Dennis Cauchon does a pretty good job explaining the differences between cash accounting and accrual accounting and why the federal deficit is much higher than anyone thinks.
The federal government keeps two sets of books.The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005.
The set the government doesn't talk about is the audited financial statement produced by the government's accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. If Social Security and Medicare were included — as the board that sets accounting rules is considering — the federal deficit would have been $3.5 trillion.
The culprits are Social Security and Medicare, which Congress and the American public refuse to recognize as the costs they really are. Still, as some point out, we aren't really obligated to make future Social Security payments, so maybe it's right not to count them yet.
The retirement programs do "not represent a legal obligation because Congress has the authority to increase or reduce social insurance benefits at any time," wrote Clay Johnson III, then acting director of the president's Office of Management Budget, in a letter to the board in May.
So the explicit escape plan is to radically cut Social Security and Medicare. Too bad the public and Congress aren't yet ready to face facts.
Most of the public and Congress don't understand the difference anyway.
Actually, I think that most of the public would understand quite well if properly presented.
Take every porkbuster page out there and add a little logo that puts those two deficit numbers out there without commentary.
2005 official deficit $318 Billion
2005 deficit, GAAP rules $3.5 Trillion
After that, go after local reporters who don't report the GAAP calculated deficit as well as the "official" deficit. It's an attractive storyline for reporters, scandalous hiding 9/10ths of the real deficit behind special rules and making our kids and grandkids pay for it all. It's a bigger story than Enron and if we get enough constituents to start asking their Congressmen about it, things will change.
I know what the term GAAP means and I'll assume you do also, but what percentage of the population knows what it means? Even if some do then they would have to also understand the concept of what a Trillion means. I'd say the number is infinitesimally small. Stated per person the numbers are $1,060 and $11,666 and most people would say "Big deal! I owe more than that on my credit card"
What might make a difference is including in those figures who (which countries) that $1,060 and $11,666 would be paid to.
Those numbers are not small!
Sure, the upper 30% of society can afford that and a pair of SUVs in the garage. But, the median US family income (for a 4-person household) is around $44k. That family already pays $10k in taxes, and they would have to pay $4,240 more to keep our government out of debt this year.
Just go ahead and try asking people to swollow a 42% tax hike. Then, while you are getting lynched, you can remind everyone that our deficit is "infinitesimal".
I mean ... to keep our government out of deficit this year. There's got to be a better phrase than "out of deficit."
I didn't say the deficit was infenitesimal. I said the percentage of people who understand GAAP and concept of a Trillion dollars is infenitesimal.
II: You made two points in your post, did you not? (1) Very few people understand GAAP. (2) Per person, the deficit is not a "big deal".
Mark and I were countering the second point. Do you still stand by it?
OK, on #2 I would not say it's no big deal, but I would say that throwing around these big numbers is useless at best and pure polemic propaganda at worst. I assume your comments are nearer the former. I'm against big spending, big deficits, and big debt, but more in a social political sence then an economic one. Thank you for your reasoned responces. I'm done with this thread. But I'll be back on another:>)
If any of you are suggesting the Feds go to GAAP (Generally Accepted Accounting Principles) to assess their "true" financial picture, you seem to be deliberately overlooking one aspect of the picture. Namely, Assets, and how to leverage them to get maximum financial payout. Aren't the National Forests and Petroleum Reserves assets?
And why should the Feds go to GAAP when they can define the terms/conditions that would apply to them (and to us)? There's a reason why US Treasury Bonds are the world's safest investment this side of Gold.
Brad S: That's a good point about leveraging government assets. However, most of those assets are explicitly not for profit, but for the general public use.