4 caveats to that Treasury Department’s Financial Report
Throughout this week, Tea Party Patriots has highlighted some important financial facts in the Treasury Department’s Financial Report of the U.S. Government for Fiscal Year 2012. Released on January 17, it provides crucial insight into a variety of aspects of the federal budget and coming fiscal crisis.
So far, this blog has examined the 6 most expensive ways Congress spends your money, the 9 ways taxes come to the federal government, the 8 numbers showing why a fiscal crisis is on the way, and the 6 reasons spending cuts can’t wait. Truly, the report has been a great tool for those who understand the fiscal situation America faces – after all, if President Obama’s own Treasury Department I (by proxy, a report from the President’s desk) recognizes the problem, why can’t the rest of Washington?
Unfortunately, even this report has significant flaws in it. Here are four to consider:
1. The report often talks about “primary balance.” This means the budget is balanced sans interest payments. The Obama Administration has long talked about having “primary balance” in a few years’ time, which sounds great – until one finds out that same “balance” leaves a $600 billion deficit. Fortunately, the report is honest in acknowledging this in its many graphs, but it’s easy to forget when reading the text of the report, as I did when doing research for this and the other posts this week.
2. The report talks exclusively about publicly held debt, which at the end of Fiscal Year 2012 (September 30, 2012) was 73% of Gross Domestic Product (GDP). This fails to account for intra-governmental debt, which is money the government owes to various programs, including Social Security and Medicare. (For a more complete explanation of the differences between the two kinds of debt, follow this link.)
The actual level of debt compared to the GDP is, according to USDebtClock.org, $16.93 trillion of debt compared to a U.S. GDP of $15.57 trillion. This is a debt-to-GDP ratio of 108.7 percent.
This is important when it comes to analyzing the full federal budget. The Treasury Report says about 6% of the budget went to interest payments in 2012. Yet in 2011, interest payments were about 12.5% of the budget and, according to the Treasury Department itself, interest payments totaled $359.796 billion in 2012, or 10.56% of the federal budget. (This number does not include a one-time $75 billion adjustment to the Department of Defense’s accounting method in July 2012, so the 2012 payments are lower than they otherwise would have been.)
3. Yesterday, I blogged about the recommendation by Treasury to cut the deficit by $421.2 billion annually for the next 74 years. I suspect this number is actually low, since the Treasury report makes the recommendations from an assumption of growth in the budget. This means the cuts are coming from expected growth, not from the budget currently in place. This is the difference between baseline budgeting (how Washington looks at budgets) and zero-based budgeting (how the rest of the world looks at budgets). For more on this, take a look at this blog post from last year that goes into detail on the difference between the two.
4. Related to Point 3, the Treasury Report makes certain assumptions about future budgets. Among many others, they assume sequestration will go into effect and the Affordable Care Act will reduce future deficits. This is acknowledged in the report – the authors state they believe the $421.2 billion annual cut in the deficit should take place in addition to the purported savings in the Affordable Care Act and the sequester. These are major assumptions, but they are not the only two made in the report. The report also assumes a continual increase in the tax burden on the American people due to a phenomenon called bracket creep, which is caused by a lack of indexing for wage growth and inflation in many tax laws.
To be fair, any report looking into the future must make assumptions. But the Report seems to take some liberties with the concept.
In the end, the Treasury Report is a valuable asset for Tea Party activists, its flaws notwithstanding. And it’s not our only government-initiated weapon against overspending. On Tuesday, the Congressional Budget Office will release its next Budget and Economic Outlook for the federal government. Tea Party Patriots will examine this report and report what we find throughout next week.