LET’S THINK ABOUT THE FEDERAL BUDGET but first consider a pretend scenario between Mrs. Williams and me.
“Honey,” she says, “we have a budget surplus. Our 1998 expenditures were $90,000, and our revenue was $100,000. That’s a $10,000 surplus.”
“That’s wonderful, Mrs. Williams,” I say. “Your brilliance has saved our household from the financial collapse we were headed for as a result of deficit spending. As soon as our accountant goes over our books, we’re going to celebrate.”
Our accountant goes over the books and gives me a report. Mrs. Williams had counted as revenue this year’s $15,000 contribution to our children’s education trust fund. She also counted this year’s $20,000 contribution to our retirement account. There was nothing put in those accounts except little slips of paper marked “IOU.”
Irate, I confront Mrs. Williams, “In reality, there’s no balanced budget, much less a surplus. You’ve cooked the books! You’ve spent $35,000 earmarked for our trust funds and replaced them with IOUs. You’re not supposed to count the money we’re putting aside for our children’s education and our retirement as revenue available for spending this year. The reality is, the revenue available to be spent this year was $65,000 ($35,000 was to go into the trust accounts). You spent $90,000. That makes for a deficit of $25,000.”
With nothing but IOUs in our education trust fund, I ask Mrs. Williams, “What do we do when it’s time for our children to go to college?” She says, “Take it easy, Walter. Don’t get your panties in a bunch! When college time comes, we have several options: We can renege on our promise to the kids, or we can borrow or steal money for college.”
That’s when I say, “You are no longer Mrs. Williams; you’re fired!”
Boiled down to its basics, that’s the budget “surplus” hoax that’s coming from the president and Congress. In 1998, there was approximately $120 billion spent out of revenue earmarked for trust funds like the Social Security, highway and unemployment compensation trust funds. There’s absolutely nothing in those trust funds except Treasury Department IOUs.
That means that when Congress reports there is a $60 billion surplus, we should subtract $120 billion from that so-called surplus. That would leave us with minus $60 billion — a $60 billion deficit for 1998. As such, budget surplus talk is nothing less than a sleight-of-hand accounting hoax perpetrated on the American people.
The budget situation is actually worse. The federal government uses accounting practices that if used by private companies would land the CEO and the board of trustees in jail. Here’s why: Today’s estimated federal government liability is about $20 trillion. These are federal government promises-to-pay such as the public debt, Social Security, railroad retirement, bank deposit and savings and loan insurance, guaranteed student loans, International Monetary Fund and so forth.
When private companies have future promises-to-pay, general accounting practices require that they hold actuarially based reserves to cover those claims. How much reserves do you think Congress has set aside to cover federal obligations? If you say zilch, nada, zippo, go to the head of the class. The bottom line is that if Congress followed general accounting practices, instead of a reported surplus, there would be a budget deficit of at least $200 billion.
You say, “Williams, wow, what should Americans do?” Right now, we’re deciding whether it’s OK for a president to lie to the American people. While we’re at it, we might also decide whether we should accept lies from Congress. We should give them our answer at election time.