Debt Without Deficits
27th October 2016
According to the Congressional Budget Office, the federal deficit in 2016 was $590 billion. But the federal debt in 2016 grew by $1.4 trillion. That means the debt grew by about $800 billion more than the deficit. How can that be?
The answer is that Congress uses all kinds of accounting tricks to pretend that money it borrows isn’t part of the deficit. You can read a complete list of those accounting tricks in an article by Dr. Lacy Hunt (you’ll have to get a free subscription to John Mauldin’s newsletter to read the article, which is well worth doing if you are at all interested in macroeconomic issues).
From the Antiplanner’s point of view, the most important accounting trick is that some spending from borrowed money is regarded as “an investment,” and so isn’t counted in the deficit. This includes student loans and highway and transit spending. In 2016, Congress borrowed $70 billion to pay for highways and transit, yet that isn’t included in the $590 billion deficit.
Someone needs to explain to Congress the difference between consumption spending and investments. Investments are supposed to produce a return. Assuming they are repaid, student loans produce a return. But no one expects that highway or transit spending will ever return money to the Treasury.