Effects of Taxes on Labor Income

It understates the true federal budget deficit by a staggering $2.3 trillion, an amount equal to the total market value of the 10 largest companies in America.

Blessed by historical habits that have no relationship to what our government does today, our legacy of cash accounting now serves to mislead and confuse. The April issue of Economic Indicators, a publication prepared by the Council of Economic Advisers, for instance, projects a unified budget deficit – the one that lumps the Social Security surplus in with the rest of government – of $427 billion.

The $427 billion deficit, however, is a massive understatement of our true deficit. The real deficit is $2.3 trillion larger. That's more than five times the publicly discussed figure, but it never enters public discussion. (I'll tell you where this information is buried in a minute.)

If the executive branch of government were held to the standards of Sarbanes-Oxley, it would be on a fast track to a criminal trial. We would forget about Ken Lay, because the crimes at Enron Corp. are mere rounding errors compared to what our government does.

DallasNews.com/Extra

Social Security Trustees Report for 2005

Social Security Trustees Report for 2004

Medicare Trustees Reports

Economic Indicators

Some readers will expect a diatribe against President Bush to follow. It won't.

This is a bipartisan problem. Both the Democrats and the Republicans, in or out of office, have been using accounting methods that are, at best, quaint and, at worst, criminal. And they have been doing it for decades.

You can understand what's going on by comparing our government to a large corporation such as General Motors Corp.

Accepted standards

When GM files its annual report, it must include the condition of its pension fund and other obligations to current and retired workers, as well as its profit or loss. If the pension liabilities – the retirement benefits it has promised workers – exceed pension plan assets by more than a certain amount, GM must contribute to the pension fund, reducing its profits. GM also has substantial health care obligations to its retired workers.

The two, profits and pensions, are deeply linked.

Sound familiar?

Our government is in a similar position – but with a lot more zeros on the numbers it uses. It reports its annual profit and loss as a surplus or a deficit. It reports separately on its long-term pension, disability and health care obligations. Unlike GM, it doesn't include these figures in its annual statements of surplus or deficit.

You can only find them in the trustees' reports for Social Security and Medicare.

The 2005 reports (each more than 200 pages) show the programs to be underfunded by $33.7 trillion (in today's dollars) over the next 75 years. That's four times the $8 trillion in formal debt shown in regular government accounting.

You learn still more when you compare the 2005 reports with the reports from 2004. In 2004, the combined unfunded obligations of Social Security and Medicare were $31.4 trillion.

That's an increase of $2.3 trillion in a single year. The trustees' examination of the plans over a longer time period, the "infinite horizon," shows an even larger change, $7.2 trillion.

But let's not look so far in the future.

Unclear on the concept

Let's stay with the traditional (if inadequate) 75-year measure, that $2.3 trillion. It isn't mentioned in other government documents. It is missing from Economic Indicators. Indeed, it is absent from virtually all discussion of the federal budget – the one currently estimating a piddling deficit of $427 billion for fiscal 2005.

Until more accurate figures are presented, neither party knows what it is talking about or where the country is going.

Scott Burns answers questions of general interest in his Thursday columns. Write Scott

Burns, The Dallas Morning News, P.O. Box 655237, Dallas, Texas 75265, or send an e-mail.

E-mail sburns@dallasnews.com

FULL REPORTS: Log on for links to Social Security and Medicare trustees' reports.