Obscure Argument, Large Implications

USA Today has today's must-read budget story, even though it's about accounting policy. If corporate accounting rules were applied to the federal budget, the U.S. government would have shown a $1.3 trillion deficit last year and $59 trillion in additional liabilities -- more than a half-million for each taxpayer. That's because in the corporate world, a balance sheet has to show future liabilities when the commitment is made, rather than when the payment actually comes due. The federal government, by contrast, does NOT have to show the future liabilities of Social Security and Medicare on the annual budget, even though the promises have been made.

The board that sets federal accounting standards is considering how the government balance sheets should handle this and other "fiscal exposures." There's a good argument to be made that Social Security and Medicare are very different than private-sector liabilities, most notably because Congress can change the entitlement rules any time they want (although in the real world this is a desire that rarely seems to strike on Capitol Hill). But that doesn't mean there isn't a better way of accounting for entitlements.

Granted, this is an arcane debate involving an obscure government board. But this argument is really about how to fairly and honestly present the facts to the American people. Helping the public understand the magnitude of the problem is a key step and it's important that we get it right. If new accounting rules help sound the alarm, well and good, but that will only take us so far. After all, so far the research shows that the public doesn't need much information to recognize the problem. The real challenge is in helping the public to wrestle with the tough decisons and difficult trade-offs involved in heading off the "fiscal tsunami" before it's too late.