According to recent CBS / New York Times and NBC / Wall Street Journal polls, public concerns over super-sized Federal deficits and the increasing national debt are overtaking concerns over our failing economy.
In 1980, our national debt stood at about $800 billion accumulated over 200 years. in less than three decades, that debt has increased twelve-fold. The national debt will exceed $11 trillion in 2010 and is projected to exceed $20 trillion by 2020 (even if interest rates stayed around 5 percent, the annual interest on the national debt alone will be well more than $1 trillion in 10 years.) And this does not include the big problem we face, which is the estimated $45 trillion in unrecorded and unfunded liabilities primarily for Social Security and Medicare - A number that seems to disappear whenever we focus on the annual deficit and national debt.
Worse still, we are being left Hostage to countries like China Dash which currently is owed the largest portion of our $2 trillion debt to foreign nations - that clearly do not share American values.
And, when you examine the real numbers, the reality is beyond dire. There is a $56 trillion hole, and counting, in our nation's finances, not the $11 trillion national debt that is widely publicized and reported on the federal government's balance sheet. Lost in all of the outrage over the fast-rising Federal deficits and national debt is something that every certified public accountant knows and virtually all politicians do not like to acknowledge - that the financial management failures of the US corporations cannot come close two rivaling the budget and bookkeeping shambles of the U.S. government. At the federal level, there are myriad off-budget gimmicks, unrecorded liabilities, and financial manipulations on a scale that would put many Executives of publicly traded companies in prison for Securities fraud.
In my view, therein lies the foundation of America's budget and accounting Fiasco today - a double standard that enables the Congress and the president to fudge the real numbers and collectively misrepresent the financial condition of the US government.
It is past time to restore Integrity to the budget process. The "unified budget," which was implemented under President Lyndon Johnson, reputedly to disguise the real cost of the Vietnam War, must be done away with. By offsetting annual surpluses in the so-called trust fund accounts, like Social Security, against the deficit from all other annual government operations and activities, we grossly under report the U.S. annual deficit. This allows for a "Ponzi scheme" on a grand scale against unrepresented future generations.
And the budget reforms that followed the misguided and unfair "unified budget" like the 1984 "Gramm-Rudman Deficit Reduction Act" and the 1990 "Budget Enforcement Act" (that tried to implement a pay-as-you-go-mechanism), have all failed to contain federal deficit spending and to balance the budget the founders should have provided a balanced budget requirement in our constitution. But they did not.
Deficit reduction and effective fiscal management require a sound budgeting process and fair and objective accounting and Reporting standards. But, most of all, they require political will. Congress, driven by its primarily motivation for re-election, makes the situation worse by deferring meaningful reform.
Everyone in Washington decries the federal deficit, but no one there seems to have any real plan or intention to solve it. Leadership is lacking from CPAs and those with the financial expertise (like certified management accountants and other Financial professionals.) They should rise up as inform citizens to persuade Congress to straighten out our government's fiscal policies and financial records, and to lead America to an economically sustainable future.
The most important financial reform would be to convert the current cash basis accounting system, used in the federal budgeting and bookkeeping process today, to the system of "generally accepted accounting principles." GAAP is required corporations by the Securities and Exchange Commission not to mention all 50 states and 84,000 local governments, to protect future Generations from being unfairly burdened by the excess (and disguised) spending of the current generation.
It is time to separate the promulgation of numbers - i.e., the budget, accounting, and Reporting process - from politicians. A good place to begin to control federal spending would be to use GAAP to disclose all spending and all commitments to spend. Another would be to make the chief financial officer's function (as I proposed the 1986) a Cabinet-level position and remove financial management and Reporting from the treasury Department
As a CPA and former member of Congress who served on both the House Government Operations and Banking Committees, and now as a volunteer public advocate for fiscal responsibility, I strongly believe we must require independence and objectivity in setting both monetary and fiscal policy to remove any political influence over our government accounting, reporting, and auditing. In a July 16 New York Times commentary justifying the independence of the Federal Reserve System, Rob Cox and Richard Beales concluded that, to ensure effective monetary policy, the Fed should be removed from politics, because it's decisions can be politically inconvenient. We need to do the same for fiscal policy by creating a new independent function, like the Fed, to implement a sound budgeting, accounting and Reporting process. In this way, we can finally bring real accountability and transparency to America through a system of accounts and financial reports built on fairness, independence and objectivity - hopefully devoid of conflicts of interest.
This Article was Originally Published in The Washington Times