For some time, the Institute for Truth in Accounting has been beating the drum of “accounting truth” in government finances. Recently USA Today picked up on their claim that true federal deficits and debt are several times larger than the official numbers. They ran the numbers and found that “the government ran red ink last year equal to $42,054 per household — nearly four times the official number reported under unique rules set by Congress.” In addition, “Federal debt and retiree commitments equal $561,254 per household. By contrast, an average household owes a combined $116,057 for mortgages, car loans and other debts.”
The reason for the difference between these numbers and the official ones is that the official numbers exclude the cost of promised retirement benefits: Social Security and Medicare. From the story: “Jim Horney, a former Senate budget staff expert now at the liberal Center on Budget and Policy Priorities, says retirement programs should not count as part of the deficit because, unlike a business, Congress can change what it owes by cutting benefits or lifting taxes.”
Yes, but will they? It seems to me that the “real” set of numbers is some weighted average of the official and full numbers, where the weight is the probability that Congress will act to reform retirement entitlements before they drag the official deficit even further into the red. Medicare is already losing money.
13 thoughts on ““Real” Federal Deficit Four Times Official Number”
Nice post. Medicare is losing money. And the trustee report (Social Security and Medicare) reports that the support ratio is falling faster than expected (now 2.9:1), redemptions out of the social security trust fund began in 2010 (although the trust fund will continue to grow for the next several years). The redemptions from the disability insurance trust fund are already exceeding growth of interest, so it should go belly up in a few years. Of course, redemptions simply mean that cash is drawn out of the general revenue fund at the Treasury, which in turn means that we are already borrowing on the debt market to cover social insurance liabilities. My guess is, we will borrow as long as capital markets will support it, which should allow Congress to put off reform for some time.
The scary thing is that capital market support is a switch that could go off at any time.
The unfunded liability of Social Security.Medicare and Medicaid can be wiped out tomorrow simply by ending the programs. As Social Security and Medicare/Medicaid are legally taxes and the money that is doled out to run the programs are legally benefits,Congress could simply end the taxes and close out the benefits. The Americans that are on the programs legally have no recourse but to accept the Congress’s decisions. With that said, there probably would be riots in the streets making the Greek riots look tame in comparison. However there is nothing the average citizen can do but to accept his fate. This is what happens when people accept the lies of socialist politicians for 75 years and turn over their economic security to the government.
libertain jerry is right. What this means is that the federal government owes nobody any Social Security or Medicare benefits beyond the checks that are written. And the American public needs to be educated about this. In the real world of accounting though, a liability is reported if two conditions exist. You can estimate the amount of the obligation and it is probable you are going to pay it. The Social Security and Medicare trustees estimate the Social Security and Medicare liabilities in their trustees’ reports. Since the benefits are set by law, it is probable they are going to be paid. As pointed out it would be very difficult to not pay these benefits. Since the balance sheet reports an entity’s financial condition at one point in time, in this case the federal government’s fiscal year end, and the probable and estimable obligations exist at that time the Social Security and Medicare liabilities should be reported.
If the federal government has no legal obligation to pay these, then why do our elected officials continue to say that the benefits are “guaranteed”?
Good point. They can’t have it both ways!