U.S. debt is "now equal to 100 percent of the GDP."
Rob Portman on Wednesday, August 10th, 2011 in a news release
Sen. Rob Portman says U.S. debt now matches size of gross domestic product
Rob Portman knows his budget facts. That’s one reason the Ohio freshman U.S. senator, a former White House budget director, was appointed on Aug. 10, 2011, to the Joint Select Committee on Deficit Reduction, the 12-member congressional panel charged with trimming future budgets by up to $1.5 trillion.
In commenting on his appointment that day, Portman issued a statement with a budget fact that struck us as curious. He said, "I am honored to answer the call to serve on the Joint Select Committee on Deficit Reduction and will work hard to ensure that meaningful spending cuts are made to reduce our deficits, change the trajectory of Washington's record high debt, and to encourage economic growth and job creation. With the U.S. debt now equal to 100 percent of the GDP, Washington cannot continue to kick the can down the road again."
Had the federal debt really matched the gross domestic product?
The GDP measures all the goods and services produced here. Add it all up and you know the size of the nation’s economy. News stories have reported over the last year that if the government didn’t make spending cuts or come up with more tax revenue, if not both, the debt load would match and exceed GDP eventually.
Have we already reached that debt-GDP match point? No.
Portman press secretary Christine Mangi said the source of the senator’s claim was a wire service report by Agence France-Presse, or AFP, whose stories are published in newspapers and on the Web. On Aug. 3, using figures for new borrowing as soon as Congress and President Barack Obama lifted the nation’s debt ceiling, AFP reported: "U.S. gross debt shot up $238 billion to reach 100 percent of gross domestic product after the government's debt ceiling was lifted, Treasury figures showed." This new borrowing, the wire report said, "took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, putting the United States in a league with highly indebted countries like Italy and Belgium."
We checked those figures. The GDP number used by the wire service was solid -- but out of date. The figure came from the U.S. Bureau of Economic Analysis, or BEA, whose estimates put the economy’s size last year at $14.5265 trillion.
Here’s the problem: That was GDP for 2010. It has grown since then. GDP was $15.0038 trillion in the second quarter of this year, the most recent measurement available, according to the BEA.
Comparing GDP with debt, we ran the numbers a couple of other ways, using both old and newer BEA figures for GDP and the Treasury Department’s "Debt to the Penny" website for specific debt figures. If you wanted to use 2010 GDP, a fairer comparison would be to measure gross debt on Dec. 31, 2010, which was equal to 96.5 percent of the GDP. That’s high, of course, and it prompted concerns about spending and revenues. But it was not seen as a doomsday trigger.
So what was the ratio of debt to GDP when Portman made his comment?
The closest calculation possible, using confirmed government figures, is made by comparing GDP for the second quarter of 2011 ($15.0038 trillion) with gross debt ( $14.5819 trillion) on Aug. 10, the day of Portman’s statement. That puts the gross debt at 97.2 percent of GDP. Since Portman relied on the AFP story of a week earlier, we compared the debt on that day, too, and got the same result: Gross debt was 97.2 percent of GDP.
Is this too much quibbling over less than 3 percentage points?
If this were baseball, the statistical equivalent would be to celebrate Barry Bonds making the 3,000-hit club when he hit still had 85 hits to go; in the end, he never made the record. (All other parallels between big numbers and disgrace are strictly incidental.) But in finance, the distance is not as great.
The International Monetary Fund said last year that total debt could match the size of the GDP by 2012, according to Bloomberg, the financial wire service. House Speaker John Boehner made the same prediction, and PolitiFact called it accurate. If anything, the likelihood of the gross debt hitting 100 percent of GDP this calendar year (but in the 2012 fiscal year, which starts in October) has since grown. That’s because the debt is still rising at what is likely to be a faster pace than economic growth, which is torpid.
"I imagine it will happen sometime in early FY2012," Jason Peuquet, a policy analyst at the nonpartisan Committee for a Responsible Federal Budget, told us.
So Portman was off but "pretty darn close, given the information we have," Peuquet said.
Still, there’s a caveat: This gross debt that he spoke about is not the scary part to many economists. More important, they say, is the portion of debt that’s owed to the public. This is the pool of Treasury securities that the government sells to investors, and it was $9.916 trillion the day Portman made his statement.
Measured against the size of the economy, that comes to 66 percent of GDP. It’s the highest level since shortly after World War II, when the nation was paying off war debts. In a worst-case scenario, with continuation of current tax rates and no change in spending policies, the public debt could exceed GDP by 2021, the nonpartisan Congressional Budget Office said in June.
That’s the doomsday scenario. But the CBO’s more likely scenario would put the public debt at 70 percent in 2020.
The rest of the debt -- $4.67 trillion -- is intra-governmental lending, including Social Security surpluses that the government uses for other federal operations. The money will have to be paid back, but the demand is less pressing right now and it doesn’t affect credit markets. That’s why the public debt, not the gross debt, is what’s most important for understanding the government’s fiscal health, says Gary Therkildsen, a fiscal policy analyst at OMB Watch, a nonprofit government-accountability group.
The CBO was matter-of-fact about it in a report last December: "Gross debt is not a good indicator of the government’s fiscal condition."
With that bit of background, we return to Portman.
PolitiFact has discussed the debt’s components before, and economists have said that it’s important to distinguish between the two kinds of debt. But they also say it is not inaccurate -- depending on the context -- to put the two together in order to discuss the gross debt, and that’s what Portman did. Given his stated interest in dealing with long-term budget matters including entitlements, it’s not unreasonable for him to talk about the gross debt.
Where does that leave us?
Portman said the "U.S. debt is now equal to 100 percent of the GDP." It is not, but "he’s pretty darn close, given the information we have," says Peuquet.
Before we rate Portman’s claim, we’ll note that Mangi, Portman’s press secretary, offered still another way of calculating the debt-to-GDP ratio. Although we quibble with this methodology because it still uses outdated numbers, this took the percentage to 98.5 percent, very close to the 97.2 percent figure we got. Mangi then offered an additional argument to push the percentage past 100: Add in all the debt held by state and local governments, too, "because the United States government includes federal, state and local governments," she said. Put all that debt together and it already exceeds 100 percent of GDP.
Problem is, local and state debt are not part of the broad, divisive debate that led to creation of the new super committee. Portman’s committee is dealing with federal deficits and debt, not the debt of Parma.
And when Portman said "the U.S. debt now equals 100 percent of the GDP," it was clear -- as it has been from weeks of debate in Washington -- which debt he meant.
The gross debt hasn’t reached 100 percent, but it will.
Portman’s statement is not 100 percent accurate, but at 97 percent-plus, it’s close enough to merit a rating of Mostly True.