On October 11, President Bush went before the television cameras to proudly announce that the budget deficit for fiscal year 2006, which ended on September 30, was only $248 billion. This was a great success, he said, because in February the Office of Management and Budget had estimated that the deficit would be $423 billion.
If this is the standard for success, one wonders why we didn’t do even better. All Bush had to do was order OMB to make an even bigger mistake than it did in estimating what the deficit would be. If it had wrongly projected the deficit to be $500 billion or $600 billion in 2006, then Bush could have announced an even bigger improvement. Maybe next year he should tell OMB to project a deficit of $1 trillion. Then even if the budget deficit rises, Bush can congratulate himself once again for beating expectations.
In the real world, of course, people measure their progress not against some incorrect forecast, but against actual results. By this standard, the numbers don’t look as good. Bush inherited a budget surplus of $128 billion in fiscal year 2001, which the government was already in the midst of when he took office. By the following year, fiscal year 2002, the surplus was gone and the government had a deficit of $158 billion, which rose to $378 billion in 2003 and $413 billion in 2004, before falling to $318 billion in 2005 and $248 billion last year.
But these figures greatly understate the budgetary turnaround. In January 2001, the Congressional Budget Office estimated budget surpluses as far as the eye could see. It projected an aggregate surplus of more than $2 trillion between 2002 and 2006. Instead, we had an aggregate deficit of $1.5 trillion — a deterioration of $3.5 trillion.
Yet these figures still understate the budgetary damage caused by the Bush administration because it leaves out changes in the budgetary status of entitlement programs such as Social Security and Medicare. The federal budget only measures their current cash receipts and outlays. Because these are permanent programs not subject to annual appropriations, however, it is necessary to look at their budgets in what accountants call accrual terms — taking into account future commitments already made.
Incidentally, the difference between cash accounting and accrual accounting is the subject of two new reports. The first is from the Congressional Budget Office and is titled, "Comparing Budget and Accounting Measures of the Federal Government’s Fiscal Condition." The second is from the Government Accountability Office and is titled, "Understanding Similarities and Differences Between Accrual and Cash Deficits."
The federal government does do a calculation of the federal debt based on accrual accounting, but it appears in an obscure Treasury Department publication called the Financial Report of the United States Government. The latest appeared on December 15, and Bush did not call a press conference to announce the results.
The Financial Report presents a complete balance sheet for the federal government, listing all its assets and liabilities, including those that have accrued and will be incurred in future years under current law. It says at the end of fiscal year 2006 the federal government had a net operating cost of minus $449 billion, much worse than the $248 billion deficit Bush announced. The larger figure results from the inclusion of various budgetary items, such as asset depreciation, that are left out of the published budget.
The Financial Report also shows that the true public debt at the end of fiscal year 2006 was not the published figure of $4.6 trillion, but almost twice that — $8.9 trillion — when liabilities for federal employees and veterans’ benefits and other items are included.
But even this larger figure does not represent the government’s total indebtedness because it leaves out Social Security and Medicare, which have projected costs far in excess of projected revenues. Over the next 75 years, these two programs have an unfunded liability of $44 trillion — $15 trillion for Social Security and another $29 trillion for Medicare.
What is really frightening is that Bush apparently has no clue that the problems of Medicare are twice as bad as Social Security’s and getting worse at a much faster rate. At the end of fiscal year 2002, Social Security’s unfunded liability was $11 trillion and Medicare’s was just $13 trillion. Today, Social Security is a little worse, but Medicare is much, much worse.
Yet over and over again, Bush has said we must fix Social Security — even if we have to raise taxes — while saying nothing about the way Medicare is hemorrhaging money. He can’t because his massive, unfunded program for prescription drugs in 2003 is the principal reason why Medicare’s financial problems have gotten so much worse since 2002.