Proposed New Rules Would Add Long-Term Social Security and Medicare Debt to the Federal Budget
DALLAS (October 24, 2006) — While the political establishment is focused on electing a new Congress, a little-known advisory board is set to fundamentally alter next year's political dialogue, according to Matt Moore, a senior policy analyst with the National Center for Policy Analysis (NCPA). The Federal Accounting Standards Advisory Board (FASAB) — the entity that sets financial reporting standards for the federal government — is proposing new rules that would require the U.S. to account for the cost of Social Security and Medicare benefits promised to future retirees. By shifting the entitlement programs' long-term liabilities onto the ledger, the reported debt would increase by $30 trillion.
"It is vital that Americans come to terms with the spiraling costs of elderly entitlement programs and the costs we are heaping on our kids and grandkids," said Moore. "Without changes, Social Security and Medicare will engulf the entire federal budget. The proposed rules – even if ultimately rejected – will at least call our attention to our self-made plight."
The proposed rules would require the government to identify the net present value of future Social Security and Medicare benefit payments and account for them on the federal budget balance sheet. The net present value is a measure of how much the government would need to invest today at the government's borrowing rate to meet future promises — say, for the next 75 years — less taxes that will be collected over the same period.
The specifics of FASAB's proposed rules have caused some level of controversy. There is some worry that because Social Security and Medicare benefits are a political promise, adding them to the balance sheet like a legal obligation would be misleading.
"The numbers that would be generated by the new rules aren't really new," noted Moore. "The annual Social Security and Medicare Trustees Reports have reported the programs' unfunded liabilities for years, but Congress has ignored them."