According to this 2009 NYT article, Obama instituted some accounting changes at the beginning of his term that “uncovered” some $2.7 trillion that were previously not included in the budget deficit calculation. What’s the straight dope on this? If it’s true, why haven’t we heard about it with regard to the current debt ceiling and electoral debate where many opponents of the president like to point to the large increase in national debt during the Obama administration?
A lot of that (all?) was creative accounting by the Bush economic team.
I remember one example: the wars in Iraq and Afghanistan. Under President Bush, the costs for those wars were never included in the general Defense Department budget. A separate “emergency” spending bill was passed each year, even though we knew we’d be there for several more years. So, the regular budget simply did not include those costs in future deficit estimates, even though everybody knew they were really there. It let them get away with the fiction that we’d have a balanced budget or even a surplus within a few years.
One of Obama’s campaign promises was that he would end this type of practice, and he did so in his first year, as the article indicates.
The changes you refer to involve projections of future deficits, not current accounting.
As for why this change hasn’t gotten more favorable attention, model U.S. media as having three components:
(1) News shows focussed on sensation for ratings.
(2) Hypocrites shouting lies at the tops of their voices.
(3) Sincere commentators interested in objective truth.
Groups 1 & 2 outnumber Group 3 by a huge proportion.
He changed the way the federal yearly deficit was counted (by including the war funding in the primary appropriations rather than supplementals, not assuming the AMT wouldn’t get adjusted, and a few other changes).
It doesn’t really change the debt calculation. We incurred the same amount of debt due to the wars regardless of how the money was appropriated. The only thing the change did was make the yearly budget deficit projections more accurate and realistic.
This actually touches on a big issue when looking at “debt reduction plans”. You have to realize what baseline is being used - the “nothing changes” baseline (which includes sunsetting the Bush tax cuts, not doing DocFix, and not adjusting the AMT) or the “alternative baseline” which makes certain political assumptions (and produces a much higher debt in the next 10 years). Most of these “$2 Trillion” or “$4 Trillion” reductions are against the higher “alternative baseline”, IIRC.
More information on the two baselines here: http://www.pgpf.org/Issues/Fiscal-Outlook/2010/08/19/CBOs-August-2010-Budget-Outlook.aspx Check out page three for a graph showing the difference.
Putting the Iraq and Afghanistan wars back on the books did change current accounting, didn’t it?
No. Those Wars’ costs were always included in current account calculation, just with a “Supplemental” name. The difference is that GWB’s budgeting assumed that the Wars did not exist for any future projections.
To follow septimus’s point, let’s be perfectly clear: the question of running up against the debt limit in the next few weeks has nothing whatsoever to do with how the government projects deficits over the next several years.
The government estimates its overall fiscal situation over a number of years, typically like 10 or so. Those estimates attempt to answer questions like, “How much more are we going to be spending in future years compared to today? What would be the impact of changes to tax policies? How does a better or worse economy change our estimates?” and so on. Again, these are estimates, plans, projections, and what-ifs.
What happened in 2009 boils down to, the picture of our spending and revenue over the next few years is not accurate because it deliberately excluded certain things that are likely to occur, but because they were not certain, had been left off of the estimates. For example, in recent years, Congress has had to make changes to the alternative minimum tax in order to avoid many upper-middle class people from suddenly getting a very large tax increase. Those temporary changes to the AMT decrease revenues in each of those years, but since the issue had been dealt with on a year-by-year basis, the costs of those “tax cuts” would not be projected out over the long term. In 2009, the decision was made to say, “Look, guys, we know we’re going to keep fixing the AMT each year, and we know that decreases revenues – let’s just accept that and project the budget as if those “tax cuts” will actually happen.”
The debt limit fundamentally relates to how much cash we have in the treasury to pay the bills that the government is actually paying, or is expected to pay in the very near future. The debt limit shouldn’t be thought of as a budget projection, it is more like a measure of what we have had to do to carry each year’s actual budget into reality.
Let me draw an analogy: Joe draws up a household budget in which he figures out how much he is spending on food, housing, and other expenses, and how much he is taking in from his paycheck. Let’s imagine that it is perfectly in balance – his budget says that food, housing, and expenses perfectly match his monthly paycheck.
However, Joe keeps finding that each month, his credit card balance keeps increasing by $200 each month. That’s because in his budget, Joe didn’t account for the fact that he goes out drinking with the boys every Friday night after work. His credit card debt shows this additional spending is happening, but his household budget did not reflect reality.
So Joe changes his household budget to include the cost of drinking beer every Friday night. Does this change to his budget make his credit card balance go up?
No. He was already spending that money, and will continue to spend that money so long as he keeps getting hammered every week. Instead, his budget will now reflect what his credit card balance has been showing for a long time.
So, fully estimating the costs of things like the war in Afghanistan or the AMT fix doesn’t cause any new problems for the national debt. Instead, it helps us better understand why the debt keeps increasing.
Thanks for the clarification. Does this partially reduce the portion of the deficit that can be attributed to Obama’s years in office since it was money that was somewhat committed during the Bush years?
The answer to that question is completely subjective. Let’s say over the next five years, the cost of the war in Afghanistan will be $300 billion (or whatever). Is Obama responsible for adding $300 billion to the deficit because he now wants to include that cost in his budget estimate? Is Obama responsible for that cost because he could choose to withdraw our troops starting tomorrow? Or is Bush responsible for that $300 billion because he first committed troops to Afghanistan?
All interesting questions from a political perspective, but Federal budgeting doesn’t try to figure out which President is responsible for which part of the debt.