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.