What is the US Debt?

As the yearly budget deficit has grown radically during the recession, so has the total debt that the United States has accumulated in it’s 234+ years of existence.  So how much does the United States owe?  Well… there’s really 2 answers to that.  If you want the numbers, here they are.  The total US federal debt is approaching $13.5 trillion and approaching $8.9 trillion.  zFacts has a national debt counter if you want to see what the total debt is, this very moment.  If you’d like an explanation of why there’s 2 answers, read on.

As you probably know, there’s this thing called the Social Security Trust fund.  Actually, there are lots of government controlled trust funds out there.  Many of them have lots of money in them(Like Social Security).  The first number doesn’t add in the value of these trust funds, the second number does.  Which number is the “real” debt number is all in how you look at it.

If you look at it as the trust funds exist and the government has “borrowed” from them to support spending today, then the federal debt is indeed approaching  $13.5 trillion dollars.  However, if you look at all the money the federal government owes minus what it’s “saving” in it’s trust funds, then the federal debt is only approaching $8.9 trillion dollars.

Before you decide how you want to view the debt, you may want to think about the consequences of your view on social security.  If you view the federal debt as $13.5 trillion, then you must also believe that the social security trust fund is fully funded and will be fine until it runs out in 2037.  Conversely, if you view the United States debt as only $8.9 trillion, then you must believe that social security is already in crises because the so-called “Trust Fund” is nothing but government bonds that have already been spent by the government, and that Social Security checks are going to start coming out of the general fund.

I included this last paragraph because U.S.  government debt is usually reported as the larger number(i.e. Heritage Foundation and OpenMarket).  However, those same organizations then claim that the Social Security Trust Fund has been raided and is empty(See here Heritage Foundation, OpenMarket).  Well good news, guys!  If the Trust fund is “empty”, then the national debt is only $8.9 trillion.

It is one way or the other.  The United States federal debt can’t be over $13 trillion dollars AND have an “empty” Social Security Trust Fund.  Those statements are not compatible no matter how you look at it.  Anyone who tells you otherwise is either a liar or has been lied to themselves.

Social Security & Medicare Are Gonna be Alright… for now.

Last week the Medicare Trustees and the Social Security Trustees released their annual report of their respective trust funds.  The good news is that these programs will remain solvent for a couple of decades or so.  The bad news?  The actuaries still identify certain dates when the trust funds will run out.

To summarize news on Medicare “way better than last year”.  Last years report suggested that Medicare would exhaust it’s trust fund as of 2017.  However, that’s been moved back 2029.  From their public release.

Despite lower near-term revenues resulting from the economic recession, the Hospital Insurance (HI) Trust Fund is now expected to remain solvent until 2029, 12 years longer than was projected last year, and the 75-year HI financial shortfall has been reduced to 0.66 percent of taxable payroll from 3.88 percent in last year’s report. Nearly all of this improvement in HI finances is due to the ACA. The ACA is also expected to substantially reduce costs for the Medicare Supplementary Medical Insurance (SMI) program; projected program costs as a share of GDP over the next 75 years are down 23 percent relative to the costs projected for the 2009 report.

The ACA was primarily responsible for the increase in stability for Medicare.  The ACA is the Affordable Care Act – the Health Insurance Reform that passed early this year.    That would be the one that conservatives claimed would kill medicare.

Meanwhile, the news on social security is almost no news.

Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084. The projected exhaustion date for the combined OASI and DI Trust Funds is unchanged from last year’s report.

Social Security is still scheduled to exhaust it’s trust fund starting in 2037.  That’s a ways off, but still a problem that needs to be solved.

I’ll leave you with the closing statement from the message from the Trustees to the public.

The ACA makes significant progress toward making Medicare financially viable. But while it is projected that the Medicare HI Trust Fund is adequately financed until 2029, and the Social Security OASI and DI Trust Funds are adequately financed until 2040 and 2018, respectively, the significant longer term financial imbalances of the programs still need to be addressed. The sooner action is taken to address the long-run financial imbalances, the more reform options will be available, and the more time there will be to phase in changes so that those affected will have adequate time to prepare.

Our “True” Budget Deficit Problem (It can no longer hide)

As we know, the government is running huge budget deficits right now. The government has been running a deficit every year for the last several years. Most graphs showing the current deficits are like the one below. For each year they just take the total outlays and subtract total receipts because this is the figure the government gives and our media happily repeats.


(Click chart for Larger Image. Click here for numbers the chart is based on)

The problem with that is that it hides the extent of the problem. The numbers above show a budget deficit of 1,413 billion in Fiscal Year(FY) 2009 which is a huge increase from FY2008’s deficit of 450 billion. While those numbers sound huge and daunting… it’s actually worse, but then again, it’s always been worse.

The “off-budget” Social Security surplus and Trust Fund help buoy these numbers. The problem is, that money is supposed to be saved and be payed out when Social Security is anticipated to start running deficits in a few years.

There are other off-budget items that distort the numbers as well. There are other off-budget trust funds that collect interest.  That money isn’t really the governments to spend, it’s already been marked for spending at a future date.   Also, the U.S. post office which can swing from costly to profitable on any given year.  Years with surpluses from the post office are supposed to pay for years with post office deficits.

Therefore, to get a real sense of where the budget is, those numbers have to be removed from the equation. The chart below includes the total “on-budget” deficit.


(Click chart for Larger Image. Click here for numbers the chart is based on)

As you can see, the “on-budget” deficit is worse every year than the “total” deficit. Looking at the “real” deficit may help to change our perspective of the problem. On the red graph you can see that the on-budget deficit was much worse than the total deficit in 2007 and 2008, but only slightly worse in 2009 and 2010(projected). To help illustrate the difference, I created a graph that shows the difference between the “total deficit” and the “on-budget” deficit. (You could also call this the “total off-budget surplus”.


(Click chart for Larger Image. Click here for numbers the chart is based on)

In FY2009 the on-budget deficit increased while the off-budget surplus plummeted which meant it could no longer hide the amount of the “true” budget deficit. While in Fiscal Years 200-5,6,7, and 8, the “true” budget deficit was able to be hidden behind the increasing off-budget surplus.  It helped make it seem as if the deficit was going in the correct direction.

So in conclusion. The deficit problem is actual slightly worse than advertised. However, the huge increase in the deficit is  due, in part, to the budget deficit no longer being able to hide behind the off-budget surplus.

(The source for all these numbers is the Public Budget Database)

Social Security Trust Funds Hide true debtdeficit

So I looked into why the “Net Interest” Category of federal spending skyrockets when including only on-budget items. There are only two accounts that are marked as being “off-budget” and both bring in money to the federal government. They are “FOASI, Interest Received by Trust Funds” and “FDI, Interest Received by Trust Funds”. Together, they are more commonly known as the Social Security Trust Fund.

By counting the interest made on these trust funds the government is actually hiding how much money it spends by about 117 billion in 2009. This money is meant to be used to avoid the coming Social Security crisis, but instead it is being spent and included in budget totals that is hiding the size of the budget deficit, and how much money the United States spends on interest of past debt(almost 10% of the entire 2009 on-budget outlays).

I would not have discovered that past debt eats so much of our budget if I hadn’t looked at the on-budget only graph as well as the graph that included everything. I will be sure to continue this practice in the future.