The Debt No One Wants to Talk About

The New York Times ^ | February 4, 2004 | DAVID M. WALKER

[Willie Green]

For education and discussion only. Not for commercial use.

WASHINGTON — We might hope to see the finances of the Union as clear and intelligible as a merchant's books," President Thomas Jefferson wrote to his secretary of the Treasury in 1802, "so that every member of Congress, and every man of any mind in the Union, should be able to comprehend them, to investigate abuses, and consequently to control them." Unfortunately, straightforward government financial information seems as elusive in 2004 as it did in Jefferson's day.

The truth is that the United States faces a long-term deficit that will only increase as the baby boomers retire. The resulting fiscal imbalance will test the nation's spending and tax policies. Washington's recent difficulty in maintaining fiscal restraint has not helped matters.

The fiscal 2005 budget President Bush released on Monday includes a deficit of $364 billion. Although the administration and the Congressional Budget Office show declining deficits in the years ahead, and an improving economy will reduce deficits further, the long-term projected gap is now so large that we will not be able simply to grow our way out of the problem. Difficult choices are inevitable.

But the current system of federal financial reporting provides an unrealistic and even misleading picture of the government's overall performance and financial condition. Few agencies adequately show the results they are getting with the taxpayer dollars they spend, and too many significant government commitments and obligations are not fully disclosed.

Particularly troubling are the many big-ticket items that taxpayers will eventually have to reckon with, including Social Security, Medicare, civilian and military retirement and health care benefits, and veterans' medical care. Despite their serious implications for future budgets, tax burdens and spending flexibility, these future obligations get short shrift in the government's financial statements and in budgetary deliberations.

The federal government's gross debt — the accumulation of its annual deficits — was about $7 trillion last September, which works out to about $24,000 for every man, woman and child in this country. But that number excludes items like the gap between the government's Social Security and Medicare commitments and the money put aside to pay for them. If these items are factored in, the burden for every American rises to well over $100,000.

The new Medicare prescription drug benefit will add thousands more to that tab. This benefit is unquestionably popular and will make it easier for some older Americans to afford expensive prescription drugs. But it also comes with a steep price tag that few want to talk about. The truth is that the drug benefit as signed into law is one of the largest commitments ever undertaken by the federal government. Preliminary estimates of its long-term cost in current dollars range up to $8 trillion.

To put that number into perspective: it is about four times the entire federal budget. Long-term simulations from the legislative agency I head, the General Accounting Office, paint a chilling picture. Even before the new drug benefit was enacted, these simulations showed that by 2040 current policy could require a 50 percent reduction in federal spending or a doubling of taxes to balance the budget.

Either would be devastating. And keep in mind, it is likely that efforts will be made to expand the drug benefit in the future.

A key lesson from Enron, Worldcom and other business failures is that our free-market system depends on public confidence in the accuracy of corporate financial information. Recent G.A.O. reports have highlighted the increasing frequency of corporate earnings restatements. Who would knowingly buy stock in, lend to, or do business with a company that conceals its true financial condition?

As Jefferson pointed out, truth and transparency are even more essential in the public sector. Government services — mail delivery, food inspection, Social Security and defense, to name a few — directly affect the well-being of every American. But sound decisions on federal programs and policies are nearly impossible without timely, accurate and useful information.

Fortunately, we are starting to see efforts to address the shortcomings in federal financial reporting. The latest annual report of the federal government focuses more on the nation's long-range fiscal imbalance. The president's Management Agenda, which closely reflects G.A.O.'s list of high-risk government programs, is bringing additional attention to troubled areas and is trying to better assess the results that programs are getting with the resources they are given. The Federal Accounting Standards Advisory Board is also making progress.

The General Accounting Office and other budget experts continue to encourage reforms in the federal budget process to better reflect the government's commitments and to signal emerging problems. Among other things, the G.A.O. has recommended the government issue an annual report on major fiscal exposures — explicit and implicit promises for future government spending.

Much more must be done, however. A top-to-bottom review of government activities to ensure their relevance for the 21st century is long overdue.

From a practical standpoint, our elected representatives are not likely to get too far out in front of the American people when addressing complex and controversial issues. These fiscal risks, however, are a long-term problem whose impact will not be felt for some time. The understanding and support of the American people will be critical in providing a foundation for action.

A national education campaign to help the public understand the nature and magnitude of the long-term financial challenge facing this nation is essential. After all, an informed electorate is indispensable for a sound democracy. Young Americans especially need to become active in this discussion — because they and their children will bear the heaviest burden if today's leaders fail to act.

Public officials will have more incentive to make difficult but necessary choices if the public has the facts and comes to support serious and sustained action to address our fiscal challenges. Without meaningful public debate, however, real and lasting change is unlikely. The sooner we act, the easier it will be to turn things around.

David M. Walker is comptroller general of the United States.

[Kozak]

I think it may have to do with all the "off budget" spending that "technically" doesn't show up in the deficit.

[BamaBlue]

This obviously cannot be correct. Don't you remember we had budget SURPLUSES during the Clinton years. Surely if we truly had budget surpluses we would have PAID DOWN THE DAM# DEBT. Do I remember incorrectly????

[Willie Green]

The $100,000/person is derived from the additional promises to pay SS, medicare, retirements, etc. Some estimates put that commitment figure at $44T which yields $146,000/person.

$124K per person is the figure that I've seen.

GAO Chief Refuses To Stop Doing the Math

[cookcounty]

" This obviously cannot be correct. Don't you remember we had budget SURPLUSES during the Clinton years. Surely if we truly had budget surpluses we would have PAID DOWN THE DAM# DEBT. Do I remember incorrectly???? "

Now that is an interesting question: Why, during the years of surplus, did debt increase?

[american spirit]

What I find appalling and criminal is the fact that few agencies "adequately show their results with tax $ or fully disclose the commitments and obligations they've made". This is just another total disgrace that shows this fedgov is run like type of damn banana republic.

[SierraWasp]

"Why, during the years of surplus, did debt increase?"

Supposedly, it just didn't increase as rapidly.

[<1/1,000,000th%]

David Walker doesn't have a TV?

[Ciexyz]

btt

[BamaBlue]

President Clinton announces another record budget surplus

From CNN White House Correspondent Kelly Wallace

September 27, 2000
Web posted at: 4:51 p.m. EDT (2051 GMT)

WASHINGTON (CNN) -- President Clinton announced Wednesday that the federal budget surplus for fiscal year 2000 amounted to at least $230 billion, making it the largest in U.S. history and topping last year's record surplus of $122.7 billion.

"Eight years ago, our future was at risk," Clinton said Wednesday morning. "Economic growth was low, unemployment was high, interest rates were high, the federal debt had quadrupled in the previous 12 years. When Vice President Gore and I took office, the budget deficit was $290 billion, and it was projected this year the budget deficit would be $455 billion."

Instead, the president explained, the $5.7 trillion national debt has been reduced by $360 billion in the last three years -- $223 billion this year alone.

This represents, Clinton said, "the largest one-year debt reduction in the history of the United States."

.....

Rep. J.C. Watts, R-Oklahoma, chairman of the House Republican Conference, said the GOP wants 90 percent of the surplus used for the debt. In a CNN interview, he said the other 10 percent should be used to "take care of a lot of priorities we have, like prescription drugs, making sure that our education needs are met, making sure some of our national security needs are met, and doing that while at the same time protecting the Social Security surplus and the Medicare surplus."

That approach would be in lieu of tax cuts, which "we can't do this year because the president vetoed it," Watts said.

Clinton unveiled the new numbers in a statement at the White House before departing for fund-raising events in Dallas and Houston.

"This is part of our fiscal discipline to reduce the debt with the federal surplus," said one White House official who asked not to be identified. Reducing the debt, the official said, has "real effects for real Americans." It means lower interest rates for mortgages, car loans and college loans, and leads to an increase in investment and more jobs."

It is the third year in a row the federal government has taken in more than it spent, and has paid down the debt. The last time the U.S. government had a third consecutive year of national debt reduction was 1949, said the official.

The federal budget surplus for fiscal year 1999 was $122.7 billion, and $69.2 billion for fiscal year 1998. Those back-to-back surpluses, the first since 1957, allowed the Treasury to pay down $138 billion in national debt.

[BamaBlue]

Sorry folks but I'm HTML challagened...I would have bolded the comments from Clinton and Watts. What obviously happened is that the Republicans wanted to pay down debt but it WAS NOT DONE. Either that or the previous post is TOTALLY INCORRECT. I believe we never had a SURPLUS. It was smoke and mirrors from the Clinton Administration.

[FLAUSA]

Any discussion of debt and deficit is meaningless without discussing assets. The assets of the federal government and the local and state governments is is never discussed. How much land does the federal government own?

Locally, Eglin AFB has about 500,000 acres, including some of the prettiest beach property you ever want to see. Down the road is Blackwater State Forest and Conech National Forest. How much is all that worth? How much are the buildings and airfields worth? If you go out west, the federal government seems to own most of the land. What's the value of that? How much are the buildings in Washington, D.C. worth? What's the value of the national parks?

The point is that we always talk about how much the government owes without talking about how much the government owns.

In evaluating a company or individual, we look at assets less liabilities to find how much the company or individual is worth. If we did that with America, we'd find out that America is worth a heck of a lot more than the national debt.

[templar]

$124K per person is the figure that I've seen.

The truth is that there isn't even a way to calculate the genuine total. No one knows how, they just use the best guesses they can come up with to estimate it well enough to have something to talk about.

[Starwind]

Any discussion of debt and deficit is meaningless without discussing assets.

In evaluating a company or individual, we look at assets less liabilities to find how much the company or individual is worth. If we did that with America, we'd find out that America is worth a heck of a lot more than the national debt.

Any discussion of assets is meaningless if the asset is neither for sale nor has a buyer. And we're not talking about companies or individuals. We're talking about the land mass of United States.

If you seriously think a "Louisiana Sale" can be done to raise capital to payoff liabilities, then you had better have the legal means to separate them from the union, and find a buyer who can pay what it is worth.

Then you can talk about the land 'real estate' of the US as being an asset to offset its financial liabilities.

OTOH, if the land will not or can not be separated and sold, then it is an illiquid asset and can not be used to offset liabilities.

[ordinaryguy]

Locally, Eglin AFB has about 500,000 acres, including some of the prettiest beach property you ever want to see. Down the road is Blackwater State Forest and Conech National Forest. How much is all that worth? How much are the buildings and airfields worth? If you go out west, the federal government seems to own most of the land. What's the value of that? How much are the buildings in Washington, D.C. worth? What's the value of the national parks?

Sure those assets should be counted in a calculation of net worth. However, are we willing to liquidate those assets to make payments on our debts?

Would you have us hand the Eglin AFB deed to the Chinese instead of making an interest payment? Are you interested in giving our National Forests to the Saudis? How would you feel about visiting our nation's capitol and finding that the buildings there were owned by the Japanese because we owed them a bunch of money?

Unless these assets are on the table as collateral, then they should be kept off the books for the purposes of this discussion.

[FLAUSA]

Eglin has 40 miles of coast line that developers (American) would love to buy. Nobody is talking about selling a state or part of the country.

You wrote: "OTOH, if the land will not or can not be separated and sold, then it is an illiquid asset and can not be used to offset liabilities." Part of the value of your home or a commercial building is the land it sits on, which can not be separated and sold, yet it is still valued when calculating net worth. Do you figure your net worth by including debt on your home but excluding the value of the home?

[FLAUSA]

You wrote: "Unless these assets are on the table as collateral, then they should be kept off the books for the purposes of this discussion."

When you assess your financial well being, do you only consider your debt or do you also include the things you own? Are you better off with no debt and no IRA or with $10,000 in debt and $200,000 in an IRA?

[Gunslingr3]

All those AARP types who want free drugs have decided they actually paid for them, somehow, and really need and deserve them.

Interestingly, when I was home for my mom's birthday last weekend she told me they're quitting AARP. She's pissed off about their support for the drug entitlement - because it's welfare and will end up with price controls and the focus by bureaucracies on rationing and controlling the development and allocation of drugs. My father is just convinced that AARP is more a business in and of itself than anything else, and they expect to see $$$ with their own insurance partnerships.

They're both right, meanwhile it's what we get for electing GWB as the 'conservative' with a GOP Congress. Teddy Kennedy's crocodile tears and threats to 'fix' it tell us where this is going...

[Starwind]

Eglin has 40 miles of coast line that developers (American) would love to buy.

That won't even cover 1 years interest on the borrowed debt, let alone make a dent in the $44T.

Your premise was the value of The assets of the federal government and the local and state governments is is never discussed. How much land does the federal government own?

The Federal government claims to own, or can take by process of eminent domain - all of it - period. We serfs are allowed to squat on our property provided we can pay our property tax. Don't pay the tax - the government will take your property and sell it for taxes. If you're going to seriously offset a $44T liability, you're going to need more than 40 miles of coastland.

Part of the value of your home or a commercial building is the land it sits on, which can not be separated and sold, yet it is still valued when calculating net worth. Do you figure your net worth by including debt on your home but excluding the value of the home?

No. Your formula for net worth is simply wrong. If you don't have mineral, water, air rights etc, you can't sell them and they don't figure into your property value or net worth.

If you can't separate it for sale, it can't be sold and can't be used to liquidate liabilities. Nor can you violate zoning ordinances.

But if the land were to be sold to a foreign government, they would expect to be able drill it, fly over it, dump toxic waste on it, build a permanent miltary base on it, whatever they wanted.

The US government does not own our homes & office buildings and they can not legitimately be included in your premise of liquidatable US assets. The debt is the US governments, and the US assets you imply can be liquidated would have to be government-owned assets, which pretty much leaves the land (above & below ground).

And if you're serious about putting up as collateral US government owend real estate, you'll need a foreign government buyer. No one else has the cash to pay enough to liquidate our debt. But governments expect more than just renting space for 99 years.

[Gunslingr3]

These are not real obligations. Congress is sovereign and has the power to reduce or eliminate them at any time. If there is no money to pay for them, that is exactly what they will do.

They're real in the sense that people expect to be paid them. And Congress has the power to borrow money by selling bonds, which the Federal Reserve can print money to buy. They can print their way out of this fix, and given the history of fiat currency regimes, it seems the most likely.

[Nick Danger]

Doubling taxes would be devastating. Cutting spending in half would not... More likely, a return to truly Constitutional government of a more modest size would create an economic Golden Age.

There were a couple of articles on here yesterday concerning the impact of Presdident Bush's education, particularly the Harvard MBA, on the way he thinks and does business.

One of those things is a tendency to think in terms of First Principles, like "why are we here?" Time magazine once told a story about Bush, early in his adminstration, asking a group of generals "Why do we have a military?" Time, of course, offered this up as evidence of Bush's vast ignorance, that he had to ask generals what the military was for. But it's often a useful question, and one that generals haven't thought about for a very long time.

One way to shape the course of the Federal Government, far beyond the ability of Democrats or other weenies to mess with what you did afterwards, is to decide that the purpose of the Federal Government will be this. And then lock the government into huge, long-term spending programs that do this and are so expensive that there is no money to do that.

Were Hillary herself to be elected in 2008, she will find herself with very little maneuver room to do Grand New Things. Because Bush is deciding now what all the Grand New Things are going to be for the forseeable future... like 25 or 30 years.

This prescription drug benefit is not going to go away. It's going to turn into an instant Sacred Cow that can never be cut, lest granny die. The Space Program is probably cuttable, but Bush is setting things up so that a big chunk of the money will have already been committed by the time he leaves town. So the marginal cost of getting the rest of the way to Mars will be quite low. The scientists will scream bloody murder to keep it.

We have to choose our battles. Can conservatives win the battle of government spending? Can we convince a voting majority of this nation that "improvement" lies in the direction of lower federal spending? I say no, and I say that because there is absolutely no historical evidence that that is what the public wants. These big, symbolic, sweeping actions catch people's imaginations. Everybody knows that their share of it is 55 cents, so what the Hell, let's vote for chicken in every pot.

I'm not saying that's good, but I am saying that that is what happens. Leave 50 cents lying around on the table, and some politician will come up with a program to spend it, and people will vote for it. I am not making this up. I've been a voter for 30 years, and I've been on the losing side of a whole bunch of elections because "my" side led with the exciting cause of 'saving money' while the other guys offered an end to poverty, singing birds, and a Sun that comes up too-morrow.

Insanity is doing the same thing over and over again, and expecting something else to happen. Trust me on this. Or ask Bob Dole. Being the party of "saving money" is the road to electoral ruin. You do not save money that way. All you do is give the other guys more power to spend money their way. In Heaven it might be different, but that's how it is here on Earth.

Given that, what's the next best thing to do? I say it's lock up the spending in ways that don't particularly cause a lot of trouble in the form of Social Engineering Gone Haywire, like the Great Society programs did. Give the Democrats the money to run animal husbandry experiments on people, and they'll do it. We know that because they did it. So... shoot the money into space. Spend it on drugs for old people. Not much mischief there; we get a lot of R&D, probably a bunch of spinoff commercial products and new medicines that will drive incremental improvements in the economy, without creating an army of social workers peeking in on people to see if they're eating their spinach.

That may be as good as it gets, given the fact that we have to share the Earth with 30% liberals and 30% people who really don't know what to do, but get all excited about singing birds and happy rainbows.