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Fuzzy Math: The Difficulties of Forecasting the National Debt

by Sheila Cosgrove

Americans have been hit by a storm of numbers, by projections of the national debt. These numbers vary greatly (greatly= by billions of dollars) because in order to calculate them, analysts must attempt to predict the future. Some of these predictions are guided by law, others by trends, and still others by politics; whatever the approach, they are all products of guesswork.

In order to predict the national deficit for the next ten years, one must decide what is going to happen in Iraq and Afghanistan. Then one must determine if Congress will allow this round of tax cuts to become permanent. One must also foretell the economic growth rate and envisage Congress’ new spending (a.k.a. discretionary spending) for the next decade. These are not the only factors determining the deficit, but they are important ones.

How Iraq and Afghanistan are affecting us

We are spending $4.9 billion a month for our efforts in Iraq and Afghanistan. Clearly, this spending contributes to the national deficit. If we continue spending at this rate (this rate = $60 billion a year), then we will obviously accumulate a lot of debt.

When considering the impact of Iraq and Afghanistan spending on the national deficit, the non-partisan Congressional Budget Office (CBO) is taking two approaches. One approach is to calculate the deficit by using the current rate of Iraq and Afghanistan spending. This means adding $600 billion to the deficit ($60 billion a year for ten years). This approach is problematic; we are not likely to continue to spend $60 billion a year for the next decade. (However, we do not know this for sure, the amount we spend is dependent upon the tenuous political situations in these countries and upon our leadership. The amount we spend to rebuild is also a factor that has not been taken into account.)

The CBO’s other approach is to leave out Iraq and Afghanistan spending altogether. This approach is due to a legal requirement that requires the CBO to make estimates based on existing laws only. Congress has not yet approved spending on Iraq and Afghanistan for the next fiscal year, though they will. This method also creates an inaccurate deficit projection. Clearly, we will continue to spend money on our projects in these countries through next year at least.

So, when the Bush administration accuses the CBO of fuzzy math, they are right. However, The White House’s own deficit projections ignore spending on Iraq and Afghanistan.

How tax cuts are affecting us

When government spends, it spends tax dollars. Prescription drugs for seniors are funded by tax dollars. The war in Iraq is funded by tax dollars. Anti-terrorism measures are funded by tax dollars. (You get the idea.) So, when we cut taxes, we drain the large pool of money which funds all of our various programs and enterprises. With fewer tax dollars, we must cut programs or go into debt. The Bush administration has done both.

The Bush administration and the non-partisan Congressional Budget Office (CBO) agree that this year’s debt is in the $400-$450 billion dollar range. This debt is public debt. When we go into debt, it is because we the people borrow from private lenders and foreign lenders to fund ventures that we cannot afford but consider vital. It’s kind of like buying a home security system with your credit card. You may consider it essential to your family’s safety, but by going into debt to buy security, you create a new vulnerability for yourself, that of financial instability.

When we cut taxes, we are cutting income. When we cut income but spend on big-ticket items like homeland security, we find ourselves in debt. In order to determine if this debt will continue, we need to know if the tax cuts will continue. According to current policy, the tax cuts passed since 2001 will expire in 2011. It is possible that lawmakers will decide to repeal the tax cuts before 2011, but we do not know this for sure. Tax cuts are another unknown variable in the equation.

How economic growth (or lack thereof) is affecting us

The growth rate of our economy affects the national deficit. A strong economy = more jobs, higher salaries and, therefore, higher tax revenue. In addition, when the economy is solid, fewer people need public assistance, such as welfare and Medicaid, which are funded by tax dollars.

Analysts must forecast the economic growth rate to determine the future of the national debt. Although an analyst can make an educated guess based on a variety of indicators, she is still guessing. The economic growth of the future is an unknown.

The Congressional Budget Office is assuming solid economic growth over the next decade when estimating the national debt. This means that they are projecting less debt than the debt that will occur if our economy were to falter at any time over the next ten years. Nevertheless, the Bush administration is rejecting their figure of a cumulative $5.8 trillion by 2013. The administration recognizes that deficit estimates are rough and approximate, which is true, but the CBO estimate is (perhaps unrealistically) optimistic in terms of economic growth.

How discretionary spending is affecting us

Each year, Congress has the option to fund programs or activities that are not included in the overall, ongoing budget. For example, discretionary spending funded our responses to 9-11 (i.e. homeland security, Afghanistan, arguably Iraq). Discretionary spending greatly influences the national debt. Analysts must predict levels of discretionary spending when calculating projections of the national deficit.

Why bother?

As you can see, a lot of speculation goes into estimations of future national debt. When considering the coming decade, the Congressional Budget Office had to hypothesize about what will happen in Iraq and Afghanistan, determine whether the tax cuts will continue or be suspended, estimate economic growth, and foresee discretionary spending.

So no matter who is doing the calculations, there is a lot of room for error. This becomes evident when one examines the total lack of continuity between the Bush administration projections and those of Goldman Sachs, a private investment banking and securities firm. Goldman Sachs predicts a cumulative deficit of $4.5 trillion over the next ten years (the firm admits to being pessimistic). The Bush administration predicts that the total deficit will decline to $62 billion by 2008 (a figure that is quite optimistic).

So what is the use of these estimations if they are so wildly inaccurate?

They help us to determine the possible consequences of our actions. Determining the long-term effect of tax cuts and spending in Iraq helps us to decide if these ventures are viable. Much like you and your family, the government is not able to buy or do everything. We have to prioritize.

What are your priorities? A balanced budget? Homeland security? Winning the war in Iraq? None of the above? Discuss the idea of spending priorities with other WomenMatter readers in our online forum. You can also let your representatives know how you feel.

Article Posted on: 9/2/2003

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