Cooking the Books: The 2010 Deficit Was $2.1 trillion

December 24, 2010 10:15

Perhaps the Obama administration felt that it was not politically expedient to remind the elderly that health reform is largely financed on their backs.

By BRUCE BARTLETT, The Fiscal Times


Private corporations are required to use accrual accounting and corporate executives would be jailed for using the sort of accounting that the federal government routinely uses.

The most important difference between the Financial Report and the federal budget is that the former calculates costs on an accrual basis, whereas the latter only measures cash flow. Thus if the federal government incurred a debt that would not be paid until some time in the future, that cost would not be part of the conventionally measured national debt. It would only add to the debt when cash had to be expended to cover the expense that had been incurred.

The unfunded liabilities of Social Security and Medicare aren’t the only ones left out of the national debt calculations. The federal government also owes federal employees and veterans future benefits of close to $6 trillion. The Financial Report also estimates more than $300 billion of future environmental cleanup costs and more than $600 billion of costs associated with loan guarantees, insurance commitments and liabilities related to Fannie Mae and Freddie Mac, the big housing agencies.

Theoretical insurance commitments are even larger. Those for federal deposit insurance, pension benefit guarantees, and potential losses from flood insurance would add up to many trillions of dollars.

Since the report now projects a deficit of 1.9 percent of GDP over that period, we would have to immediately cut spending and/or raise revenues by 2.4 percent of GDP to keep the debt-to-GDP ratio from rising. That would require a $360 billion cut in just the 2011 deficit and the equivalent every single year thereafter for 74 more years.

The first step in getting people to accept and Congress to enact the necessary fiscal adjustments is to stop running the federal budget on a cash basis. That makes it too easy to promise benefits and incur liabilities in the future that appear to have no cost.


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