The Journal of Accountancy has an article on the state of the financials of the U.S. government. Most of you probably know something that the general public doesn't – that what we often hear about our government's finances is not wholly true.
Let me review the federal government's current financial condition; its fiscal 2002 annual financial report says a lot but not enough. The good news is that as of September 30, 2002, we had about $1 trillion in reported assets. The bad news is that we had almost $8 trillion in reported liabilities. That left us with about a $7 trillion accumulated deficit, or a little more than $24,000 for every man, woman and child in the United States. In fiscal year 2002, the federal government reported a net operating deficit of $365 billion. Many of you may be more familiar with the unified budget deficit number, which in fiscal year 2002 was $158 billion. Irrespective of whether you focus on the accrual-based accounting numbers or the cash-based budget numbers, the picture isn't good and it's getting worse. For example, the Congressional Budget Office [CBO] projects that the unified budget deficits in fiscal years 2003 and 2004 will be $401 billion and $480 billion, respectively. These numbers are up significantly from fiscal year 2002. Interestingly, CBO estimates that we will incur about $157 billion in interest on publicly held federal debt in fiscal year 2003 even though current interest rates are low on a relative basis. CBO also estimates that, excluding Social Security surpluses, the total deficit for fiscal years 2003 and 2004 will be $562 billion and $644 billion, respectively. If all these numbers are making your head spin, just remember that they are all big, and they are all bad.
More important, although we know that we are in a financial hole, we don't really have a very good picture of how deep it is. Several very significant items are not currently included as liabilities in the federal government's financial statements. These items include several trillion dollars in nonmarketable government securities in the so-called "trust funds." In the case of the Social Security and Medicare trust funds, the federal government took in taxpayer money, spent it on other items and replaced it with an IOU. Given this fact, the amounts attributed to such activities aren't shown as a liability of the U.S. government. Does this make sense, especially when the government continues to tell Social Security and Medicare beneficiaries that they can count on the bonds in these "trust funds?" Is the federal government trying to have its cake and eat it too?
This is a problem because the average voter has no clue about the true state of things and what needs to be done to fix it. Almost every politician in Washington is willing to increase spending if it will get him or her re-elected.
The bottom line is that, in my view, the federal government's current financial statements and annual reports do not give policy makers and the American people an adequate picture of our government's overall performance and true financial condition. This is a serious issue. As Thomas Jefferson noted, an informed electorate is the basis for a sound democracy. But how can the American people and their elected officials make sound decisions if they aren't given timely, accurate and useful information?
We are so concerned about the accuracy of corporate financials for investors and other company stakeholders, why not hold our own government to the same standards? The U.S. government misrepresents this country's financial picture in a way that would get a corporate executive thrown in jail. Shouldn't the government be a leader in setting a good example?