HOUSE_OVERSIGHT_020857.jpg

A Word of Warning About Comparing Corporate & Government Accounting... e Government accounting standards do not report the present value of future entitlement payments (such as Social Security or Medicare) as liabilities. Instead, entitlement payments are recognized only when they are paid. Our analysis takes a different view: governments create liabilities when they enact entitlements and do not provide for revenues adequate to fund them. e We measure the entitlement liability as the present value of estimated entitlement payments in excess of expected revenues for citizens of working age based on Social Security and Medicare Trust Funds’ actuarial analysis. e Government accounting standards also do not recognize the value of internally- generated intangible assets (such as the sovereign power to tax). We do not recognize those assets either, as we have no basis to measure them. But the US government has substantial intangible assets that should provide future economic benefits. Note: For more discussion on alternatives to corporate and official government accounting methods, see Laurence J. Kotlikoff, Alan J. Auerbach, and Jagadeesh okhale, “Generational Accounting: A Meaningful Way to Assess Generational Policy,” published on 12/94 in The Journal of Economic Perspectives. KP Source: Greg Jonas, Morgan Stanley Research. BSF owe poo com USA Inc. | High Level Thoughts 31 ...and About Government Budgeting e Federal government budgeting follows arcane practices that are very different from corporate budgeting — and can neglect solutions to structural problems in favor of short-term expediency. e Federal government does not distinguish capital budget (for long-term investment) from operating budget (for day-to-day operations). As a result, when funding is limited, government may choose to reduce investments for the future to preserve resources for day-to-day operations. e Budget “scoring” rules give Congress incentives to hide the true costs...and help Congressional committees defend their turf.” Note: *For more detail, refer to slide 116 on congressional budget scoring rules related to recent Healthcare reform. a USA Inc. | High Level Thoughts 32 HOUSE_OVERSIGHT_020857