Flash Update
A L E R T
December 18, 2007
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Actual 2007 U.S. Federal Deficit at $1.2 Trillion, $5.6-Plus Trillion on Consistent Basis
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PLEASE NOTE: This Alert highlights certain summary numbers released Monday on the U.S. government's 2007 GAAP-based bottom line. A more complete analysis will follow in the December 2007 SGS newsletter, which is targeted for late in the Christmas week. -- Best wishes to all for the most joyous of holiday seasons, John Williams
The U.S. Treasury released today the annual financial statements of the U.S. government for 2007, prepared using generally accepted accounting principles (GAAP), audited by the GAO, and signed off on by Treasury Secretary Paulson. The statements show that the federal government's fiscal woes continue to careen wildly out of control. The term "out of control" is not used loosely. If the government were to raise taxes so as to seize 100% of all wages, salaries and corporate profits, it still would be showing an annual deficit using GAAP accounting on a consistent basis.
The results summarized in the following table show that the GAAP-based deficit, including the annual change in the net present value of unfunded liabilities for Social Security and Medicare narrowed to $1.2 trillion in 2007 from $4.6 trillion in 2006. The reported reduction in the deficit, however, was due to a one-time legislative-related accounting change in Medicare Part B that likely will be reversed, and, in any event, needs to be viewed on a consistent year-to-year accounting basis.
On a consistent basis, year-to-year, I estimate the 2007 deficit at $5.6 trillion, or worse, based on the government's explanation of the process and cost estimates.
From Note 22 of the financial statements, under "SMI Part B Physician Update Factor:"
"The projected Part B expenditure growth reflected in the accompanying 2007 Statement of Social Insurance is significantly reduced as a result of the structure of physician payment updates under current law. In the absence of legislation, this structure would result in multiple years of significant reductions in physician payments, totaling an estimated 41 percent over the next 9 years. Reductions of this magnitude are not feasible and are very unlikely to occur fully in practice. For example, Congress has overridden scheduled negative updates for each of the last 5 years in practice. However, since these reductions are required in the future under the current-law payment system, they are reflected in the accompanying 2007 State of Social Insurance as required under GAAP. Consequently, the projected actuarial present values of Part B expenditure shown in the accompanying 2007 Statement of Social Insurance is likely understated (my emphasis)."
Since this was handled differently in last year's accounting, the change reduced the reported relative deficit. The difference would be $4.4 trillion, per the government, if physician payment updates were set at zero. I used that estimate, tentatively, for the estimates of consistent year-to-year reporting, but such likely will be updated in the full analysis that follows in the December SGS.
With Social Security and Medicare liabilities ignored, the GAAP deficits for 2007 and 2006 were $275.5 billion and $449.5 billion, respectively. Those numbers contrast with the otherwise formal and accounting-gimmicked cash-based deficits of $168.8 billion (2007) and $248.2 billion (2006).
----------------------------------------------------------------------- U.S. Government - Alternate Fiscal Deficit and Debt Reported by U.S. Treasury Dollars are either billions or trillions, as indicated. Sources: U.S. Treasury, Shadow Government Statistics. ----------------------------------------------------------------------- Formal GAAP GAAP GAAP Total Cash- Ex-SS With SS Federal Gross Federal Fiscal Based Etc. Etc. Negative Federal Obligations Year* Deficit Deficit Deficit Net Worth Debt (GAAP) ----------------------------------------------------------------------- ($Bil) ($Bil) ($Tril) ($Tril) ($Tril) ($Tril) ------ ------ ------ ------ ------ ------ 2007 $162.8 $275.5 $ 1.2** $54.3** $9.0 $55.8** 2006 248.2 449.5 4.6 53.1 8.5 54.6 2005 318.5 760.2r 3.5 48.5 7.9 50.0 2004 412.3 615.6 11.0*** 45.0 7.4 46.4 2003 374.8 667.6 3.0 34.0 6.8 36.2 2002 157.8 364.5 1.5 31.0 6.2 32.7 ----------------------------------------------------------------------- * Fiscal year ended September 30th. ** Estimated minimal $5.6 trillion deficit, negative net worth of $58.7 trillion, obligations of $60.4 trillion, excluding one-time legislative issues and accounting for same tied to Medicare Part B (see link below). *** Estimated at $3.4 trillion, excluding one-time unfunded setup costs of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (enacted December 2003). r - Revised prior-period data as shown in the 2007 Report.
Link to 2007 report: http://fms.treas.gov/fr/07frusg/07frusg.pdf Current numbers derived from document page 3 (Table 1, with Social Insurance Exposures, Closed Group, added in as liabilities on the balance sheet, and pages 102, 103 (note on SMI Part B Physician Update Factor).
Further details follow in the December SGS newsletter.
The target date for the posting of the December SGS is for late in the Christmas week. An e-mail advice will be made of its and any intervening Flash Update/Alert postings.