What Is The Right Way To Measure The Deficit?
My friend-in-blogging pgl took a look at my previous post and has concluded that I am apparently one of those unified budget types. Actually, I would be very pleased to be known as no type at all (or a man for all types, if you will).
Here is my point: The right measure for characterizing fiscal policy depends on what question is being asked. If the question is "Does the government have the current means to pay for its current expenditures?", then the unified budget -- which includes receipts from Social Security payroll taxes -- is clearly the right concept. The reason is that those payroll taxes do finance contemporaneous spending. Although the portion of that spending paid out of excess Social Security taxes are logged as contributions to the system's trust fund, the trust fund never provides independent revenues for the government as a whole. All future payments in excess of what is collected by the payroll tax must come from other tax sources.
However, if the question is "Does the government have the current means to pay for its current expenditures after it has honored accrued entitlement benefits payable in the current year?", then the deficit excluding off-budget items like Social Security is the right concept. And as I have said many, many times on this weblog, honoring those benefits should be the starting point for any and all discussions of Social Security reform.
Finally, if the question is "Does the government have in place the means to pay for its current and future expenditures given the likely path of current and future revenues?", then the current deficit, by any measure, is meaningless. So too are entitlement trust funds as they, once again, represent only earmarked funds, not the means by which to pay for them. Answering this question requires something like generational accounts which incorporate the present value of receipts the government can collect from the private sector -- not the shifting around of those receipts within the government...
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