US deficit would top $1 trillion with new method

[December 16, 2008]  WASHINGTON (AP) -- The federal deficit for 2008 would top $1 trillion if the government had to use the same accounting methods as private companies.

And that doesn't even account for the huge costs of the Wall Street bailout, which didn't really start until the new budget year began on Oct. 1.

The government is promising $49 trillion more than it can deliver on Social Security, Medicare and other benefit programs over the next 75 years unless Congress steps in to shore up the system.

That was the finding Monday when the administration released a 188-page "Financial Report of the United States Government" for the 2006 budget year that ended on Sept. 30.

The report, released by the Treasury Department and the White House budget office, found that under the accrual method of accounting used by businesses, the deficit for 2006 would have totaled $1 trillion -- not the $455 billion reported in October under the cash system of accounting.

Under the accrual method, expenses are recorded when they are incurred rather than when they are paid. That tends to raise costs for liabilities such as pensions and health insurance. The big jump in the 2008 budget year was largely due to changed calculations for the payment of veterans benefits.

The deficit is expected to top a staggering $1 trillion for the ongoing 2009 fiscal year, reflecting the costs of the Wall St. bailout, weaker tax revenues from the deepening recession and the costs of President-elect Barack Obama's upcoming economic recovery measure.

Virtually every budget expert warns that the long-term costs of federal retirement programs like Social security and Medicare are going to swamp the budget as more and more baby boomers retire.

"We must not forget the long-term needs that pose a significant threat to our economy's fiscal sustainability," said Treasury Secretary Henry Paulson. "Changes are needed to ensure these programs are fiscally sustainable."

Twelve years ago, Congress ordered the government to start issuing annual reports using the accrual method of accounting in an effort to show the finances in a way that was comparable with the private sector.

[Associated Press]

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