image: Jim Jubak

Jim Jubak

The U.S. budget is broken.

No, no, I don't mean that the U.S. is deeply in debt, so deeply that some wonder if we can ever dig ourselves out. And I don't mean that our annual deficit, an estimated $1.65 trillion for fiscal 2011 year, threatens to soar even higher.

I mean that the actual federal budget, the mechanism that's supposed to tell us whether our finances are in good or bad shape, and whether they're getting better or worse, is broken. It doesn't give us an accurate picture of our financial health. And as for giving us guidance for where we're headed, well, it's like using a meat thermometer to gauge the weather, like timing a soft-boiled egg with a sundial, like deciding what to wear by looking at average daily temperatures, like . . . .

Don't get me started.

As a result the entire battle over raising the debt ceiling, cutting the annual federal budget and even, maybe, raising taxes (excuse me, enhancing revenue) someday is a battle fought between two armies blundering across the landscape wrapped in the deepest Scots haar fog and whacking about with their claymores at friends, foes and innocent sheep alike.

And a balanced budget amendment? Nobody can possibly decide whether it's a good idea, a disaster, or a harmless joke, given the present state of our governmental budgeting. To start, what do the terms "budget" and "balanced" even mean in Washington?

OK, enough of a rant. Let's get down to brass balance sheets. We can start with those definitions for "budget" and "balanced."

On- or off-budget?

Look at the scorecard constructed by the Congressional Budget Office for President Barack Obama's fiscal 2011 budget. Revenue, estimates the CBO, will come to $2.27 trillion. But note that only $1.7 trillion of that is "on-budget" revenue according to the CBO. The budget office calls the additional $570 billion "off-budget" revenue.

The same terminology turns up on the spending side. On-budget spending amounts to $3.2 trillion, with off-budget spending adding up to $497 billion.

If you're looking to balance the something called THE budget, what numbers do you look at? And what is off-budget spending anyway?

Turns out most of what's off the budget comes from the collection of Social Security taxes -- revenue -- and payment of Social Security benefits. That money goes into (and flows out of) the Social Security Trust Fund and doesn't get counted as part of the budget. Although as you know if you've been following the current debate about the debt ceiling, Social Security checks do seem, strangely enough for an off-budget item, to come out of the U.S. budget. (Another off-budget item is the U.S. Postal Service. And some spending moves between off- and on-budget. The costs of the Iraq War were initially covered through special emergency appropriations, for example, and weren't "on budget.")

Is balanced an unbalanced approach?

Let's say you define what you mean by budget, maybe by putting all the off-budget items into the budget to create what's called a unified budget. You've still got another problem definition. What do you mean by "balanced"?

Let's say, it's the 1990s and the Social Security Trust Fund is taking in more than the government is paying out. That was true during much of the Clinton presidency (and, in fact, until relatively recently). But you know that this is a temporary situation. As the baby boomers continue to age, the time will come when the trust fund is taking in less than the government is paying out. So considering the absolutely predictable future obligations, when is the budget balanced?

That's a problem with the expected. Now, how about the unexpected? Hurricane Katrina made landfall near New Orleans at the end of August 2005. By October 2005, Congress had appropriated $62.3 billion in supplementary spending for disaster relief and recovery. Even then, voices in Congress argued against that spending because it would increase what was seen at the time as a large deficit.

Or how about the expected unexpected? By this, I mean the business cycle. We know -- or at least everyone except Alan Greenspan knows -- that the economy will go through boom and bust cycles. During the booms, tax revenues will soar and expenditures for some things -- unemployment benefits, for example -- will fall. If the government does nothing to change spending -- such as passing a huge tax cut -- the budget will move toward surplus. During the bust years, tax revenues will fall as the economy slows and the costs of things such as unemployment benefits will climb. The budget will move toward deficit, especially if the government decides that the downturn is severe enough to justify increased spending on infrastructure projects, say, or tax cuts or credits to spur hiring.

We know from the history of the Depression -- from the budget-balancing efforts of President Herbert Hoover and in the very earliest part of President Franklin D. Roosevelt's administration -- and from the 1937 relapse into Depression -- that balancing a budget during a downturn, which requires cutting government spending, makes the downturn worse. When the bust in the cycle produces what some economists call a demand recession, marked by falling private demand for goods and services, increased government spending on goods and services can lessen the depth and duration of the downturn.

So is your definition of a balanced budget one that is always in balance no matter what strikes the economy? Or is it one that says "emergency" spending is OK, even if it puts the budget into the red? (And if the latter, you still have to define "emergency.")

Let me throw one more element into the soup.