Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Comrades, I beg of you, do not resort to compulsory taxation. There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.”     Robert A. Heinlein,    The Moon is a Harsh Mistress

May 29, 2007

Government’s Creative Accounting

by Brad Warbiany

By one number, they had a $248B deficit. If you start applying the accounting standards normal companies use, though… It’s a different story:

The federal government recorded a $1.3 trillion loss last year — far more than the official $248 billion deficit — when corporate-style accounting standards are used, a USA TODAY analysis shows.

The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel. The loss — equal to $11,434 per household — is more than Americans paid in income taxes in 2006.

Think about that for a moment… Just let that number sink in. As you’re struggling to make ends meet, pay your rent or mortgage, your bills, your car payment, the government is losing $1000 a month: and you and your family are going to have to pick up that tab.

When a corporation cooks their books, they do it for a reason; it makes their shareholders believe they’re on better footing than they actually are. If their shareholders knew the truth, the stock price would drop like a rock as people head for the exits. When government cooks their books, they do it for the same reason; it makes their citizens believer they’re on better footing than they actually are. If the citizens knew the truth, they’d vote those thieving scoundrels out of office in a second.

Where do we end up with decades of government lies? At a point where we simply cannot continue the charade. Like Enron, Worldcom, and the rest, eventually it’ll come crashing down.

Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

The federal government does not follow the rule, so promises for Social Security and Medicare don’t show up when the government reports its financial condition.

Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

You think government can tax their way out of this mess? Not a chance.

You think government has the will to cut spending? I think we’ve seen the answer to that one.

What other options are left? Rampant money printing, or collapse of the government. Or the former followed by the latter.

That’s it. The writing is on the wall. And you, as an ordinary citizen, will be getting screwed all the way down.

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4 Comments

  1. Brad,

    You’ve been had by an economically illiterate newspaper story.

    Whatever future mandates the government may set for taxes and entitlement payouts, it is neither reasonable to treat any shortfalls as current debts nor is it meaningfully possible to prefund them.

    The federal government differs in fundamental ways from corporations and cannot be subject to the same methods of accounting.

    First, the ability of the government to costlessly print new money is unique, and there is no justification to tax and slow the present economy by salting away current tax money only to bring it forth in the future, when new future money will serve just as well, and not depress the economy in the meantime. This is not an argument in favor of money-printing, but an argument for the futility of prefunding.

    Secondly, whatever the government may promise, it is not subject to being sued to force the keeping of its promises. The projected future shortfalls are nothing more than spreadsheet entries, and are routinely ignored by today’s politicians who will be well of the line of fire when the bills come due.

    Thirdly, there is no meaning for a market value of a government. While the future cash flows and earnings of corporations can impact their current market value, no such consideration exists for government.

    The fact that payroll taxes may be projected to fall 28% short of currently mandated SS ouflows in 2042 is significant only in and of itself. Trying to convert it into debt and add it onto current debt levels is absurd.

    Regards, Don

    Comment by Don Lloyd — May 30, 2007 @ 8:14 am
  2. Don,

    “there is no meaning for a market value of a government. While the future cash flows and earnings of corporations can impact their current market value, no such consideration exists for government.”

    That isn’t quite true because the ability to survive in the world market place is determined by those other countries and their belief that our economy will justify their acceptance of our form of payment. If they have no faith in our dollar then our dollar is worthless.

    Comment by T F Stern — May 30, 2007 @ 8:32 am
  3. Don,

    I see what you’re saying, and you’ve got a point… While they haven’t taken the time to figure out how to pay for their promises in the future, calling it a “loss” today isn’t necessarily the right thing to do.

    I do believe we can both agree that politicians are lying bastards who are mortgaging our future with their insane spending, though, right? ;-)

    Comment by Brad Warbiany — May 30, 2007 @ 11:13 am
  4. It’s not fair that I don’t even have a say in today’s policies (I’m 16), but I’ll have to pay for them when I’m older

    Nothing short of taxation without representation in my point of view

    The deficit has become so large that it is frankly unconstitutional

    Comment by Julian — May 30, 2007 @ 4:57 pm

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