What would happen if Congress had to apply the regulations in Sarbanes-Oxley, Dodd-Frank, and other corporate accounting law to its own balance sheets? Instead of talking about trillion-dollar deficits, USA Today reports from its analysis, we’d be talking about five times that amount:
The typical American household would have paid nearly all of its income in taxes last year to balance the budget if the government used standard accounting rules to compute the deficit, a USA TODAY analysis finds.
Under those accounting practices, the government ran red ink last year equal to $42,054 per household — nearly four times the official number reported under unique rules set by Congress.
A U.S. household’s median income is $49,445, the Census reports.
The big difference between the official deficit and standard accounting: Congress exempts itself from including the cost of promised retirement benefits. Yet companies, states and local governments must include retirement commitments in financial statements, as required by federal law and private boards that set accounting rules.
The deficit was $5 trillion last year under those rules. The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government’s books.
Why doesn’t Congress follow the same accounting rules for its unfunded future liabilities that it requires of businesses and lower levels of government? The long answer is that these liabilities are arguably not incurred until the federal government pays them. Congress can change the statutes governing Medicare and Social Security at any time to reduce or eliminate these future liabilities. Therefore, the official budget numbers only account for the liabilities that come due in the same budget cycle. In fact, USA Today gets that exact explanation from an analyst at the progressive Center on Budget and Policy Priorities, which tells us where a great deal of the problem originates.
The short answer? Because they want to get re-elected, that’s why. And the same politicians who screech about corporate malpractice and fraud are the same politicians who insist that there really isn’t an entitlement crisis, and that we’ll be totally OK until 2034, or 2068, or the year 2525, if man is still alive and woman can survive, etc etc etc. They like to pass laws that apply to everyone else but themselves. And all the while, this is what the apologists at the CBPP and politicians like Harry Reid tell us:
Keep the real deficit number in mind when politicians like Harry Reid insist that there is no entitlement crisis. And keep this in mind the next time members of Congress thunder about the need to pass more regulation in the private sector, too.