Washington Post Op-Ed – December 29, 2011
By Bryan R. Lawrence
Releasing information on the Friday before a big holiday is a time-tested way to bury bad news. Sowhen the Government Accountability Office’s fiscal 2011 financial statements for the federalgovernment were released on the Friday before Christmas, it made sense to read them closely.
Since 1997, the United States has been a rare example of a government willing to publish financialstatements using accrual accounting, which counts the cost of promises made as well as cash paid out.
And the GAO’s professionalism has won it a reputation for impartiality and effectiveness.That professionalism is evident in GAO’s analysis of the net present value of the Social Security andMedicare promises Washington has made to Americans. “Net present value” means the total thatwould have to be put aside today to pay the costs of these programs in the future. The governmentputs these costs in the appendices, rather than in headlines. But the costs are real.The cost of the promises grew by $2.9 trillion during 2011, from $30.9 trillion to $33.8 trillion.
To putthat in context, consider that the total value of companies traded on U.S. stock markets is $13.1 trillion,based on the Wilshire 5000 index, and the value of the equity in U.S. taxpayers’ homes, according toFreddie Mac, is $6.2 trillion.
Said another way, there is not enough wealth in America to meet thesepromises.If the government followed corporate accounting rules, that $2.9 trillion increase would be added to the$1.3 trillion cash deficit that has been widely reported. And a $4.2 trillion deficit is something thatAmericans need to know about.The Treasury acknowledges the need to show an accrual-based deficit, but the only retirement accrualsit includes in its “Citizen’s Guide” to the GAO numbers are for promises to direct government employeesand veterans.
Promises to the rest of Americans are excluded, even though they are multiples largerthan the $10.2 trillion of government debt held by the public.
The latest GAO numbers are particularly interesting because of a change in accounting standards thatrequires the government to explain why the cost grew by $2.9 trillion. Fully $1.5 trillion of that reflectsthe aging of all 312 million Americans by one year.
In the 2001 GAO report, the cost of promises was$17 trillion.
The growth in the cost from $17 trillion to $33.8 trillion averages about $1.7 trillion peryear. The GAO doesn’t specify numbers for the other nine years, but one suspects that aging has drivenmost of the growth in the cost of the promises.The cost would have been a lot worse but for two assumptions that the GAO found questionable.First, Medicare’s cost projections assume legally required decreases in reimbursement rates to doctorsthat Congress has ignored for years – the so-called doc-fix. For these projections to be realized,Congress would have to abide by its own cost controls, and allow an immediate 27 percent cut todoctors’ rates, which is very unlikely.