Measuring the deficit
February 20th, 2009Posted by: admin
It is being reported that the Office of Management and Budget (OMB) will stop using some of the accounting measures that keep various federal expenses off the budget books. That is, certain things, such as the costs for wars, the Medicare prescription drug benefit, relief of the alternative minimum tax (AMT), and disaster relief, have not been counted as part of budget deficit projections by the OMB. As far as I can tell, however, this does not extend to other accounting measures, such as the treatment of the Social Secuirty trust fund, that also mask the nature of the federal budget.
Aside from a reminder that economics is, or at least seeks to be considered as, a science, these steps demonstrate the importance of measurement in policy. How we measure, and what measurements we use, reflect what we value (and vice versa). This is true whether we talk about how we project our financial future, or assess innovative activity, or make determinations about scientific research.
February 21st, 2009 at 10:30 am
Future scheduled Social Security payments are not included in the national debt because they are not explicit debt. (http://www.ncpa.org/pub/st/st241/s241c.html).
Note that the term is “scheduled payments” not “obligated payments”. The Supreme Court has ruled in the case of Fleming v. Nestor that the payments can be changed by Congress. (http://www.fasab.gov/pdffiles/052307mins.pdf)
The social security fund is not liquid, the bonds require congressional approval to be converted to cash.
February 21st, 2009 at 5:40 pm
I appreciate the explanation regarding Social Security payments. I was under the impression that the value of the Social Security trust fund offset the debt, or at least the deficit numbers.
A little digging (that I should have done yesterday), notes that the actual treatment of federal trust funds in the budget is a bit more complicated. See this link (from the Social Security Administration’s history section) to get a better explanation of how the trust funds have been treated as “on” or “off” budget over the years.
http://www.ssa.gov/history/BudgetTreatment.html
It appears that treating the funds as on budget (which is often done, even though they are currently off budget) increases both receipts and expenditures. However, the boost in receipts is greater than the boost in expenditures, making the deficit measurement smaller.