While there has been a fair amount of press about the federal budget approaching the "balanced" line, it's important to note this "balancing" is in fact a neat accounting trick that belies that actual result of the last six years of federal policy. When all the facts come into play, the deficit situation is in fact much worse than the figures reported in the press.
Let's start with a few definitions which I'll use in the following paragraphs.
Government revenues -- money the government takes in, primarily from taxes
Government expenditures -- money the government spends
Intra-government debt -- one government agency borrowing money from another government agency
Publicly held debt -- U.S. government debt sold to the public
Is everybody still with me? Good. Here we go.
The numbers reported by the financial press include all of the figures mentioned above. They take into account all government revenues and expenditures along with the social security trust fund. Let's see how this works by looking at a particular year.
According to the Congressional Budget Office, in 2006 the government took in $2.407 trillion in revenue and spent $2.655 trillion for a total deficit of -$248.2 billion. That doesn't look too bad. In fact it looks good compared to the deficit of -$318.3 billion in 2005 and -$412.7 billion in 2004. It looks like we're making progress and everything will be fine within a few years.
Here's the problem with that line of thinking. It's not accurate. The figures quoted in the financial press take into account the social security trust fund. These figures are added to the numbers reported in the deficit, which assumes there in fact is money in the trust fund. In addition, no one reports on the total amount of federal debt -- both public and intra-governmental.
And there is money in the trust fund -- in the form of intra-government debt. Various federal agencies are borrowing the FICA money for current operations and replacing the funds with what is essentially as IOU saying, "We'll pay you back sometime in the future."
Here's the end result of the last six years of fiscal policy. Below is the total amount of intra-governmental and publicly held debt outstanding at the end of each of the last fiscal years and the total increase in federal government debt from the preceding year. This information comes from the Treasury Department.
Year --- Total Government Debt --- Increase From Preceding Year
09/30/2006 --- $8,506,973,899,215.23 --- $574,264,237,491.73
09/30/2005 --- $7,932,709,661,723.50 --- $553,656,965,393.18
09/30/2004 --- $7,379,052,696,330.32 --- $595,821,633,586.70
09/30/2003 --- $6,783,231,062,743.62 --- $554,995,097,146.46
09/30/2002 --- $6,228,235,965,597.16 --- $420,772,553,397.10
09/30/2001 --- $5,807,463,412,200.06
Notice that the amount of debt issued every year is a lot bigger than the amount of the deficit reported in the financial press. This leads to an interesting question: "If the deficit is under control, why is the U.S. government issuing so much debt?"
The answer is the deficit isn't under control in any way. The U.S. government is issuing mammoth amounts of debt and has continued to do so for the last five years.
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