[Congressional Record (Bound Edition), Volume 145 (1999), Part 9]
[Senate]
[Pages 12402-12403]
[From the U.S. Government Publishing Office, www.gpo.gov]



                            NEW BUDGET MATH

 Mr. KOHL. Mr. President, I rise today to recommend an article 
that appeared this week on National Journal's website. It is ``More New 
Budget Math'' by Stan Collender and discusses in a very readable way 
why gross federal debt continues to rise even when the government is 
running a surplus. The concepts of deficit, surplus, debt, and trust 
funds lie at the heart of many of our fiercest budget battles, and 
everyone has an opinion, or a one-liner, about all of them. But these 
concepts are as technical and difficult to understand as they are 
controversial, and I always appreciate it when they are explained in a 
clear manner, as they are in this article.
  Mr. President, I ask that the article ``More New Budget Math'' be 
printed in the Record.
  The article follows.

         [From the National Journal's Cloakroom, June 8, 1999]

                  Budget Battles--More New Budget Math

                          (By Stan Collender)

       This column pointed out a year ago (June 2, 1998) that, in 
     light of the surplus, the old mathematics of the federal 
     budget were no longer adequate to explain what was happening. 
     A variety of new calculations would have to become as 
     commonplace as the old measures to move the debate along. Now 
     we have yet another example.
       One of the questions I get most these days is, how is it 
     possible for total federal debt to be increasing if there is 
     a surplus? That inevitably leads to someone insisting that 
     there really isn't a surplus at all, and that all the talk 
     about it coming from Washington is just an accounting trick 
     or an X-Files-style government conspiracy.
       Here, however, is the new math to explain things:
       A federal surplus or deficit is the amount of revenues the 
     government collects compared to the amount it spends during a 
     fiscal year. Whenever spending exceeds revenues the 
     government runs a deficit, and has to find a way to make up 
     the difference. It can sell assets (like gold from Fort Knox, 
     timber from national forests or an aircraft carrier) or 
     borrow from financial markets to raise the cash it needs to 
     cover a shortfall.
       But the revenues vs. spending calculation is not as 
     straightforward as it seems. Because of rules enacted in 1990 
     as part of the Budget Enforcement Act, the federal budget 
     does not show the actual amount of cash the government uses 
     to make loans (i.e., to students or to farmers). Instead, the 
     budget shows only the amount needed to cover the net costs to 
     the government of lending that money.
       But because the government lends real money rather than 
     this calculation, its actual cash needs are greater than what 
     is in thebudget. This is not an insignificant amount. OMB is 
     projecting that the fiscal

[[Page 12403]]

     1999 net cash requirements for all federal direct loans will 
     be $25 billion, which must be financed either by reducing the 
     surplus or, when there is a deficit, by additional federal 
     borrowing. As a result, the actual surplus is a bit lower, 
     and the amount available to reduce debt is lower than is 
     immediately apparent.
       Then there are the loans made to the government. When ever 
     it borrows to finance a deficit, the government incurs debt. 
     Conversely, whenever it runs a surplus, debt is reduced. As 
     might be expected given the surpluses that are projected over 
     the next 10 years, this debt, formally known as ``debt held 
     by the public,'' was projected in January by the 
     Congressional Budget Office to fall from its current level of 
     about $3.6 trillion to $1.2 trillion by the end of fiscal 
     2009.
       However, financing the deficit is not the only reason the 
     federal government borrows. Whenever any federal trust fund 
     takes in more than it spends in a particular year, that 
     surplus must be invested in federal government securities. In 
     effect, a trust fund's surplus is lent to the government, so 
     federal debt increases.
       CBO's January forecast showed this separate category of 
     debt--``debt held by the government''--increasing from almost 
     $2.0 trillion in fiscal 1999 to $4.4 trillion by the end of 
     2009.
       The combination of debt held by the public and debt held by 
     the government--``gross federal debt''--is increasing, 
     according to CBO, from $5.57 trillion in 1999 to $5.67 
     trillion in 2000 and $5.84 trillion in 2005.
       The bottom line, therefore, is that the measurement of what 
     the government borrows to finance its debt is projected to 
     decline because of the surplus. However, overall federal debt 
     will be increasing because of the growing surpluses in the 
     Social Security and other federal trust funds.
       This shows that the situation is neither the budget 
     sophistry nor government conspiracy that some talk show hosts 
     and conservative columnists often make it out to be. It is 
     also hardly unique. Try to imagine the following situation:
       Your personal budget is not just in balance, but you are 
     actually running a small surplus each month. Because of that, 
     you are also slowly paying down your credit cards.
       The next month, you buy a bigger and more expensive home. 
     Because of lower interest rates and other financing options, 
     your monthly payments actually go down from their current 
     levels so your surplus goes up. As a result, you increase the 
     payments you make each month on your credit cards, so that 
     portion or your debt decreases faster.
       However, the bigger and more expensive house you just 
     bought increases the overall amount you have borrowed by, 
     say, $200,000. Your budget is still in surplus, and some of 
     your debt is decreasing, but your overall debt is actually 
     growing substantially.
       This is roughly the same situation now facing the federal 
     government, given the new budget math of the surplus.
       One more thought: The debt ceiling was raised in the 1997 
     budget deal to accommodate the deficits that had been 
     projected to require additional federal borrowing through 
     fiscal 2002. But if the limit had not been raised that high 
     in 1997, this new budget math could have meant that Congress 
     would be in the anomalous, ironic, and certainly frustrating 
     situation of having to pass an increase in the debt ceiling 
     at the same time the budget was in surplus. Try to imagine 
     explaining that to constituents.
       Budget Battles Fiscal Y2K Countdown; As of today there are 
     54 days potential legislative days left before the start of 
     fiscal 2000. If Mondays and Fridays, when Congress does not 
     typically conduct legislative business are excluded, there 
     are only 33 legislative days left before the start of the 
     fiscal year.
       The House and Senate have not yet passed even their own 
     versions of any of the regular fiscal 2000 appropriations 
     bills, much less sent legislation on to the president.
       Question Of The Week; Last Week's Question. The statutory 
     deadline for reconciliation is established by Section 300 of 
     the Congressional Budget Act, which shows that Congress is 
     required to complete action by June 15 each year. This year's 
     congressional budget resolution conference report established 
     the deadline as July 16 for the House Ways and Means 
     Committee and July 23 for the Senate Finance Committee to 
     report their proposed changes to their respective houses. 
     But, as a concurrent resolution, the budget resolution did 
     not amend the Congressional Budget Act so the dates are not 
     statutory requirements.
       Congratulations and an ``I Won A Budget Battle'' T-shirt to 
     Stephanie Giesecke, director for budget and appropriations of 
     the National Association of Independent Colleges and 
     Universities, who was selected at random from the many 
     correct answers.
       This Week's Question. A T-shirt also goes to Amy Abraham of 
     the Democratic staff of the Senate Budget Committee, who 
     suggested this week's question as a follow-up to last week's. 
     If June 15 is the statutory date for Congress to complete 
     reconciliation, what is the official sanction for failing to 
     comply with that deadline? Send your response to 
     [email protected] and you might win an ``I Won A Budget 
     Battle'' T-shirt to wear while watching the July 4th 
     fireworks.

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