On-budget vs "Unified Budget": Where Social Security Fits.

by Bruce Webb

If I had to pick out the two biggest sources of confusion about Social Security finance it would have to be one, the relation of the Trust Funds to Public Debt and two, the relation of Social Security surplus/deficits to Budget Scoring. At Angry Bear we have discussed the equation Debt Held by the Public + Intragovernmental Holdings = Public Debt enough that most regular readers probably get it. So today I want to lay out some definitions and explanations of ‘on-budget’ directly from the source.

Office of Management and Budget: Budget Concepts and Budget Process This comes from Section 12 of OMB’s Analytical Perspectives on the Budget which is the explanatory supplement to the Budget itself. The best guide to it is List of Charts and Tables where the lead number refers to the Section, with Section 5 being ‘Long Term Budget Outlook’ (compare with CBO’s report with the same title), Section 6 being ‘Federal Borrowing and Debt’, and Section 27 ‘Trust Funds and Federal Funds’. Not exciting reads, but full of good to know information. Under the fold I have extracted from Section 12 ‘Budget Concepts and Budget Process’ the portion discussing the difference between ‘On-budget’ and “Unified Budget” ‘.

submit to reddit p. 134

Every year since 1971, however, at least one Federal entity that would otherwise be included in the budget has been declared to be off-budget by law. Such off-budget Federal entities are federally owned and controlled, but their transactions are excluded, by law, from the rest of the budget totals, which are also known as “on-budget” totals. When a Federal entity is off-budget by law, its receipts, budget authority, outlays, and surplus or deficit are separated from all other (on-budget) receipts, budget authority, outlays, and surplus or deficit. The budget reflects the legal distinction between on-budget entities and off- budget entities by showing outlays and receipts for both types of entities separately.

Although there is a legal distinction between on-budget and off-budget entities, there is no conceptual difference between the two. The off-budget Federal entities engage in the same kinds of governmental activities as the on- budget entities, and the programs of off-budget entities result in the same kind of outlays and receipts as on-budget entities. The “unified budget” reflects the conceptual similarity between on-budget and off-budget entities by showing combined totals of outlays and receipts for both types of entities.

The off-budget Federal entities currently consist of the Postal Service Fund and the two Social Security Trust Funds: Old-Age and Survivors Insurance and Disability Insurance. Social Security has been classified as off-budget since 1986 and the Postal Service Fund has been classified as off-budget since 1990. A number of other entities that had been declared off-budget by law at different times before 1986 have been classified as on-budget by law since at least 1985.

So in examining Table 12-1 we can see that for all practical purposes ‘Off-budget’ = Social Security (the Postal Service Fund showing little activity) while ‘Total’ Surplus or Deficit = the so-called “Unified Deficit”, in quotes because in law there is no longer any such thing, it is just a very convenient reporting number.

Hopefully this will help clear up some rampant terminological confusion, if not fuller explanations are available in the various sections of the Analytical Perspectives.