U.S. Representative Jim Cooper is raising a stink about the size of the federal budget deficit. He might be highlighting the issue purely for political purposes, but it is an issue worthy of the spotlight. Here’s what Pat Nolan reports that he had to say:
Nashville Congressman Jim Cooper actually believes the deficit and our national debt is much larger than these figures show. He recently introduced two amendments in committee (they were both defeated) asking that Congress, like many private businesses begin to show the debt by using accrual accounting. He believes (and he’s right) this would give us all a more accurate sense of our long-term liabilities, which we are leaving for our children and grandchildren to pay off to the Chinese and other foreign nations who are now holding the notes. How much larger is the deficit really? The most recent official Financial Report of the United States Government says our deficit in 2005 was actually more like $760 billion not the $319 billion as usually reported by the media (using the old cash based accounting system).
I seem to remember that the President argued a similar point when it came to Social Security reform. My brief google search didn’t’ turn up much, but here’s what I did find:
Were the federal government to account for its Social Security obligations under the rules of accrual accounting, which govern public companies, its financial outlook would be far worse. By the end of last year, the Social Security system owed retirees and current workers benefits valued at $14 trillion. The system's assets, in contrast, were only $3.5 trillion. These assets include not only the trust funds' current reserves ($1.4 trillion), but also the present value of the taxes that current workers will pay over the remainder of their working lives ($2.1 trillion). In other words, the system's current shortfall — its assets minus its liabilities — is $10.5 trillion.
There is an alternate view to what the accrual accounting method would show. It supposes that, because the government doesn’t account for future outlays, it also doesn’t take into account future revenues:
Right now, Washington has no long-term estimates like these, because it hasn't fully embraced accrual accounting. The government focuses on the accumulation of future debt, while ignoring the growth in value of its assets, like legally owed taxes in tax-deferred accounts.
. . . The Social-Security time bomb could very well prove to be a dud. The doom and gloom red-ink budgetary forecasts of recent years have overlooked some astoundingly good news for the government: pensions, IRAs and other tax-deferred accounts should generate some $12 trillion in taxes by 2040. This mind-boggling pot-of-gold is larger, at a minimum, than the sum of the 75-year actuarial deficits in either Social Security or Medicare, according to Stanford economist Michael Boskin , who has written a pioneering paper on the subject for the National Bureau of Economic Research. We could end up with enough to offset both shortfalls, he says.
I’m not an economist, so I’m not sure which view is the truth. But I do know two things:
As common sense financial guru Dave Ramsey says, if you’re spending more than you’re making, you’ve got a problem. (Actually, I’ll caveat that by saying that it’s okay to spend more than you make if you’re on the back end of your retirement years.)
And the second thing I’ll say is that I hope I never live to see the day when our federal government is on the back end of its retirement years.
Whether Cooper’s doom and gloom is political stunt or policy reality, he’s right to bring focus to government spending. George W. Bush and the Republicans in Congress have been spending our money like the proverbial drunken sailor.
And, as my friend Forrest Shoaf likes to say, that’s a comparison that’s unfair to sailors, because, at least they’re spending they’re own money when they’re getting drunk.