U.S. deficit forecast masks true scope of problem
If America ran its books more like a business, the real state of its finances would be clearer. U.S. budget scorekeepers now predict a $1.34 trillion deficit for 2010, a tad less than forecast in March. Still, it’s an enormous gap. And the headline number lowballs the shortfall.
To be fair, the Congressional Budget Office does its best. The unit is the closest thing associated with Congress to an independent and impartial fiscal judge. As the debate over the costs of healthcare reform showed, the CBO’s analysis affects not only public perception of policy but also its substance.
Yet the CBO still operates under rules set by Congress. And those constraints, whether by design or chance, result in an undeservedly rosy U.S. budget picture. For instance, the CBO calculates that the federal government will run up an additional $6.2 trillion in debt by 2020, raising the U.S. debt-to-GDP ratio to about 69 percent — a high but perhaps tolerable level.
But assuming various tax breaks are extended rather than expiring — an increasingly likely-looking scenario — debt would actually balloon to $11 trillion, or 90 percent of GDP. And if discretionary government spending rises in line with nominal GDP rather than the consumer price inflation used by the CBO, that would tack on another $2 trillion of borrowing. Throw in a few other more realistic assumptions, and the debt-to-GDP ratio ends up in scary territory north of 100 percent by 2020.
Then consider that America’s numbers are reported on a cash-in, cash-out basis. They make no provision for future liabilities such as Medicare and social security. As with companies’ financial figures, it pays to read the footnotes. In a little-noticed report, the U.S. Treasury does annually put out the data needed to calculate America’s liabilities according to business accounting principles. If the government were setting aside the money today needed to fund those liabilities fully, the 2010 deficit would be more like $4.3 trillion, according to the Shadow Government Statistics website.
These are the sorts of numbers CBO budgeteers should ideally be highlighting. If they of all people can’t tell it how it is, politicians will never get real with taxing and spending.