How to Make the Deficit Look Smaller Than It Is
By DANIEL GROSS

THE news on the federal budget deficit for fiscal 2003 was encouraging, wasn't it? In July 2003, the Office of Management and Budget projected a record deficit of $455 billion. But when the fiscal year ended in October, the shortfall was only $374 billion, equivalent to 3.5 percent of gross domestic product.

"As a percentage of gross domestic product, the deficits are below the historical peaks that we've seen in the past," says J. T. Young, a spokesman for the Office of Management and Budget. In 1983, for example, the deficit was 6 percent of gross domestic product; in 1992, it was 4.7 percent.

Congratulating the administration for such an achievement, however, would be like raising the allowance of a high school student who brought home a D-minus in math instead of an F.

If we factor out the so-called Social Security surplus - payroll taxes collected by the government but not paid out in benefits - the deficit in fiscal 2003 was actually far larger: $531 billion, or 4.9 percent of gross domestic product. For the current fiscal year, the administration expects that this figure, also called the on-budget deficit, will be even higher: $639 billion, or a whopping 5.4 percent of gross domestic product.

Every year since 1983, workers have paid more in Social Security payroll taxes than Social Security has paid out to beneficiaries. The surplus was supposed to be used to pay down the national debt. "That way, when the baby boomers are retired, our other debt will be lower and we'll be in a better position to borrow funds to pay for benefits," said Richard Kogan, senior fellow at the Center on Budget and Policy Priorities, a liberal-leaning group in Washington.

To ensure the proper use of the Social Security surplus, Vice President Al Gore in 2000 proposed segregating the funds into a sort of lockbox. George W. Bush, then the Texas governor, also supported this concept, although his understanding of Social Security was revealed to be something less than complete. (In November 2000, during a campaign speech, he famously accused opponents of wanting "the federal government controlling the Social Security like it's some kind of federal program.")

In the past three years, President Bush and Congress have viewed the Social Security surplus more as a cookie jar than a lockbox.