Alternative Measures of U.S. Fiscal Deficits

Abstract

The most widely quoted financial statistic about the U.S. government is its annual budget deficit.  This measure, usually interpreted as an indicator of the extent to which the government is shifting costs incurred in the current period to the future, can be incomplete and misleading. At the very least, informed citizens with an interest in future tax burdens or intergenerational equity need to supplement the current deficit measure with broader, more comprehensive statistics that are currently available, but which also have their own limitations.  In this article, we describe some of the major omissions of the U.S. federal budget deficit and consider the additional information provided by three broader measures of fiscal shortfall: the increase in outstanding gross federal debt; the change in the government’s net financial position; and the change in the fiscal gap.            Effectively, we offer an evaluation of one element of the budget—the deficit—by the single criteria of its comprehensiveness as a measure of the burden of today’s policies on future taxpayers and other stakeholders. Additional budget elements that could be evaluated using other criteria include budget outlays as a measure of the size of government or the effectiveness of the budget process in achieving the goals of efficiency, stability, and equity. These topics, however, are beyond the scope of this paper.