President Trump has presided over economic growth, but the debt and long-term obligations of the U.S. government are still massive. If the national debt were officially calculated the way assets for private companies are calculated — by tallying assets, debts, liabilities, and obligations — the official federal debt would be $88.9 trillion, or $704,000 per household.
This represents no less than four times the projected national debt of roughly $20 trillion. The federal government uses accounting practices different from private companies, and so it can report a much smaller national debt than its true liabilities account for.
While the federal government reported a budget deficit of $666 billion for the 2017 fiscal year, a new comprehensive report from the U.S. Treasury showed that finances really deteriorated by $1,157 billion. The document explained that this difference comes from accrued costs that are not necessarily paid, such as estimated future costs of federal employee and veterans’ benefits.
As JustFacts’ James Agresti pointed out, the Treasury’s report uses accrual accounting to provide “a complete picture of the federal government’s financial operations and financial position.” Accrual accounting involves measuring the full spectrum of financial commitments, while cash accounting — the kind used to calculate the federal budget — only counts money as it flows in and out.
The distinction is crucial, as the case of an employee’s pension benefits makes clear. Under accrual accounting, an employee’s pension would be recorded as the employee earned it. Under cash accounting, this liability would not emerge as a cost until years or decades later, when it is actually paid.
The federal government requires large corporations to use accrual accounting for pension plans, since this is the “most relevant and reliable” way to measure financial health. The official rule explains that “a failure to accrue” implies “that no obligation exists prior to the payment of benefits.” The federal budget, however, is not bound to this accounting standard.
The Treasury report revealed that the federal government currently owes $7.7 trillion in pensions and other benefits to federal employees and veterans. Paying these benefits would require an average of $61,000 from every household in the United States. Even so, these liabilities are not all reflected in the national debt.
So why is the national debt really $88.9 trillion? That number accounts for three different liabilities not fully accounted for in the official numbers. The federal government had $9.2 trillion in liabilities such as federal employee retirement benefits, accounts payable, and environmental/disposal liabilities.
The lion’s share of liabilities comes under the umbrella of entitlements, however. The federal government has $30.75 trillion in obligations for current Social Security participants above and beyond projected revenues from their payroll and benefit taxes, transfers from the U.S. Treasury, and assets of the Social Security trust fund.
Finally, the federal government has $34.6 trillion in obligations for current Medicare participants, above and beyond projected revenues from payroll taxes, benefit taxes, premium payments, and assets of the Medicare trust fund.
These projections for Social Security and Medicare come from calculating the “closed-group” unfunded obligation, the money needed to cover the shortfalls for all current taxpayers and beneficiaries in these programs.
According to JustFacts, the $88.9 trillion figure amounts to 92 percent of the nation’s private wealth, including every American’s assets in real estate, corporate stocks, small businesses, bonds, savings accounts, cash, and personal goods.
Even as the American economy grows, the unfunded liabilities of the social safety net remain a serious problem. President Trump seriously needs to consider entitlement reform, no matter the political liabilities.