The national debt, excluding unrecorded and unfunded liabilities for Social Security and Medicare (estimated at $50 trillion), will exceed $15 trillion by the end of this fiscal year.
The National Commission on Fiscal Responsibility and Reform appointed by President Barack Obama warned that unless we stabilize and reduce the national debt, we could spend $1 trillion a year in interest payments alone by 2020, when our national debt subject to the statutory debt ceiling is projected to be more than $20 trillion at current spending levels.
For those of us who are professional accountants, the real numbers are catastrophic, but they are also hiding in plain sight.
The real national debt can be found in the “2010 Financial Report of the U.S. Government.” To find this document, visit the website of the Treasury Department and click on the Financial Management Service under “Bureaus” and then go to “Publications.”
In the report, you will find the following information for the fiscal year ended
Sept. 30, 2010:
• Publicly held and intragovernmental debt represented by Treasury bills, bonds and notes: $ 13.637 trillion
• Medicare, Parts A, B, and D: $22.813 trillion (This number was $15.3 trillion greater in fiscal 2009 but was reduced by questionable savings projections under the 2010 health care overhaul.)
• Social Security: $7.947 trillion
• Federal employee pensions and veterans’ benefits: $5.72 trillion
• Other: $1.673 trillion
• Total: $ 51.79 trillion
• Gross domestic product for fiscal 2010: $15 trillion
• Debt and liabilities as percent of the GDP: 351 percent
Deficit reduction and effective financial management require a sound budget process, including fair and objective accounting standards. Congress, driven by its primary motivation for re-election, makes the situation worse by deferring meaningful reforms.
At the federal level, there are myriad off-budget gimmicks, unrecorded liabilities and financial management manipulations on a scale that would put many executives of publicly traded companies in prison for securities fraud.
The bottom line is that our budget process has been broken for years, and the accounting system used by the federal government in the budget process is a fraud by Securities and Exchange Commission standards.
Sadly, at the heart of America’s fiscal fiasco is a double standard that enables Congress and the president to fudge the real numbers, thereby collectively misrepresenting the dire financial condition of the government until it may be too late to take corrective action.
I tried to lead the way in 1992 as chairman of a Blue Ribbon Task Force on Truth in Budgeting and Accounting, sponsored by the Association of Government Accountants.
The group, made up of some of the country’s top government accountants, went on to recommend six reforms, three of which cry out for action today.
1. The adoption of sound accounting and budgeting principles, including the need to use “generally accepted accounting principles,” which will require the use of an accrual basis of accounting to realistically capture and recognize all unrecorded, contingent and unfunded liabilities and obligations, not the grossly inadequate cash basis currently used in the budget process.
2. The adoption of separate budgets for general funds, trust funds and government-sponsored enterprises to avoid treating the three areas as economically equivalent, giving the public a far more accurate picture of the federal government’s spending activities.
3. The adoption of a capital budget to plan and control long-term asset expenditures with a useful life longer than one year, treating infrastructure expenditures as an asset that can help the future through jobs and other long-term benefits, not as a current operating expense in the budget.
The big debate taking place today in America is about the fiscal crisis and the fast-growing national debt.
The United States is spending huge sums of money that it does not have, forcing us to borrow from foreign countries that do not share our commitment to democracy and human rights, and passing on trillions of dollars of unfunded debt obligations to future generations.
As a result, we are threatening the very foundation of our democracy and the prospects of the next generation to achieve the American dream of self-development and prosperity. And both parties have been grossly ineffective in addressing the massive debt and deficit that is accelerating every day.
The debate on spending and entitlement reform grew even more politically heated as we contended with raising the current federal debt limit of $14.3 trillion.
Whatever the shape of the final agreement, it is almost certainly not going to address the long-term questions of unfunded liabilities and gimmickry accounting.
The national debt is a ticking time bomb. But raising the debt ceiling is merely a reset of the clock. It is not a resolution of our fiscal crisis.
Joseph J. DioGuardi is a certified public accountant and a former Republican Congressman from New York. The second edition of his “Unaccountable Congress: It Doesn’t Add Up” was published in 2010.