Randomville

Please login or register.

Login with username, password and session length
GigaBook.com
Advanced search  

News:

Pages: [1]   Go Down

Author Topic: The dirty secret in Uncle Samís Friday trash dump  (Read 2453 times)

0 Members and 1 Guest are viewing this topic.

Markalot

  • Citizen
  • Posts: 331
The dirty secret in Uncle Samís Friday trash dump
« on: December 29, 2011, 10:05:04 AM »

The dirty secret in Uncle Samís Friday trash dump
By Bryan R. Lawrence, Published: December 28

http://www.washingtonpost.com/opinions/the-dirty-secret-in-uncle-sams-friday-trash-dump/2011/12/28/gIQArtWMNP_story.html

Releasing information on the Friday before a big holiday is a time-tested way to bury bad news. So when the Government Accountability Officeís fiscal 2011 financial statements for the federal government were released on the Friday before Christmas, it made sense to read them closely.

Since 1997, the United States has been a rare example of a government willing to publish financial statements using accrual accounting, which counts the cost of promises made as well as cash paid out. And the GAOís professionalism over the years has won it a reputation for impartiality and effectiveness.

That professionalism is evident in the GAO analysis of the net present value of the Social Security and Medicare promises Washington has made to Americans. ďNet present valueĒ means the total that would have to be set aside today to pay the costs of these programs in the future. The government puts these numbers in appendices, rather than in headlines. But the costs are real.

In fiscal 2011, the cost of the promises grew from $30.9 trillion to $33.8 trillion. To put that in context, consider that the total value of companies traded on U.S. stock markets is $13.1 trillion, based on the Wilshire 5000 index, and the value of the equity in U.S. taxpayersí homes, according to Freddie Mac, is $6.2 trillion. Said another way, there is not enough wealth in America to meet those promises.

If the government followed corporate accounting rules, that $2.9 trillion increase would be added to the $1.3 trillion cash deficit for fiscal 2011 that has been widely reported. And a $4.2 trillion deficit is something that Americans need to know about.

The Treasury acknowledges the need to show an accrual-based deficit, but the only retirement accruals it includes in its ďCitizenís GuideĒ to the GAO numbers are for promises to direct government employees and veterans. Promises to the rest of Americans are excluded, even though they are multiples larger than the $10.2 trillion of government debt held by the public.

The latest GAO numbers are particularly interesting because of a change in accounting standards that requires the government to explain why the cost grew by $2.9 trillion. Fully $1.5 trillion of that reflects the aging of all 312 million Americans by one year. In the GAO report from fiscal 2001, the cost of promises was $17 trillion. The growth in the cost from $17 trillion to $33.8 trillion averages about $1.7 trillion per year. The GAO doesnít specify numbers for the other nine years, but one suspects that aging has driven most of the growth in the cost of the promises.

The cost would have been a lot worse but for two assumptions that the GAO found questionable.

First, Medicareís cost projections assume legally required decreases in reimbursement rates to doctors that Congress has ignored for years ó the so-called doc fix. For these projections to be realized, Congress would have to abide by its own cost controls and allow an immediate 27 percent cut to doctorsí rates, which is very unlikely.

Second, the Medicare projections assume that the 2010 Affordable Care Act (ACA) will reduce health-care cost growth by 1.1 percent per year, despite doubts voiced by the GAO and a panel appointed by the Medicare board of trustees.

The panel and the GAO recommended including an alternate scenario in the year-end figures, in which the doc fix continues and the ACA cost reductions do not materialize. The result is a $12.4 trillion increase in the cost of the promises, to more than $46 trillion. Given Congressís history with the doc fix, and the general paralysis in Washington, itís hard to argue with the GAOís lack of confidence in Congressís ability to honor its own cost controls.

If the government were a company, its huge and growing off-balance-sheet liabilities would set off alarm bells. But investor confidence has not been lost ó Treasurys can still be sold at very attractive yields.

Confidence has been shaken, though, among the American people. Congressís approval ratings are at record lows. Anger is flaring across the political spectrum, reflecting a sense that something has broken in our country.

In such an environment, is it right to release critical financial information the Friday before Christmas? Is it acceptable that politicians are not required to describe the cost of the promises they have made?

In 1990, the government required that companies begin to account for the net present value of retirement promises, not just current-year cash flows. General Motors began complying in 1992; and it recorded a $33.1 billion (pretax) charge to reflect the value of its promises up to that point, which led to what was then the largest annual loss in U.S. corporate history. Seventeen years later, the ďfree until accounted forĒ promises were a major factor in GMís bankruptcy.

The United States is stronger than General Motors. And the good news is that small changes in health-care cost trends have a large impact on the governmentís long-term promises. Our system is fixable. But our politics are toxic, and each side is dug into an ideological trench. In such an environment, when hard choices need to be made about promises and taxes, why should information be buried in an appendix?

Americans deserve better. One way for Washington to start earning back our trust is by giving us all the information, even if it is unpleasant.

© The Washington Post Company
Logged
-- Mark

Zafer Kaya

  • City Elder
  • Posts: 3,558
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #1 on: December 29, 2011, 12:20:43 PM »

Seriously?  That has to be the stupidest complaint ever.

STOP THE PRESSES!  Did you know that the US has a ton of future funds committed to paying off Social Security and Medicare?  No one, I mean no one has heard a peep about this for thirty years.  The government has been keeping it totally under wraps by publishing the info in oh, probably five or six dozen various FOIA-ble documents a year.  Hand this guy a Pulitzer right now! 

Markalot

  • Citizen
  • Posts: 331
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #2 on: December 29, 2011, 01:57:56 PM »

Hey, it's the holidays and opinion pieces are hard to find.
Logged
-- Mark

Butter

  • Suffering from early-onset douchiness
  • City Elder
  • Posts: 10,111
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #3 on: December 29, 2011, 02:23:38 PM »

How about opinion pieces that deserve their own threads?
Logged

dirk

  • City Elder
  • Posts: 1,436
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #4 on: December 29, 2011, 03:17:40 PM »

So how long out in the future does this cover?  And how much do we have coming in each year to cover these?  If this is what we will need to cover it for the next 30 years, I don't see an issue, especially if we have 1 trillion in taxes coming in each year devoted to these programs.  If this only covers the next 5 years and we only have 1 trillion a year devoted to them, then there is a problem. 

Throwing out big numbers scares people, but doesn't actually mean anything without context.  "OMG!  We will need more money than all the corps are worth to cover this" sounds scary, but if it is for an extended period of time, it's really not.
Logged
1+2+2+1
Gown removed carelessly. Head, less so. - Joss Whedon

Zafer Kaya

  • City Elder
  • Posts: 3,558
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #5 on: December 29, 2011, 05:25:19 PM »

Social Security will be in the black until 2015.  After that, the annual money owed to retirees will be greater than the annual money put into the fund by payroll taxes.

At that point, we will have to start drawing from the Social Security Trust.  Only there really isn't any money in the Trust.  It's just savings bonds, aka the government's IOU.

So it's real debt.  Obviously the government doesn't have to pay all the debt at once, but if you don't then it just accrues interest.  Plus we're not only not paying our debt right now, we're borrowing a ton more each year.

frizgolf

  • City Elder
  • Posts: 1,916
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #6 on: December 30, 2011, 06:10:57 AM »

I've always had that sneaking suspicion that retirement/Social Security would be a thing of the past by the time I retire. With SS going broke and state government trying to figure out how to get into my pension funds, it's up to me to stash something under the mattress.
Unless they figure out a way to raid that.
Logged
What we learn after we know it all is what counts.

Markalot

  • Citizen
  • Posts: 331
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #7 on: December 30, 2011, 01:33:12 PM »

I've always had that sneaking suspicion that retirement/Social Security would be a thing of the past by the time I retire. With SS going broke and state government trying to figure out how to get into my pension funds, it's up to me to stash something under the mattress.
Unless they figure out a way to raid that.

They already have, via monetary policy that will ensure inflation shrinks that pile of money under your mattress.

Ok. that's an extremist position, but what the hell.
Logged
-- Mark

Wolverine

  • Summer Resident
  • Posts: 48
  • :snikt:
Logged




heh heh

dirk

  • City Elder
  • Posts: 1,436
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #9 on: December 30, 2011, 09:06:34 PM »

I've always had that sneaking suspicion that retirement/Social Security would be a thing of the past by the time I retire. With SS going broke and state government trying to figure out how to get into my pension funds, it's up to me to stash something under the mattress.
Unless they figure out a way to raid that.
When I was in grade school people were saying Social Security was going to be gone in a few years and it's still fine.  Right now, if nothing changes at all, it will still be solvent for at least 30 years.  And even then, it's not like it will be completely broke, it would just have to pay out partial payments.  SO even if we did nothing, in 30 years people may get only 80% of their SS check.  DO changes need to be made?  Of course.  With the boomers getting ready to retire and people living longer, there will have to be adjustments made to make sure it is okay in the long run.  But the idea that SS is going anywhere soon is laughable.
Logged
1+2+2+1
Gown removed carelessly. Head, less so. - Joss Whedon

Zafer Kaya

  • City Elder
  • Posts: 3,558
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #10 on: December 30, 2011, 09:57:29 PM »

I disagree with that a bit.  What you are saying is true, but its also a limited and somewhat deceptive way of looking at it.

Technically, there is enough in the Social Security Trust Fund to last for 25 years.  But it's not sitting their in liquid cash.  It's all in US Savings Bonds.

So if you look at the SSA's books they are sitting on $2.5 trillion in assets or whatever.  But if you look at the larger government picture, obviously it's the US government who will have to pay out those bonds.  So that $2.5 trillion in Bonds the SSA will be cashing in over the next 25 years will be paid out of general funds.  So there is a very real $2.5 trillion debt burden added to our budget due to Social Security needs.

Markalot

  • Citizen
  • Posts: 331
Re: The dirty secret in Uncle Samís Friday trash dump
« Reply #11 on: January 01, 2012, 10:13:11 PM »

We, and I say we as us and the government, have no choice but to keep social security alive.  If we would cut out the primary (unfortunately) income of many retirees the economy would collapse, especially considering our population is getting older.  Hell. we're already heading toward disastrous consequences with many pensions paying out less and 401K's in the crapper.

« Last Edit: January 03, 2012, 03:20:41 PM by Markalot »
Logged
-- Mark
Pages: [1]   Go Up