by Calculated Risk on 2/08/2006 07:57:00 PM

Yesterday, the Wisconsin State Journal presented this graphic on their front page (pdf).


Click on graphic for larger image.

The first mistake is to include off-budget items (mostly SSI) in the Bush budget. Obviously the Journal is just following the confusing Bush budget document, but this distorts the proposed percentages for revenues and expenditures.

Look at interest payments. The graphic indicates interest payments will be 9% of the budget. This is completely bogus as interest payments are accelerating rapidly.

The International Herald Tribune quotes our friend Dr. Brad Setser: Effect of rising debt soon to be felt in U.S.

"Up until now, rising debt has been offset by a falling interest rate," said Brad Setser, an economist at Roubini Global Economics in New York. "Now, debt is still rising and the interest rate is no longer falling. The consequence of rising debt will no longer be masked."

In fact, the budget estimates interest payments will be $441 Billion in ficsal 2007. So if we take the Bush budget estimate (including SSI), then $441 Billion divided by $2.77 Trillion is 16% of the budget.

So how did the Journal get 9%? Easy. They include SSI in the budget expenditures and exclude interest payments from the General Fund to SSI Trust Fund. So they use $247 billion in interest payment on debt held by the public and a budget of $2.77 Trillion = 9%. Two compounding errors.

Here is the real percentage: The Bush on-budget expenditures are $2.1 Trillion. Interest payments are $441 Billion. So interest payments are 21% of on-budget expenditures (see Table 1.4 pdf)