The authors of this letter recently came together in a Citizens-Hero Conference to make clear that the real financial obligations of the U.S. Federal government range from $123.8 trillion to about $200 trillion depending on the accounting methodology used to account for the promises the U.S. federal government has made regarding Social Security and Medicare.
In 1987, Joe DioGuardi, the only CPA in Congress then, introduced a law that would eventually become the Chief Financial Officers Act of 1990. Dioguardi’s goal with the CFO Act was to provide a clearer picture of the federal government’s financial condition by requiring full accrual accounting. However, DioGuardi’s goal was effectively undercut when the Federal Accounting Standards Advisory Board (FASAB) was created through an MOU between the Treasury, the Office of Management and Budget (OMB), and the Government Accountability Office (GAO) so that the U.S. Federal government could establish its own accounting standards.
When Shelia Weinberg, founder of Truth in Accounting, testified in front of FASAB she was told the reason FASAB does not account for unfunded social insurance obligations as liabilities is because the U.S. federal government has no obligation to pay for Medicare or Social Security beyond the checks that have been written!!!
The FASAB is effectively telling the American people that while the U.S. federal government collects 15.3% in payroll taxes from U.S. employers and employees, the U.S. federal government has no obligation to make good on their promises beyond this month's end. This does not pass a “straight face” test.
We believe FASAB’s approach to accounting for U.S. Federal government social insurance obligations urgently needs to change since it significantly understates the real financial position of the U.S. federal government. Specifically, we call on DOGE to encourage FASAB to adopt a “double bottom line” for the Balance Sheet where unfunded social insurance obligations are added to the federal government’s net position to show its total net position.
Former U.S. Comptroller General David Walker is the principal advocate for reclassifying the debt owed to Social Security and Medicare as a liability and for a dual “bottom line” on the federal balance sheet to enhance transparency regarding the massive unfunded obligations of Social Security and Medicare. The second bottom line would add the additional unfunded Social Insurance obligations, based on the present value of the projected costs of Social Security and Medicare over the next 75 years, compared to the projected receipts. As of September 30, 2024, the second bottom line would be an alarming negative $118.2 trillion compared to the currently reported negative $39.9 trillion.
Walker also stresses the importance of measuring total federal debt as a percentage of the economy. With U.S. GDP running about $29 trillion, our debt subject to the debt ceiling to GDP ratio was 121% as of September 30. 2024, which is a record and increasing! However, if we add the unfunded social insurance obligations that ratio would be 408%. Clearly, this level of financial obligation is irresponsible and unsustainable.
Larry Kotlikoff, a renowned economist and economics professor at Boston University, emphasizes another critical measure: the fiscal gap. This metric compares the value of all government outlays, under current law, over an infinite horizon to all receipts. The fiscal gap is shockingly large, representing about 8% of GDP on an ongoing basis. To stabilize this burden—imposed on both today’s and tomorrow’s generations—we would need to immediately and permanently raise taxes by 45% across the board. Alternatively, we would need to cut total federal outlays immediately and permanently by about 33%.
Dr. Kotlikoff’s fiscal gap accounting would put total US liabilities and unfunded obligations at about $200 trillion, a number that legendary stock market investor Stan Druckenmiller uses when discussing this issue. Stated differently, the U.S. is short 8 percent of GDP in taxes net of spending on an ongoing basis. Delaying fiscal adjustment simply raises the 8 percent figure, reducing the burden on older generations and increasing it on younger and future generations. This is irresponsible, unethical, and immoral!
By any of these measurements, our country’s financial position is much worse than advertised. We fear if we do not act now, we risk a severe financial crisis in the next three to five years that will undermine our country’s and children’s future. We are therefore calling upon DOGE and the new administration to encourage FASAB to adopt the financial reporting changes noted above.
Hopefully, by making clear the true level of our financial obligations, Congress will finally tackle our mounting debt burden in a serious-minded way as well as facilitate DOGE’s task of right-sizing the federal government.
Authors in Order of Citizen-Heroes Conference Participation
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Hon. David M. WALKER, Former Comptroller General of the United States
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Dr. Laurence KOTLIKOFF, Renowned economist, and author
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Sheila WEINBERG, CPA, and Founder of Truth in Accounting
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Hon. Joseph J. DIOGUARDI, Former U.S. Congressman & Truth in Government