Recent Experience of Deficits and Surpluses

In the early 1990s, the government ran a deficit of about $200–300 billion every year. (Note that a negative number in the last column corresponds to a government deficit.) In the mid- 1990s, however, the deficit began to decrease. Both outlays and receipts were increasing, but receipts were increasing more quickly. By 1998, the federal budget was in surplus, and it reached a peak of $236 billion in 2000. Thereafter, revenues decreased for several years, while spending continued to increase. By 2002, the budget had gone back into deficit again, and by the middle of the decade, the deficit was at record levels. As is evident from Table 14.2 “Recent Experience of Deficits and Surpluses (Billions of Dollars)”, the budgetary picture changed dramatically with the onset of the severe recession in 2008. Revenues decreased and outlays increased so that the budget deficit widened considerably, to more than $1 trillion in both 2009 and 2010. If you look at data on the government budget, you will see that the federal budget is divided into “on-budget” and “off-budget” items. Table 14.3 “On-Budget, Off-Budget, and Total Surplus, 2010 (Billions of Dollars)” shows these numbers for fiscal year 2010. The Congressional Budget Office defines off-budget items as follows. “Spending or revenues excluded from the budget totals by law. The revenues and outlays of the two Social Security trust funds (the Federal Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal Service are off-budget.” [4] The transactions of the US Postal Service are not that important, so you can essentially think of the off-budget items as being the Social Security system. Since the Social Security system was in surplus over much of this period, the on-budget deficit is larger than the total. From Table 14.3 “On-Budget, Off-Budget, and Total Surplus, 2010 (Billions of Dollars)”, the total government deficit of $1,294 billion in 2010 reflects an on-budget deficit and a small off- budget surplus. The idea behind the separate budgeting is that Social Security represents a known set of future government obligations. For this reason the government has, in effect, set aside a separate account for Social Security revenues and outlays (much as you, as an individual, might decide you want a separate account for your savings). [5] At least in theory, this separates the debate about Social Security from the debate about current government spending and receipts. Many policy discussions do focus just on the “on-budget” accounts. In the end, though, all these monies flow either into or from the federal government. The humorist Dave Barry once remarked that what distinguishes off-budget items is that “these are written down on a completely different piece of paper from the regular budget.” [6] What is more, there are other known future obligations, such as Medicare, that are not treated separately. The on-budget/off-budget distinction is really no more than an accounting fiction, and in terms of the overall economic effects of the deficit, it is better to focus on the total.