clinton years didn't take into account the 9/11 attacks, the dot-com meltdown, the mortgage mess, etc. Such projections are purely political. But that doesn't stop people who should know better from making them, like economist Joseph Stiglitz in his recent article The $10 Trillion Hangover (PDF alert). Stiglitz uses "unified budget" figures, too. The $128B surplus he cites for FY 2001 consisted of a $32B on-budget deficit that was offset by a $160B off-budget surplus.

Bill Clinton projected Billion dollar deficits "for as far as the eye could see". Not to be outdone, Obama projects Trillion, with a T, dollar deficits "for years to come".

What Clinton's projections didn't take into account was the takeover of Congress by Republicans like John Kasich who would balance the budget. (So much for projections.)

We don't yet know what Obama's projections aren't taking into account. But could it be the collapse of the U.S. dollar?

Congress has long off-loaded Congress' own responsibility, such as for the budget, onto the presidency. This is dereliction of duty and utterly contemptible. But what Spratt and his fellow Democrats are now trying to do is pave the way for unprecedented spending that will run into untold Trillions. (This is where the collapse of the dollar comes in.)

So what does this little change, of reporting the "publicly held debt" as the official national debt -- really buy us?

Well, it won't deter Congress from its madcap spending spree of Trillions; the deficit is simply not a concern of the current Congress. And Congress would still be able to use off-budget surpluses as Congress' own private incumbency-protection slush fund. But Congress wouldn't be able to bludgeon a president for a run-up in the national debt that is comprised of phony "trust funds" which Congress itself spent.

What this change would actually buy us is a little clarity, transparency and honesty. And if off-budget surpluses were used to retire "publicly held debt", then Rep. Spratt could honestly report a surplus. (NOTE: With the "unified budget", off-budget surpluses used to pay down the "publicly held debt" leave the official national debt unchanged.)

Currently, the "publicly held debt" (the real debt) is $6.3 Trillion, and the "trust fund debt" (the phony debt) is $4.2 Trillion. So if Congress returns to reporting the real debt, it must immediately lower the debt ceiling by about $4.2 Trillion. Otherwise Congress will think they've found $4.2 Trillion...and spend it.

Jon N. Hall is a programmer/analyst living in Kansas City.
To the dismay and disappointment of conservatives, the Republican Congress set a record "unified budget" deficit of $412 Billion in FY 2004.

This departure from fiscal conservatism may have been an under-appreciated factor in the GOP's loss of Congress in 2006. But Republicans did make 3 years of progress and got the deficit down to $162B in FY 2007 -- a reduction of $250B.

In the first complete fiscal year Democrats were the majority (FY 2008), the deficit exploded to an estimated $455B, nearly tripling the deficit they inherited and setting a new all-time record.

This fiscal year (FY 2009) the deficit is expected to nearly triple again and perhaps hit $1.2 Trillion, breaking into 13 digits for the first time.

Do you see a pattern here?

In a press conference on January 7, Representative John Spratt (D-SC) said this:

Well, thank you for coming. This is sort of the last chapter in the fiscal history of the Bush administration, and Senator Conrad and I thought it was an apt occasion to talk about the legacy they're leaving behind.


CBO's latest numbers are a grim epitaph for the outgoing administration. They stand certainly in stark contrast to the budget it inherited, $236 billion in surplus the year before it took office. When it came to office in 2001, the Bush administration stepped into the largest surpluses in American history in nominal terms. The Bush administration then proceeded to convert $5.6 trillion in projected surpluses, its number, $5.6 trillion, into nearly $4 trillion in projected deficits -- all of it added to the national debt. ...

"They're leaving behind?" "Grim epitaph?"

This is really rich. You see Rep. Spratt was the Chairman of the House Committee for the Budget of the 110th Congress. Budgets come out of his committee. It was Spratt who oversaw the FY 2008 budget, which produced the largest deficit in history.

Since budgets are legislation, had "Bush's budgets" been balanced do you suppose Spratt would have given President Bush the credit for it? ("Grim epitaph" my eye.)

The quote above is a stark reminder of why the American people have such contempt for Congress -- they seldom take ownership of their failures, it's always someone else's fault. But not only does Spratt deflect blame for his deficits, he takes credit for the surpluses that happened when his predecessor, Republican John Kasich, was chairman. Just amazing. And Spratt fudges elsewhere, too:

The surpluses Spratt refers to are products of the "unified budget", where 2 budgets are merged -- the on-budget side and the off-budget side. The off-budget side isn't really subject to the budgetary process, however. It covers items that have their own dedicated taxes, which pay for their own programs, like Social Security. (In an Orwellian inversion, the off-budget items are called "mandatory", while on-budget items, like Defense, which I do believe is mandated by the Constitution, are called "discretionary".)

It is the "unified budget" that allows Spratt to report a $236B surplus for FY 2000. But that surplus consisted of an on-budget surplus of $86.4B, and an off-budget surplus of $149.8B, which came mainly from Social Security taxes.

But here's the kicker: With the "unified budget", off-budget surpluses are counted as an asset when reporting deficits but as liability when reporting the accrued deficits, the national debt.

In other words, Congressmen like Spratt can have it both ways: When it suits them a dollar is revenue, and when it doesn't suit them it is debt. The "unified budge" makes the deficit look better than it is while simultaneously making the national debt look worse than it is.

No business would ever be allowed to claim a dollar as being both an asset and a liability. But if the feds do it, it's legal. Instituted in 1969, the "unified budget" is the fraud that is at the heart of federal finance and budgeting -- and Congress should throw it out.

And that would entail changing what is reported as the national debt.

The national debt consists of the publicly held debt and the trust funds. You'd think that trust funds would be assets, but they're actually liabilities, IOUs, whose "redemptions" require Congress to raise funds twice. (Another Orwellian inversion.)

Congress should man up and tell the folks that they, Congress, spent the off-budget surpluses and that consequently the "trust funds" are empty, and though off-budget surpluses will continue to flow into the treasury's general fund, the "publicly held debt" will henceforth be reported as the official national debt.

The "trust funds" should never have been thrown in with the "publicly held debt" in the first place. That's because the treasuries that comprise the "trust funds" are different from regular treasuries; they're not marketable. Whereas regular treasuries have maturity dates and repayment schedules, the "trust fund" treasuries need never be "redeemed". They can sit there forever. Indeed, if off-budget revenues are sufficient to cover expenditures, the "trust funds" will, in fact, be left unredeemed. (Sorta like Congress.)

And Congress has the means to keep from having to "redeem" the "trust funds". Take Social Security, for instance: Congress can raise retirement ages, hike payroll tax rates, lift the cap on what's FICA-taxable, means test, and/or cut benefits, any of which would postpone having to "tap" the Social Security "trust fund". Also, Congress can even end Social Security -- see Flemming v. Nestor (1960) -- which would take the Social Security "trust fund" off the books. But if the feds don't pay back the "regular" treasuries in the "publicly held debt", then America is in default...bankrupt.

But I'm not through with Spratt just yet, as he cites "projected surpluses".

Projections of future surpluses or deficits are seldom reliable. The projections at the end of the Clinton years didn't take into account the 9/11 attacks, the dot-com meltdown, the mortgage mess, etc. Such projections are purely political. But that doesn't stop people who should know better from making them, like economist Joseph Stiglitz in his recent article The $10 Trillion Hangover (PDF alert). Stiglitz uses "unified budget" figures, too. The $128B surplus he cites for FY 2001 consisted of a $32B on-budget deficit that was offset by a $160B off-budget surplus.

Bill Clinton projected Billion dollar deficits "for as far as the eye could see". Not to be outdone, Obama projects Trillion, with a T, dollar deficits "for years to come".

What Clinton's projections didn't take into account was the takeover of Congress by Republicans like John Kasich who would balance the budget. (So much for projections.)

We don't yet know what Obama's projections aren't taking into account. But could it be the collapse of the U.S. dollar?

Congress has long off-loaded Congress' own responsibility, such as for the budget, onto the presidency. This is dereliction of duty and utterly contemptible. But what Spratt and his fellow Democrats are now trying to do is pave the way for unprecedented spending that will run into untold Trillions. (This is where the collapse of the dollar comes in.)

So what does this little change, of reporting the "publicly held debt" as the official national debt -- really buy us?

Well, it won't deter Congress from its madcap spending spree of Trillions; the deficit is simply not a concern of the current Congress. And Congress would still be able to use off-budget surpluses as Congress' own private incumbency-protection slush fund. But Congress wouldn't be able to bludgeon a president for a run-up in the national debt that is comprised of phony "trust funds" which Congress itself spent.

What this change would actually buy us is a little clarity, transparency and honesty. And if off-budget surpluses were used to retire "publicly held debt", then Rep. Spratt could honestly report a surplus. (NOTE: With the "unified budget", off-budget surpluses used to pay down the "publicly held debt" leave the official national debt unchanged.)

Currently, the "publicly held debt" (the real debt) is $6.3 Trillion, and the "trust fund debt" (the phony debt) is $4.2 Trillion. So if Congress returns to reporting the real debt, it must immediately lower the debt ceiling by about $4.2 Trillion. Otherwise Congress will think they've found $4.2 Trillion...and spend it.

Jon N. Hall is a programmer/analyst living in Kansas City.