Federal Deficit Becomes Nearly Indecipherable
Treasury’s “investment” programs serve as a useful accounting gimmick to hide the deficit's true magnitude.
May 29, 2009 - 12:05 am
Did you miss the “good news” on May 12?
The Treasury Department, led by tax cheat Tim Geithner, retroactively reduced the deficit through March 31, the first six months of Uncle Sam’s fiscal year, by over $175 billion.
Here’s the evidence. March’s Monthly Treasury Statement showed a year-to-date deficit of $956.8 billion — but (voila!) April’s statement showed that the deficit through March was only $781.4 billion (items in red and October-March total box added by me):
Wow. How did Treasury do that?
Before I provide the answer, let me first make clear that federal financial reporting has been much less than perfect for a long, long time. The problems started in the 1960s with President Lyndon Johnson’s “unified budget,” which combined the financial results of Social Security, the Postal Service, and the rest of the federal government into one presentation.
On the surface, that may have seemed like a good idea. But, as I’ve explained previously, Johnson’s decision ultimately enabled congresses and presidents of both parties to use Social Security collections in excess of benefits paid to paper over much higher deficits occurring in the rest of the government:
The $2.3 trillion in Social Security cash surpluses shown above has been “borrowed” from the Social Security “Trust Fund” and spent. The “Trust Fund,” far from being a stash of cash for paying out future benefits, contains almost nothing besides IOUs from the rest of the government, which is itself over $11.3 trillion in debt and counting. The “Trust Fund” can’t be paid without raising taxes, reducing benefits, or borrowing even more money. What’s more, the annual Social Security surpluses are disappearing and its cash flow may go negative as soon as 2010 or 2011. Recent news that many more workers than expected are choosing to begin collecting reduced benefits at age 62 is not helping matters in the short term, though it could be perversely helpful in the long term.