Last month, Sen. Joe ManchinJoe ManchinOn The Money — Dems lay blame for Build Back Better blowup McConnell: Manchin’s opposition to Biden plan ‘great shot in the arm for the country’ Harris says ‘stakes are too high’ for Build Back Better to be about Manchin MORE (D-W.Va.) called for the Build Back Better infrastructure bill to be free of accounting gimmicks. More recently, Sen. Lindsey GrahamLindsey Olin GrahamDemocrats outraged after Manchin opposes Biden spending bill Manchin says he will not vote for Build Back Better: ‘This is a no’ Let’s fix America’s accounting problem — starting with Build Back Better MORE (R-S.C.) called for a “stop in the madness” regarding the calculation of the costs of the bill and asked the Congressional Budget Office (CBO) to recalculate the bill’s costs without the budget gimmicks used to keep the legislation costs low. These are honorable demands, but they highlight the fatal flaws in how Congress makes financial decisions. Frankly, the federal government has trouble with basic accounting.
Poor budget estimates and the shortsighted way our national debt is calculated make it impossible for elected officials to make sound financial decisions. Members of Congress must be held accountable for their decisions. But we, the American people, cannot hold them accountable if we don’t know the true short-term and long-term financial consequences of their decisions.
President BidenJoe BidenFederal class action lawsuit filed over treatment of Haitian migrants Staffer who had contact with Biden tests positive for COVID-19 Overnight Defense & National Security — New rules try to tackle extremism in the ranks MORE’s Build Back Better plan comes with alluring, big-ticket items, such as reducing the cost of child care and addressing climate change. But to limit the costs of these programs, the bill assumes that many of them are temporary, when they will most likely become permanent. When making financial decisions, it is good to know the costs under various scenarios, but CBO is limited to the circumstances it can consider when calculating the estimated costs of legislation.
Years ago, on behalf of Sen. Mark KirkMark Steven KirkBiden’s relationship with ‘Joe-Joe’ Manchin hits the rocks Let’s fix America’s accounting problem — starting with Build Back Better Duckworth announces reelection bid MORE (R-Ill.), I asked the CBO to calculate the long-term liability created by a proposed bill at the time. CBO officials said that a member of Congress could not commission an estimate beyond a 10-year window unless the congressman was on the budget committee. Unfortunately, Sen. Kirk was not on the budget committee. It is frightening to think that members of Congress vote on legislation without knowing the true cost. The 10-year window does not provide a picture of the long-term financial consequences of decisions made by Congress. It is like driving in a fog at 100 miles per hour.
How can we trust the federal government to come up with the true costs of new legislation when it cannot calculate the national debt properly? The $29 trillion figure that is often referenced by elected officials is not the true national debt. This figure does not include Social Security and Medicare unfunded promises. At the end of fiscal year 2020, the federal government owed more than $41 trillion in Social Security and $51 trillion in Medicare promises. The true national debt, including interest and all unfunded liabilities, is currently more than $140 trillion.
Just as the CBO score for the Build Back Better bill includes unrealistic sunset provisions, the Treasury Department doesn’t consider Social Security and Medicare promises as liabilities because they contend that current law supersedes the benefits. Congress essentially treats tomorrow as the “sunset date” for benefits American seniors are counting on because they can pass a law at any time terminating Social Security and Medicare benefits.
We must stop this madness. When making financial decisions, Congress should use the type of accounting that businesses are required to use. Currently, the federal government, as well as all state and local governments across the country, use cash-basis accounting practices during their budget processes. This method of accounting is so unreliable that the Internal Revenue Service (IRS) doesn’t allow a corporation that makes more than $26 million a year to use it to prepare its tax returns.
Instead, if Congress used full-accrual accounting, the short- and long-term consequences of any legislation would automatically be calculated and considered. Change has to start somewhere, so let’s start with the Build Back Better bill. Sens. Manchin and Graham are right, the bill should come free of accounting gimmicks. The Senate is on track to vote on the bill before Christmas, so now is the time to act.
Sheila A. Weinberg, CPA, is the founder and CEO of Truth in Accounting, a nonprofit government finance watchdog.