A member of the Congress of the
THE FINANCIAL TIMES
AN EDITORIAL BY JIM COOPER
A TRUER MEASURE OF
The federal government keeps two sets of books, but the Bush administration only wants you to see one of them. There is the highly publicised "President's Budget" issued by the Office of Management and Budget, and the almost-secret "Financial Report of the
Which view is correct? Is the deficit a mere 2.6 per cent of gross domestic product and shrinking, as the former OMB director and now White House chief of staff Joshua Bolten claims, or an alarming 6.2 per cent of GDP and growing, as John Snow, Treasury secretary, writes in the Financial Report?
The budget that is hand-delivered to every congressman's and senator's office is calculated on a cash basis, that is, the government only counts dollars as they are received from taxpayers and spent by government agencies. This says the "deficit" for 2005 was Dollars 319bn. In contrast, the financial report was issued without a press release and measures government activity on an accrual basis - when income is earned or expenses are incurred, although no cash may have yet been transferred. According to the report, the
The congressional budget process uses cash accounting almost exclusively. This is convenient for Republicans because it makes the deficit look much smaller than it is under modern, accrual accounting. In spite of the harmless-looking Dollars 319bn cash deficit, the Republican Senate and House leadership has had trouble passing any budget at all. If budgeting were based on the larger accrual number, budgeting would be impossible without big reforms.
What is the true deficit? Which accounting method is better? Most businessmen laugh at the question because cash accounting has been illegal in their world for many years due to its ease of manipulation. Accrual does a better job of measuring our credit-card economy in which debts are incurred long before interest or principle must be paid. Even accrual accounting fails to account for gigantic Social Security and Medicare liabilities because these are not contractual liabilities of the government.
General Motors, Ford and the
The budget says that the national debt is Dollars 8,200bn; the report indicates that the present value of our obligations is more like Dollars 49,000bn. That unimaginable sum is how much money we must set aside today to pay the full Social Security and Medicare benefits that Congress has already promised.
The budget says Americans' personal share of the national debt is Dollars 28,000; the report says it is Dollars 156,000. That means that a family of five owes roughly Dollars 750,000. As David Walker, US comptroller-general, says, you owe your government the equivalent of a luxury home, only you do not get to live in it. You only get the mortgage.
These crushing debt burdens are getting heavier fast. According to the report, as recently as 2000, our national obligations were "only" Dollars 20,000bn, but they have more than doubled in five years. This trend, which economists politely term "unsustainable", could destroy
Many Americans have a hard time believing that our first MBA president and our pro-business Congress would betray sound business principles when it comes to financial statements and national budgeting. After all, their speeches call for government to be run like a business. Congress can begin correcting these mistakes by using honest, accrual-based, numbers. The House budget committee voted unanimously this year to include accrual accounting in next year's budget process. The truth hurts, but it is the only way to start honouring
The writer is a Democratic congressman for
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