Cooking the Books Is a Bad Recipe to Cool Deficit

COOKING THE BOOKS IS A BAD RECIPE TO COOL DEFICIT By conventional wisdom, the federal budget deficit in 1990 will meet the Gramm-Rudman-Hollings target of $100 billion. Why, then, will the federal debt rise during the same year by about $280 billion? Because the federal government has cooked the books. The American public is being led to believe that the deficit is falling when it is actually rising. Specifically, we are using surpluses in federal trust funds (especially Social Security) to mask the federal operating deficit. By paying for current operation with the growing surplus of money collected to assure retirement benefits for future generations, the government creates the illusion that the deficit problem is being solved. The use of trust-fund surpluses to mask the true size of the deficit is not the only accounting illusion being used to show a lower deficit. Another gimmick used to meet Gramm-Rudman targets is to shift federal paydays from the next fiscal year to the current year. The economic reality does not change; federal workers must still be paid, and we've still got to borrow the money. All we've done is deceive taxpayers by claiming a "lower" deficit next year. More onerous is a refusal to recognize the growing burden of unmet costs that we will have to face. If we had dealt with the SL so the problem was ignored until it was impossible to postpone. Facing the inevitable There are other huge costs which must be dealt with sooner or later: * The General Accounting Office estimates as much as $150 billion may be needed to clean up and modernize the nation's deteriorated nuclear weapons complex. * To update antiquated computer systems at the Federal Aviation Administration, the Internal Revenue Service, the Department of Veterans Affairs, the Social Security Administration, the Defense Department and other agencies will cost billions over the next decade. * The Department of Transportation estimates $50 billion is needed to repair or replace the nation's 240,000 deficient bridges and a staggering $300 billion by the year 2000 to maintain highways in their 1983 condition. These costs are shared with state and local governments, but the federal government traditionally provides a large share of the money. * And more: $20 billion to repair the deteriorating stock of public housing; $2 billion to eliminate a backlog of deferred maintenance at national parks; about $5 billion to build needed prisons; $14 billion to clean up hazardous waste dumps at military installations. These costs go to the heart of federal obligations. In private industry, many such future expenditures would have to be accounted for as unfunded liabilities; the rest would have shown up in the depreciation of capital assets. In the federal government, we've shut our eyes, trying to pretend these costs do not exist or that we can somehow "grow" our way out of the hole we're in. More illusions. Using smoke and mirrors is, of course, nothing new. The 20th century is filled with instances of creative accounting; it's also replete with failures that can be directly attributed to poor, gimmicky or nonexistent accounting standards and practices. A brief look back is instructive. Before the 1929 stock market crash, many companies used what became known as "appreciation accounting"; they would write up their accounts if they thought their property had increased in value over the previous year. This meant a corporation that suffered a bad year in sales or operations could mask the downside by claiming an "appreciation" in assets. Many companies did that in the late 1920s. In the feverishly optimistic atmosphere, it was easy to fool stockholders and the public. …