Budget reformer says US accounting practice hides bigger deficit
When Scott Rasmussen was 22, he and his father started the all-sports cable TV network ESPN. Today he is trying to build a network of another sort: a grass-roots movement to reform the federal budget.
Even this high-energy entrepreneur concedes it is a daunting task. But he thinks it is crucial, not just to shrink the federal deficit, but to sort out what our national priorities are and whether the nation is spending an appropriate amount of money on them. Those priorities - whether a strong defense, a clean environment, a competitive school system - are being masked by the way the government keeps its books, he says.
``In your own personal budget, you can decide to take a vacation or buy a nicer car; you have to make those choices,'' he says. ``We'd like to phrase those same kinds of questions in a government sense.''
Mr. Rasmussen has an undeniable knack for translating budgetese into language the layman can grasp. Whether that alone can spawn a grass-roots movement for budget reform is another matter. At this point, Rasmussen's League of Concerned Americans has offices in 22 states, but only 500 members. To get new cohorts, Rasmussen will soon air 90-second question-and-answer spots on Chicago radio each weekday.
But the budget deficit, much less the budget accounting system, does not have the gut appeal of, say, lower tax rates, which turned a financial issue into one that people and corporations could relate to. It is far more remote, and thus far less compelling as an issue for congressmen to act on.
Rasmussen's ``whole premise is that people care about the budget,'' says Stan Collender, director of federal budget policy at the accounting firm Touche Ross. ``I'm a budget junkie and my eyes glaze over. I'd rather watch the Super Bowl.''
Rasmussen has some good company in wanting budget reform. The accountants at Arthur Andersen & Co. have long been agitating for the federal government to switch from its current cash-basis accounting system to prepare its financial statements (and deficit figures) in accordance with generally accepted accounting principles.
The way the government prepares its budget, the accounting firm stated in a 1986 report, ``hides the costs of current programs, and ... can lead to misallocation of national resources, jeopardize sound programs, and burden future taxpayers.''
The government's system also makes the deficit look better - yes, better - than it actually is. Arthur Andersen figures that by Sept. 30, 1984, the national debt was more accurately $3.8 trillion, not the $1.3 billion current accounting methods would have one believe. Rasmussen figures that over the next five years, what he calls the ``real budget deficit'' will be about $100 billion more than the government figures indicate.
A key reason, Rasmussen says, is the way the government handles trust funds - money set aside for the future. That includes retirement money in the social security system, military pensions, and highway funds. The ``surplus'' money in social security and other trust funds is used to make the deficit look smaller. That's because the government ``counts each dollar twice,'' Rasmussen says.
The government says it is putting aside money for future generations, but then borrows that money (i.e., puts it in Treasury bonds) to lower the deficit. This makes it possible ``to hide ever-higher deficits behind the illusion of [growing] trust fund surpluses which will hinder the effort to control federal spending,'' he says. At the same time, money for future programs will be depleted.
Rasmussen, like many others, wants to see the government use ``capital budgeting'' - that is, putting ``investment type'' purchases (F-16 jets, highways, school buildings) in one category, and current spending (payments on medicare, food stamps, military wages) in another. He reasons that just as companies don't pay the entire bill for new equipment in the first year, or a person doesn't pay the entire price of a house, but only the depreciation or interest payments each year, so the government should put only the depreciation expenses in the operating budget. This would have the effect of lowering the deficit in the short run.
Capital budgeting has been criticized as sleight of hand and subject to gimmickry. Economist Murray Weidenbaum recently argued in this newspaper that the amount of capital investment is so small - $25 billion out of $990 billion worth of disbursements last year - that it's not worth changing the accounting rules. Moreover, anyone who wants to save his favorite program would try to shield it from budget cuts by putting it in the capital budget.
Sorting out how the government is really spending money would likely lead to public pressure on Congress to boost some programs and pare back others, Rasmussen says.
``Our budget today is largely ruled by the priorities of the '30s, '40s, and '50s'' - a strong defense under the shadow of World War II, Korea and Vietnam, for example, or New Deal programs like social security and medicare. ``The programs of yesterday are crowding out the programs of today and tomorrow,'' including education, environment, and infrastructure, likes roads and dams.
But Mr. Collender says budget reform is a peripheral issue. ``Any [reform] that focuses on procedural or accounting changes is tinkering with the problem at the margin,'' he says.
``The crux of the matter is: How do you fortify a member of Congress to make hard choices'' about spending cuts or tax hikes?