When presidential candidates are asked to name their favorite book, many answer “the Bible.”
Fair enough. But perhaps they should also read the 2015 Consolidated Financial Report of the U.S. Government.
If they did, their campaign promises would be more honest and realizable.
Significantly, the financial report is far more forthright than almost any corporate report, explicitly making the case that the federal government “is not fiscally sustainable.”
The seemingly good news is that the government’s primary deficit declined significantly during the past year, and the Treasury Department projects that it will decline further until it actually turns to a surplus in 2019.
But starting in 2025, because of the cost of providing healthcare and Social Security to retiring baby boomers, the surplus will gradually decline, returning to deficits again by 2028.
Per its balance sheet, the federal government’s negative net position (assets less liabilities) stood at $18.2 trillion as of Sept. 30, 2015.
Add another $41.5 trillion in social insurance obligations, mainly Social Security and Medicare, and the negative net position would increase to $59.7 trillion. These obligations are “off the balance sheet” but are detailed in several schedules and graphs.
Because of accelerating interest costs, debt held by the public will increase from its current 74 percent of gross domestic product to an astounding 223 percent in 2090 — percentages that even the most liberal of economists would acknowledge are unsustainable.
These percentages are projections based on the assumption that current policies will continue indefinitely.
They warn of the need for policy change that the current presidential candidates should be seriously addressing.
Promises on the campaign trail may appear to make that goal relatively easy to accomplish, but the realities of the government’s spending practices speak otherwise.
Of the government’s expenditures, only 24 percent can be considered discretionary. The remaining 76 percent is consumed by the departments of Health and Human Services (27 percent), Social Security Administration (24 percent), Defense (15 percent), Treasury (for interest, 6 percent) and Veterans Affairs (4 percent).
Suppose that the next president decides that we provide too much foreign aid. Let him or her eliminate the entire State Department. That would reduce federal expenditures by 0.67 percent.
He or she can jettison the entire Commerce Department and the saving would be less than 0.24 percent.
Abolish the National Science Foundation and save 0.18 percent.
Starting in 2010, Social Security payments to beneficiaries began to exceed receipts from workers.
This gap will widen over the foreseeable future and will require either cutting other costs or additional borrowing.
In 2034, the Social Security Trust Fund will be depleted, placing even more fiscal pressure on the government.
The pattern for Medicare is similar, except that the dollar amounts are greater and the opportunities for reducing the gap less tractable.
The report makes clear that there is no magic bullet that will solve all our fiscal problems.
Any political candidates who think the answer is simply tax cuts or elimination of “waste, fraud and abuse” should claim Grimm’s Fairy Tales as their book of choice.
Michael Granof is the Ernst & Young Distinguished Centennial Professor of Accounting and Distinguished Teaching Professor of Business and Public Affairs at the University of Texas at Austin.