gettin’ drunk on our dime

Byline: | Category: Uncategorized | Posted at: Friday, 21 April 2006

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.

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2 Responses to “gettin’ drunk on our dime”

  1. Rick Forman Says:

    There will never be a true accounting of the financial calamity awaiting this nation.

    The Fed keeps items like the Iraq war spending “off budget” so they can try with a straight face, to convince the American public that the deficit for the year is $350 billion instead of the true deficit of $750 billion. If J.Q. Citizen tried that on a loan application you would be thrown out on your ear.

    If the Fed were forced to follow the same regulations and rules as it wants the Enrons of the U.S. to do, everyone in the D.C. would be cell mates of Bernie Ebbers right now.

    You left out one thing regarding Social in-Security. The future liability of the prescription drug plan that will add another 20-25 trillion on top of Social Security. If one digs deep enough in the boring numbers from the treasury, one will find that the total obligations for entitlements is more like $80 TRILLION. Which has to be collected twice from taxpayers. The first time to be depositied into the accounts. And a second time to cover(with interest) the looting of those accounts by the Fed for such important projects as bridges to nowhere or security cameras in Dillingham, Alaska to watch water freeze.

    However, it’s this basic problem of government that will never be resolved until it hits critical mass. Because as long as it doesn’t affect American Idol, Aruba, Oprah or some other meaningless drivel, the American public will continue to jump up and down on April 15th every year shouting, “I’m getting back money this year!” Eventually those refund days are gong to end and just like high interest credit cards, the taxpayers will never be able to catch up.

  2. Stan Says:

    Social Security is only one of around 115 trust funds whose surpluses congress uses as a slush fund to cover its habit of unresrticted spending. In 1997 I asked the Social Security Administration for the break-even point for employee and employer contributions plus interest of the average retiree that year versus payouts for the average enrollee. It was 240 months thus from that time the system’s surplus should have grown until the average longevity of Americans reached 85. As we all know the extra money was spent.

    For several terms congressman Cooper has been a part of the spending of those monies so one wonders why he is only now showing concern.

    It is past time to make true trusts thus converting surpluses from feed-for-the-congressional-trough and having them provide real return on contributers investment.

    One also wonders when Jim Cooper will become bothered by the federal government’s current role as insurer-of-last-resort. The cost to taxpayers in this is far greater than repaying trust funds.