This piece came out in yesterday’s Wall Street Journal, but its content is too important to let it glide past without sufficient amplification. Its authors are Chris Cox (a former Congressman and SEC Chairman) and Bill Archer (the former Chair of the House Ways and Means Committee). Both were members of President Clinton’s bipartisan commission on tax and entitlement reform in 1994. As today’s politicians bicker over the minutiae of a deal to avert the man-made disaster known as the “fiscal cliff,” Cox and Archer warn that America is headed toward a far more dangerous precipice if our entitlement spending isn’t responsibly and seriously reined in. Their piece explicates why the record-setting, eye-popping annual deficit and national debt figures that most Americans have heard about — $1.1 Trillion and $16 trillion, respectively — don’t even approach capturing the magnitude of Uncle Sam’s red ink. In short, the government is relying on budgeting gimmicks and practices that would land private sector accountants in jail:
As Washington wrestles with the roughly $600 billion “fiscal cliff” and the 2013 budget, the far greater fiscal challenge of the U.S. government’s unfunded pension and health-care liabilities remains offstage. The truly important figures would appear on the federal balance sheet—if the government prepared an accurate one. But it hasn’t. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury “balance sheet” does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations. As a result, fiscal policy discussions generally focus on current-year budget deficits, the accumulated national debt, and the relationships between these two items and gross domestic product. We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government’s true liabilities.