Officially, the United States’ federal budget deficit for 2011 will be roughly $1.3 trillion, a staggering and almost incomprehensible amount of money. But this doesn’t even come close to the actual shortfall faced by the Treasury this year. “The $1.3 trillion budget deficit would be $4.2 trillion if the change in the current cost of Social Security and Medicare promises during fiscal 2011 were included,” according to a Washington Post op-ed by Bryan R. Lawrence, founder of New York-based investment partnership Oakcliff Capital.
A private institution that tried to get away with such accounting practices would be facing severe penalties. The Financial Accounting Standards Board, charged by the government with setting private-sector accounting standards, requires companies to account for the current cost of their retirement promises in their financial reports.
In 1992, the year the rule went into effect, General Motors recorded a charge for $33 billion, which came to 29 percent of the company’s revenue — “well above the 5 percent threshold that accountants commonly use to gauge whether a liability is material,” writes Lawrence. With Americans’ increasing life spans and healthcare costs, these expenses became so enormous that they were, he adds, “a major factor in GM filing for bankruptcy” in 2009.
Washington, meanwhile, has a liability of $33.8 trillion for Social Security and Medicare — “more than 1,400 percent of the federal government’s 2011 revenue,” Lawrence calculates.
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