Goodbye fiscal cliff, hello debt ceiling.
With the U.S. government now poised to hit a $16.4 trillion legal federal debt barrier, another fiscal and constitutional crisis looms. Nobel laureate economist Paul Krugman has called for a $1 trillion coin. Others think the coin idea is absurd. Last week, the Obama administration, after dancing around it for days, officially disavowed it.
But still others think the coin idea simply misses the point.
“Congress doesn’t even know what the real numbers are,” said Rep. Jim Cooper, D-Tennessee. “The real national debt isn’t $16 trillion. I wish it were that low. The real national debt is closer to $60 or $80 trillion.”
“The federal government is the last accounting-free zone in America,” Cooper said.
Cooper belongs to a small but vocal band of policy advocates who argue that the entire fiscal reform debate ignores the scope of unworkable promises made to one generation and unbearable burdens placed on the next.
That chorus includes two former GOP congressional leaders, Christopher Cox and Bill Archer, who in November published an op-ed article in the Wall Street Journal calling for “real accounting.”
“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,” Cox and Archer wrote. “But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.”
The trouble, critics argue, is that the government uses “cash accounting” for its largest liabilities — which mean they only score Medicare and Social Security obligations on the books as debt as payments come due.
Real accounting — the “accrual accounting” used by private industry — scores debt burdens the moment obligations are made.
The IRS does not allow any corporation that makes more than $5 million to use cash accounting, said Sheila Weinberg, who heads the Institute for Truth in Accounting, “because it is so unreliable and possibly misleading.”
ITA is a nonpartisan advocacy group that lobbies to change the way state and federal governments do their bookkeeping. Over the years, Weinberg has been a close ally of Cooper on this issue.
Cooper, a Democrat, says that both parties are fully culpable. Bush administration officials in 2007 and 2008 blocked a push to put social insurance obligations on the federal books. And Cooper calls the 2003 Medicare prescription drug benefit, a pet project of Bush adviser Karl Rove, “quite possibly the worst piece of legislation in American history.”
At the Institute for Truth in Accounting’s website, two debt clocks rapidly click upward. The official clock listed now exceeds $16.5 trillion, already past the legal ceiling. The other clock is labeled “The Truth.” That clock now stands at more than $72.5 trillion.
“If we had good financial statements,” said Michael Scott, a veteran of the Treasury and the Security Exchange Commission, “you would understand that every plan that exists today — whether Simpson-Bowles, or Paul Ryan, or others — does nothing to balance the budget on a fully costed, accrual basis.”
No free goods
Until 1990, private management teams “would give labor generous pensions and post-retirement benefits because they saw these as free goods,” said Scott, who has worked extensively with both private companies (United Airlines) and public entities (the Postal Service) to restructure fiscal failure.
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