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CBO Report Estimates 2014 Deficit at Half a Trillion Dollars: Why The Real Deficit Number is Actually Higher


By Romina Boccia

Today the Congressional Budget Office (CBO) released its updated projections for the 2014 federal budget. CBO reports the 2014 deficit at $492 billion, just shy of a half a trillion dollars. However, this estimate should be taken with a heap of salt: It is arguably misleading to the extent that the operations of mortgage giants, Fannie Mae and Freddie Mac (GSEs), are improperly accounted for in the budget. Without that distortion, both spending and the deficit in 2014 would be higher by about $85 billion.

What’s curious about this CBO report is that it makes no mention of Fannie and Freddie’s impact on the budget, in contrast with previous reporting. In its Monthly Budget Review for March 2014, for example, CBO was very forthright about the distorting effect that the current GSE reporting has on the budget. CBO explained that:

Much of the drop in spending [over the past six months] occurred because payments from Fannie Mae and Freddie Mac to the Treasury were $42 billion more than they were last year. (Such payments are recorded in the budget as offsetting receipts—that is, negative outlays.)

Just a few hours from tax day, it is especially important that Congress and taxpayers understand that the GSEs pose a real and costly risk for the budget and how their current off-budget status distorts federal reporting on spending and the deficit. Treasury’s cash-flow method currently employed to account for GSE operations keeps trillions in potential taxpayer liabilities off the books.

Last week, the House passed the Budget and Accounting Transparency Act (H.R. 1872) which would put Fannie and Freddie on-budget. This would require the Treasury to more accurately report the impact the GSEs have on the federal budget by incorporating risk estimates about the $4 trillion in GSE mortgage guarantees.

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