Federal law<\/a>\u00a0requires the U.S. Treasury and White House to produce an annual report on the \u201coverall financial position\u201d of the federal government. The law also requires the Government Accountability Office to\u00a0audit this data<\/a>, which is then published in the\u00a0Financial Report of the United States Government<\/a>.<\/p>\n Despite the important and shocking nature of this report, a search of\u00a0Google News<\/a>\u00a0shows no results for it, even though it has been almost a week since it was published.<\/p>\n \u201cA Complete Picture\u201d<\/strong><\/p>\n Unlike the federal budget, which primarily uses cash accounting, this Treasury report uses accrual accounting. The Government Accountability Office\u00a0explains<\/a>\u00a0that this accounting method \u201cis intended to provide a complete picture of the federal government\u2019s financial operations and financial position.\u201d<\/p>\n Cash accounting<\/a>\u00a0is the simple process of counting money as it flows in or out. In contrast,\u00a0accrual accounting<\/a>\u00a0measures financial commitments when they are made. For example, as federal workers earn pension benefits, accrual accounting measures these obligations in the year that they are earned. Cash accounting does not measure such liabilities until they are paid, which may not be until years or decades later.<\/p>\n The federal government\u00a0requires<\/a>\u00a0large corporations\u00a0to use<\/a>\u00a0accrual accounting for their pension plans, because this is the \u201cmost relevant and reliable\u201d way to measure their financial health. The same applies to other retirement benefits like healthcare. The\u00a0official statement<\/a>\u00a0of this rule explains that \u201ca failure to accrue\u201d implies \u201cthat no obligation exists prior to the payment of benefits.\u201d Since an obligation does exist, failing to account for it \u201cimpairs the usefulness and integrity\u201d of financial statements.<\/p>\n Nonetheless, the federal budget,\u00a0which is<\/a>\u00a0the \u201cgovernment\u2019s primary financial planning and control tool,\u201d is not bound by the accounting rules that the government imposes on the private sector. In the words of the\u00a0U.S. Treasury<\/a>, the federal budget is prepared \u201cprimarily on a \u2018cash basis\u2019.\u201d<\/p>\n This has major implications for future taxpayers, partly because pension and other retirement benefits are a large part of compensation packages for government employees. When these benefits\u00a0are included<\/a>, civilian, non-postal federal employees receive an average of 16% more in compensation than private-sector workers with comparable education and work experience. Postal workers receive an even greater premium.<\/p>\n The recently released\u00a0Treasury report<\/a>\u00a0shows that the federal government currently owes $7.2 trillion in pensions and other benefits to federal employees and veterans. Paying the present value of these benefits would require an average of\u00a0$57,000<\/a>\u00a0from every household in the U.S. Yet the vast majority of these liabilities are not reflected in the national debt.<\/p>\n Social Security and Medicare<\/strong><\/p>\n A similar situation exists with\u00a0Social Security<\/a>\u00a0and\u00a0Medicare<\/a>, because the government mainly funds the current expenses of these programs with taxes from younger workers who don\u2019t receive benefits until they become senior citizens. Hence, Social Security and Medicare are\u00a0sometimes called<\/a>\u00a0\u201cpay-as-you-go\u201d programs.<\/p>\n Once again, this is different from the private sector,\u00a0where<\/a>\u00a0\u201cfederal law requires that private pension plans operate as funded plans, not as pay-as-you-go plans.\u201d As explained by the\u00a0American Academy of Actuaries<\/a>, the law requires private pension plans to pay for \u201cbenefits as they are earned\u201d to ensure \u201cintergenerational equity.\u201d In other words, the law prevents older workers from placing the costs of their retirements on younger workers, at least in the private sector.<\/p>\n Social Security and Medicare differ from pensions, because taxpayers don\u2019t have a\u00a0contractual right<\/a>\u00a0to receive these benefits. In the original\u00a0Social Security Act of 1935<\/a>, Congress \u201creserved\u201d the \u201cright to alter, amend, or repeal any provision of this Act.\u201d Consequently, the Supreme Court ruled\u00a0in 1960<\/a>\u00a0that Congress can change Social Security benefits at will. Nevertheless, paying these benefits is an implied commitment of the federal government, and\u00a0federal law<\/a>requires that these programs be included in the Financial Report of the U.S. Government.<\/p>\n Federal actuaries measure the obligations of Social Security and Medicare in several\u00a0different ways<\/a>, but only one of them approximates the concept of accrual accounting. This is called the \u201cclosed-group\u201d obligation, which is the money needed to cover the shortfalls for all current taxpayers and beneficiaries in these programs. In the\u00a0words of<\/a>\u00a0Harvard Law School professor and federal budget specialist\u00a0Howell E. Jackson<\/a>, the closed-group measure \u201creflects the financial burden or liability being passed on to future generations.\u201d These burdens\u00a0amount to<\/a>\u00a0$29.0 trillion for Social Security and $32.9 trillion for Medicare.<\/p>\n The Treasury report includes other obligations of the federal government, like environmental liabilities and accounts payable. The report also measures federal assets, such as cash, real estate, and corporate stocks. This excludes federal stewardship land and heritage assets, such as national parks and the original copy of the Declaration of Independence. While these items have tangible value, the report explains that the government \u201cdoes not expect to use these assets to meet its obligations.\u201d<\/p>\n Tallying<\/a>\u00a0the Treasury\u2019s data on assets and subtracting its obligations shows that the federal government has a fiscal shortfall of $84.3 trillion in debts, liabilities, and unfunded Social Security\/Medicare obligations. Divided evenly across all U.S. households, this amounts to an average of $670,000 per household.<\/p>\n Optimistic Assumptions<\/strong><\/p>\n The actual shortfall may be worse, because the Treasury data is based on federal government assumptions that are highly uncertain and optimistic. For example:<\/p>\n Causes and Effects<\/strong><\/p>\n The current\u00a0national debt<\/a>\u00a0is $19.9 trillion. This amounts to 107% of the nation\u2019s gross domestic product, which is higher than any point in U.S. history except for two years near the end of World War II. The national debt, however, is mainly measured on a cash basis, and as such, it does not include most of the obligations detailed above.<\/p>\n These obligations are looming, and this can be seen in Congressional Budget Office projections of publicly held debt, which is a\u00a0partial measure<\/a>\u00a0of the national debt that is often cited by government agencies and media outlets. In 2014, CBO\u00a0projected<\/a>\u00a0that this debt would grow over the next two decades to unprecedented levels unless the government changed its policies. Two and half years later, the actual outcomes are\u00a0slightly worse<\/a>:<\/p>\n The vast bulk of current and impending federal debt is due to increased spending on\u00a0social programs<\/a>\u00a0like Medicare, Social Security, Medicaid, and food stamps. Such programs\u00a0have grown<\/a>\u00a0from 21% of federal spending in 1960 to 63% in 2015. Under current laws and policies, the Congressional Budget Office\u00a0projects<\/a>\u00a0that almost all future growth in spending will be due to these programs and the interest on the national debt.<\/p>\n It is often impossible to objectively isolate the effects of a single factor (like the national debt) on an economy. However, a\u00a0broad range<\/a>\u00a0of evidence indicates that excessive government debt can cause far-reaching negative outcomes, such as lower wages, weak economic growth, increased inflation, higher taxes, reduced government benefits, or combinations of such results.<\/p>\n The\u00a0Government Accountability Office<\/a>\u00a0has warned that \u201cthe costs of federal borrowing will be borne by tomorrow\u2019s workers and taxpayers,\u201d and this \u201cmay reduce or slow the growth of the living standards of future generations.\u201d This may have already begun. The national debt has\u00a0risen dramatically<\/a>\u00a0over the past decade, and with this, the U.S. has experienced historically poor growth in\u00a0gross domestic product<\/a>,\u00a0productivity<\/a>, and\u00a0household income<\/a>.<\/p>\n Reprinted from Just Facts Daily<\/a>.<\/em><\/p>\n James D. Agresti<\/span><\/a> is the president of <\/span>Just Facts<\/span><\/a>, a nonprofit institute dedicated to publishing verifiable facts about public policy.<\/span><\/p>\n This article was originally published on FEE.org. Read the original article<\/a>.<\/p>\n\n
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\nJames Agresti
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