It is my opinion that the debate in Washington these past few weeks has focused more on political posturing than the long-term fiscal outlook of our nation. Now, more than ever, there is a need for real accountability in federal budgeting and financial reporting.
The currently level of government debt, represented by outstanding Treasury bills and other securities, recognizes what the U.S. government has spent on a cash basis system of accounting. While President Obama has used the last few weeks to discuss a moral obligation to raise the debt limit because promises to pay have already been made by our government for programs such as Social Security, Medicare and other “payables,” he has ignored the fact that our national government effectively maintains two sets of books. Although it is the case that promises have been made to pay out for these obligations, they have not been accounted for under the cash basis system of accounting. The obligations that our government has incurred could only be properly accounted for at the time they are promised if the federal government operated on an accrual basis system of accounting for both financial reporting and budgeting.
The 2012 U.S. Financial Statements acknowledge a $38 trillion+ liability for unfunded obligations for Social Security and Medicare on its balance sheet for “sustainability measures.” When this liability is added to the nation’s currently outstanding Treasury securities of approximately $17 trillion, America’s long-term debt is well over $50 trillion.
In practice and for the purpose of appropriations, Medicaid (like Medicare and Social Security) is considered an entitlement program for which expenditures are considered mandatory spending under the current budget process. (But, unlike Social Security and Medicare, the Treasury Department does not consider Medicaid as having a contractual obligation to pay out expected benefits over a 75-year period because “Medicaid does not have any dedicated revenue source at the Federal level or a trust fund approach to financing”.)
Based on the 2012 Actuarial Report on the Financial Outlook for Medicaid, the program is expected to register about 18 million new Medicaid enrollees by 2021 as a result of new eligibility requirements in the Affordable Care Act of 2010. As a result, the collective costs of the Medicaid program will increase drastically. The Actuary for the Centers for Medicare and Medicaid Services estimates that the Affordable Care Act is expected to increase Medicaid expenditures in total by $514 billion by 2021.
In fact, a 2012 study by the Senate Budget Committee minority staff—using the same methodology that the Treasury Department employs to determine the unfunded obligations for Social Security and Medicare—applied the Medicaid cost-estimates to project federal health expenditures over a 75-year period for Medicaid on an accrual basis. On this basis, the study revealed that the unfunded obligations of the U.S. government would increase by $17 trillion due to the projected massive expansion of Medicaid participants as a result of the implementation of the Affordable Care Act legislation.
The debate on “Obamacare” and the issue of long-term debt underscores the inadequate accounting system that politicians use in Washington. At its core, the cash basis system of accounting (a system which records financial transactions when income is received and expenses are paid) is a faulty way of measuring the government’s financial condition and cost of operations. Elected officials in Washington are accustomed to cash basis accounting because it provides them with the advantage of currying favor with today’s voters at the expense of tomorrow’s taxpayers. In essence, it means that politicians can make promises to their constituents that commit the federal government to pay out future benefits, without currently recognizing the future costs of these commitments. And, while these costs may not affect us in the short-term, they are effectively part of our national debt—for which our children and future generations of Americans will be responsible to pay. By making promises under long-term, mandated programs like “Obamacare”, current politicians are forcing future generations of Americans to raise taxes in order to fund these programs that have been enacted without their consent—a modern day example of “taxation without representation.”
I believe it is the moral duty of our current generation is to not pass such severe burdens onto to the next generation of Americans and deprive them of the "American dream". But, we cannot do this if present-day voters continue to remain confused about the true total of the national debt of the United States. Therefore, we must work together to get the right accounting principles put in place at the federal level so we can have one set of books for the United States of America, now and for all times.
DioGuardi is a CPA, and former partner at Arthur Anderson & Co. He represented New York's 20th Congressional District from 1985 to 1989.