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Thursday, Aug. 3, 2006

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If the federal government used the same standard accounting procedures employed by corporations, the real budget deficit for 2005 would have been more than 10 times what was officially reported.

The White House and Congress tallied the deficit for the fiscal year ending on September 30, 2005, at $318 billion.

But the audited version from the Treasury Department, which uses a different accounting method, put the deficit at $760 billion.

And by using standard accounting procedures used by corporations, and including such future outlays as Social Security and Medicare, the real deficit would stand at a staggering $3.5 trillion.

In fact, these procedures would produce a deficit even during the years when President Clinton was officially showing a surplus, according to an analysis by USA Today.

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The Clinton administration reported a surplus of $559 billion in its final four budget years, but the audited numbers showed a deficit of $484 billion – and those figures don't include Social Security or Medicare.

Also, in 2004 the adoption of the Medicare drug benefit would have added $8 trillion to the deficit under standard accounting rules, bringing the real deficit to a whopping $11 trillion – about the size of the nation's entire economy.

The official deficit is based on "cash accounting," which doesn't take an expense into account until it is paid, and allows income and expenses to land in different reporting periods.

For example, a $5,000 credit card purchase in August would not be included in an account of that month's expenses if the bill didn't come due until September.

The audited number, however, is based on "accrual accounting," which measures expenses when they occur, not when they come due. That credit card purchase, for example, would constitute a $5,000 expense in August under the accrual method.

Federal law requires companies and institutions with revenue of at least $1 million to use the accrual method.

But "Congress has written its own accounting rules – which would be illegal for a corporation to use because they ignore important costs such as the growing expense of retirement benefits for civil servants and military personnel," USA Today reports.

A number of Congress members are now calling for the government to use the audited financial statement when making budget decisions, which would encourage lawmakers to restrain spending or nix tax cuts.

The Bush administration opposes including Social Security and Medicare in the audited deficit, maintaining that Congress can cut or even cancel retirement programs and therefore they should not be considered a liability when reporting the deficit.

And Social Security chief actuary Stephen Goss told USA Today that including Social Security and Medicare would be the equivalent of recording a liability for future education expenses each time a baby is born in the United States.

But Rep. Jim Cooper, D-Tenn., a former investment banker, said: "We're a bottom-line culture and we've been hiding the bottom line from the American people.

"It's not fair to them, and it's delusional on our part."

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