When a plus becomes a minus

Here's the conclusion of an Opinion Journal article on "A short history of the national debt":

While today there is no hope of balancing the budget -- or wisdom in trying to -- until the economy substantially improves, we could make a sort of down payment on reforming Washington's porky ways by simply starting to tell the truth.

It has been widely noted that 2009 will have the first "trillion-dollar deficit" in American history. Actually it's the second. In fiscal 2008, the national debt increased from $9 trillion to slightly over $10 trillion. Yet the budget deficit in the last fiscal year was officially reported as being $455 billion. How could the national debt have increased by considerably more than twice the "deficit"? Simple. Just call the money borrowed from the Social Security trust fund an "intragovernmental transfer" and exclude it from the calculation of the deficit.

Corporate managers have gone to jail for less book cooking than that.

Just so, but like every other news story on the economy, things are worse than they seem. The federal government can paper over the real deficit because Social Security is still pulling in more money in FICA taxes than it pays out in retiree checks. But all that is about to change. Sometime around 2017, the Social Security trust fund will stop buying U.S. Treasuries and start cashing them in.

From the Social Security Trustees' Report:


How will the government pay for all this entitlement spending? Even more borrowing:

Say that Social Security calls the Treasury sometime in 2017 and says it needs to cash in $20 billion of securities to cover benefit checks. The only way for the Treasury to get that money is for the rest of the government to spend $20 billion less than it otherwise would (fat chance!), collect more in taxes (ditto), or borrow $20 billion more (which is what would happen). The spend-less, collect-more, and borrow-more options are exactly what they would be if there were no trust fund. Thus, the trust fund doesn't make it any easier for the government to cover Social Security's cash shortfalls than if there were no trust fund.

Social Security's negative cash flow becomes so horrendous - hundreds of billions of dollars a year - that our nation's twenty- and thirtysomethings aren't going to let the government cover it, regardless of how many Treasuries the trust fund holds. So forget about 2039 or whenever. Starting worrying about 2016 or 2017.

In other words, you ain't seen nothin' yet.

Extra – Heritage Foundation: "Hiding the real deficit"