Let me be circumspect: Government accounting is vile garbage. It understates the true federal deficit by a staggering $2.3 trillion, an amount equal to the total market value of the ten largest companies in America--- General Electric, ExxonMobil, Microsoft, Citicorp, Wal-Mart, Johnson & Johnson, Pfizer, Bank of America, IBM, and Intel.

Blessed by historical habits that have no relationship to what our government does today, our legacy of cash accounting now serves to mislead and confuse. The April issue of Economic Indicators, a publication prepared by the Council of Economic Advisors, for instance, projects a Unified Budget deficit--- the one that lumps the Social Security surplus in with the rest of government--- of $427 billion.

The $427 billion deficit, however, is a massive understatement of our true deficit. The real deficit is $2.3 trillion larger. That's more than five times the publicly discussed $427 billion figure---but it never enters public discussion. (I'll tell you where this information is buried in a minute.)

If the executive branch of government were held to the standards of Sarbanes-Oxley, it would be on a fast track to a criminal trial. We would forget about Ken Lay because the crimes at Enron are mere rounding errors compared to what our government does.

Some readers will expect a diatribe against President George W. Bush to follow.

It won't.

This is a bipartisan problem. Both the Democrats and the Republicans, in or out of office, have been using accounting methods that are, at best, quaint and, at worst, criminal. And they have been doing it for decades.

You can understand what's going on by comparing our government to a large corporation like General Motors.

When General Motors files its annual report, it must report on the condition of its pension fund and other obligations to current and retired workers as well as its profit or loss. If the pension liabilities--- the retirement benefits it has promised workers---exceed pension plan assets by more than a certain amount, General Motors must make contributions to the pension fund, reducing their profits. The two, profits and pensions, are deeply linked. General Motors also has substantial healthcare obligations to its retired workers.

Sound familiar?

Our government is in a similar position--- but with a lot more zeros on the numbers it uses. It reports its annual profit and loss as a surplus or a deficit. Separately, it reports on its long term pension, disability, and healthcare obligations.   Unlike General Motors, however, the government doesn't include these figures in the annual statements of surplus or deficit.

You can only find them in the Trustees reports for Social Security and Medicare.

The 2005 reports (each over 200 pages) show the programs to be under funded by a total of $33.7 trillion (in today's dollars) over the next 75 years.   That's four times the $8 trillion in formal debt shown in regular government accounting.

You learn still more when you compare the 2005 reports with the reports from 2004. In 2004 the combined unfunded obligations of Social Security and Medicare were $31.4 trillion.

That's an increase of $2.3 trillion in a single year. The Trustees' examination of the plans over a longer time period, termed the infinite horizon, shows an even larger change, $7.2 trillion.   (See table below.)

But let's not look so far in the future. Let's stay with the traditional (if inadequate) 75 year measure, that $2.3 trillion. It isn't mentioned in other government documents. It is missing from Economic Indicators. Indeed, it is absent from virtually all discussion of the federal budget--- the one currently estimating a piddling deficit of $427 billion for fiscal 2005.    


The Overlooked $2.3 Trillion Deficit

The unfunded liabilities measure the value, in current dollars, of the amount by which promised benefits exceed expected tax collections. In all three Medicare programs, the financing gap will grow year by year during the 75-year period. It will continue to grow after the 75-year period traditionally used by the Trustees of Social Security and Medicare. All $ figures in trillions.
Program 75 Years Infinite Horizon Difference
Social Security $   4.0 $11.1 $   7.1
Hospital Insurance $   8.6 $24.1 $15.5
Part B (from general revenues) $12.4 $25.8 $13.4
Part D (from general revenues) $   8.7 $18.2 $   9.5
Total $33.7 $79.2 $45.5
Comparable Total, 2004 $31.4 $72.0 $40.6
Year over Year Increase $   2.3 $   7.2 $   4.9
Source: 2004, 2005 Trustee Reports for  Social Security and Medicare   

Until more accurate figures are presented, neither party knows what it is talking about or where the country is going.

On the web:

Social Security Trustees Report for 2005

Social Security Trustees Report for 2004

Medicare Trustees Reports

Economic Indicators