GAO Audit: Federal Government’s Balance Sheet $18 Trillion in the Red

[rangerrebew]

GAO Audit: Federal Government’s Balance Sheet $18 Trillion in the Red

 

(CNSNews.com) – At the end of Fiscal Year 2015, the federal government’s liabilities exceeded its assets by more than $18 trillion, according to a February 26 audit report [1] released by the U.S. Government Accountability Office (GAO [2]).

“The federal government’s reported assets totaled about $3.2 trillion as of September 30, 2015, which was about $165 billion greater than the amount reported as of September 30, 2014,” Gene Dodaro, comptroller general of the United States, wrote in a letter accompanying the audit report that was sent to President Obama and leaders of Congress.

“Its reported liabilities totaled about $21.5 trillion as of September 30, 2015, which was about $686 billion greater than the amount reported as of September 30, 2014,” he continued, warning that “absent policy changes, the federal government continues to face an unsustainable long-term fiscal path.”
 

Dodaro noted that outstanding student loans were largely responsible for the net increase in the federal government’s assets during FY2015, and that a higher national debt was one of the primary causes of the government’s increased liabilities.

“Most of the net increase in the federal government’s reported assets was due to student loans [3] made by the Department of Education,” the comptroller general pointed out. According to the department’s consolidated balance sheet [4], it has a total of $1 trillion in student loans outstanding.

Dodaro added that “the net increase in liabilities was due primarily to a net increase in federal debt [5] held by the public and the liability for restoration of federal debt principal and interest to the Federal Thrift Savings Plan [6].” Payments into the retirement fund for federal employees were suspended during last year’s congressional debate on raising the debt ceiling [7].

GAO summarized the assets and liabilities listed on the federal government’s balance sheet during the last fiscal year:

“The Government held about $3.2 trillion in assets (mostly $1.2 trillion in net loans receivable (primarily student loans) and $839.9 billion in net property, plant and equipment.) Besides these assets, other significant Government resources not reported on the balance sheet include stewardship assets, natural resources, and the Government’s power to tax and set monetary policy.

“Total liabilities ($21.5 trillion) consist mostly of: (1) $13.2 trillion in federal debt securities held by the public and accrued interest and (2) $6.7 trillion in federal employee and veteran benefits payable,” the report stated.

“The Government also reports about $5.1 trillion of intragovernmental debt outstanding, which arises when one part of the Government borrows from another.

"For example, Government funds (e.g. Social Security and Medicare trust funds) typically must invest excess annual receipts in Treasury-issued federal debt securities, creating trust fund assets and Treasury liabilities. These amounts are included in the financial statements of investing agencies and Treasury, respectively, but offset each other when consolidated into the government-wide financial statements.”

Dodaro’s letter also noted numerous “material weaknesses” and “deficiencies in internal controls” at the Department of Defense (DOD) and other agencies that resulted in auditors issuing “disclaimers of opinion [8]” on their FY2015 financial statements.

According to Generally Accepted Auditing Standards (GASS [9]), auditors make such disclaimers when they are unable to issue an opinion on the audited entity’s overall financial condition.

On page 241 of the report, GAO auditors warn that “the federal government is not able to demonstrate the reliability of significant portions of the accompanying accrual-based financial statements as of and for the fiscal years ended September 30, 2015, and 2014, principally resulting from limitations related to certain material weaknesses in internal control.…As a result of these limitations, readers are cautioned that amounts reported in the accrual-based consolidated financial statements and related notes may not be reliable.”

The federal government was “unable to pass [the] GAO audit “because of persistent problems with the Department of Defense’s (DOD) finances, the federal government’s inability to account for and reconcile certain transactions, an ineffective process for preparing consolidated financial statements, and significant uncertainties,” GAO explained in a Feb. 25 press release [10].

However, federal officials are currently working on a “remediation plan” to make their next consolidated financial report more accurate, GAO reports.

“In fiscal year 2015, Treasury and OMB made significant progress with respect to their corrective action plans by developing a remediation plan that focuses on corrective actions to be taken over the next 3 years to address the material weaknesses in internal control,” the audit agency noted.

“I wouldn’t use the word ‘technical insolvency’,” said Robert Dacey, GAO’s chief accountant, when CNSNews.com asked him whether the federal government was technically insolvent because its liabilities were seven times larger than its assets and its “total net position” was $18.2 trillion in the red.

“Negative net position isn’t normal, but the federal government still has the ability to tax, and there are a lot of other resources [i.e. national parks] that are not recorded” on its consolidated financial statement, he told CNSNews.com.

However, Dacey agreed with the comptroller general that the current financial condition of the federal government is unsustainable over the long term.

“We tried to illustrate the long-term fiscal situation” in the audit report, he told CNSNews.com. “Over the long-term, receipts are not enough to cover expenses.”

The business and economic reporting of CNSNews.com is funded in part with a gift made in memory of Dr. Keith C. Wold.

Source URL: http://cnsnews.com/news/article/barbara-hollingsworth/gao-audit-federal-governments-balance-sheet-18-trillion-red

[Bill Cipher]

Balance sheet insolvency.  Be headed to bankruptcy court if it was a person. 

[MACVSOG68]

As an issue for the election this won't spark any serious debate, because none of the candidates has any realistic plan to address this.  Yet it is the proverbial elephant in the room.  Everybody wants tax cuts, but no one wants to pay the bills.  And the candidates (GOP) are responding with tax cut plans, but no realistic plan to pay down the debt, or for that matter to even close the deficit.  The Democrats' plans are to substantially increase taxes, but spend it all and more.

No matter who wins in November, the deficits will continue and the debt will expand.  Moderators for debates in both parties have tried to bring this issue up, but no one can address it seriously.  "We'll have taxes from the 1% to pay for it"; "We'll have a huge economic boon to pay for it". 

Then of course there are the unfunded liabilities...

[Free Vulcan]

Balance sheet insolvency.  Be headed to bankruptcy court if it was a person.

And it's all grins and giggles until interest rates start rising, then there's going to be a sudden realization of a concept called 'cash flow' when the govt is spending half or more of it's tax receipts on paying interest and has no more for the welfare leeches.

[Bill Cipher]

As an issue for the election this won't spark any serious debate, because none of the candidates has any realistic plan to address this.  Yet it is the proverbial elephant in the room.  Everybody wants tax cuts, but no one wants to pay the bills.  And the candidates (GOP) are responding with tax cut plans, but no realistic plan to pay down the debt, or for that matter to even close the deficit.  The Democrats' plans are to substantially increase taxes, but spend it all and more.

No matter who wins in November, the deficits will continue and the debt will expand.  Moderators for debates in both parties have tried to bring this issue up, but no one can address it seriously.  "We'll have taxes from the 1% to pay for it"; "We'll have a huge economic boon to pay for it". 

Then of course there are the unfunded liabilities...

Very true; however, it isn't quite that simple, particularly when it comes to tax cuts.  Not all tax cuts are the same, and cutting some taxes, particularly now, may have a beneficial effect on the economy, while at the same time the tax system as a whole remains revenue neutral because the increased activity naturally increases revenues from another tax.

Further, attempting to get the deficits down by cutting spending is more likely to be successful than trying to get them down by raising taxes.  Raising taxes necessarily reduces the incentive to engage in the high-taxed activity, or increases the incentive to find alternatives that avoid (not evade) the tax.  The lengths to which large multinationals will go to offshore themselves illustrates this, despite the almost draconian corporate tax system and the current in-terrorem approach by Treasury to inversions and other offshoring techniques.

In my (admittedly uneducated) view, raising taxes is less useful than cutting spending because a tax takes resources from a more efficient use and puts them into a less efficient use, thereby leaving a net reduction in economic value (private plus government).  On the other hand, when government spending is cut, the resources formerly spent by the government are returned to private use, which in general is likely to move resources from a less efficient use to a more efficient use, thereby leaving a net increase in economic value (private plus government).

[MACVSOG68]

Very true; however, it isn't quite that simple, particularly when it comes to tax cuts.  Not all tax cuts are the same, and cutting some taxes, particularly now, may have a beneficial effect on the economy, while at the same time the tax system as a whole remains revenue neutral because the increased activity naturally increases revenues from another tax.

Further, attempting to get the deficits down by cutting spending is more likely to be successful than trying to get them down by raising taxes.  Raising taxes necessarily reduces the incentive to engage in the high-taxed activity, or increases the incentive to find alternatives that avoid (not evade) the tax.  The lengths to which large multinationals will go to offshore themselves illustrates this, despite the almost draconian corporate tax system and the current in-terrorem approach by Treasury to inversions and other offshoring techniques.

In my (admittedly uneducated) view, raising taxes is less useful than cutting spending because a tax takes resources from a more efficient use and puts them into a less efficient use, thereby leaving a net reduction in economic value (private plus government).  On the other hand, when government spending is cut, the resources formerly spent by the government are returned to private use, which in general is likely to move resources from a less efficient use to a more efficient use, thereby leaving a net increase in economic value (private plus government).

It's an interesting debate that no one though seems interested in having.  Theoretically you're correct about spending cuts moving resources to a more efficient use.  The problem will obviously be what spending areas have that flexibility?  I think you can deal with the tax cuts and spending cuts separately to estimate the actual and economic value to each.

For example, The Tax Foundation has looked at the impact both real and dynamic (economic) of each candidate's tax plan.  Trump’s tax plan is focused reducing individual and corporate tax rates, while also reducing taxes on investment income.  Over ten years the Foundation estimates the economy would increase by creating over five million jobs, however government tax revenues would be decreased by $10 trillion.    But the problem now is where that $10 trillion comes from to at least be revenue neutral if not add anything to bring down the debt.  They've done the same for Cruz and Rubio.  The loss of revenue under Cruz' plan would be much smaller, and under Rubio's plan federal revenues would actually increase.  Again all of these are without the benefits of spending decreases, which as you point out have their own economic impacts.
 
I agree with you on the economic negatives of a tax increase, but I also believe that if our representatives vote to spend money, they should also vote to cover that spending whether through cuts in other programs or revenue increases.  The only thing that can accomplish that is a constitutional amendment, and that ain't gonna happen...sadly.

[EdinVA]

It's an interesting debate that no one though seems interested in having.  Theoretically you're correct about spending cuts moving resources to a more efficient use.  The problem will obviously be what spending areas have that flexibility?  I think you can deal with the tax cuts and spending cuts separately to estimate the actual and economic value to each.

For example, The Tax Foundation has looked at the impact both real and dynamic (economic) of each candidate's tax plan.  Trump’s tax plan is focused reducing individual and corporate tax rates, while also reducing taxes on investment income.  Over ten years the Foundation estimates the economy would increase by creating over five million jobs, however government tax revenues would be decreased by $10 trillion.    But the problem now is where that $10 trillion comes from to at least be revenue neutral if not add anything to bring down the debt.  They've done the same for Cruz and Rubio.  The loss of revenue under Cruz' plan would be much smaller, and under Rubio's plan federal revenues would actually increase.  Again all of these are without the benefits of spending decreases, which as you point out have their own economic impacts.
 
I agree with you on the economic negatives of a tax increase, but I also believe that if our representatives vote to spend money, they should also vote to cover that spending whether through cuts in other programs or revenue increases.  The only thing that can accomplish that is a constitutional amendment, and that ain't gonna happen...sadly.

The real struggle with spending cuts, when we can actually get real ones, is that the politicians will not take responsibility for the cuts so they make them generic or committee based (BRAC, sequestration) and the powers that be cut critical elements to manipulate the public and congress.

We have to eliminate/reduce entire agencies to make any sort of tangible and sane cuts simply taking 10% from each pot is not going to work.

[MACVSOG68]

The real struggle with spending cuts, when we can actually get real ones, is that the politicians will not take responsibility for the cuts so they make them generic or committee based (BRAC, sequestration) and the powers that be cut critical elements to manipulate the public and congress.

We have to eliminate/reduce entire agencies to make any sort of tangible and sane cuts simply taking 10% from each pot is not going to work.

You'll get arguments on all sides of that.  It's one reason why campaign promises have little to do with reality.  Presidents have tried to rein in the federal bureaucracy since Carter, and none have done do.  Yes, numbers of federal employees have decreased, but the spending continues to increase for the most part.  Republicans of late have been able to lower total spending some, but the games continue.  Taking 10% has its fans as everyone knows there's at least 10% fat in any agency.  But then the agency tells Congress that the 10% cut is from a high priority program and thus has to be reinstated.  Cutting agencies is an approach everyone in Congress could support...as long as it's not their favorite agency.  In fact, no one knows how many federal agencies there are.  The estimates range from 60 to several hundred.  But every kind of spending cut gimmick has been tried, and each has failed.

And just because a program or agency is authorized by one committee doesn't mean it gets funded through the appropriations process.  And handling mandatory spending is different from discretionary.  Then there's the political issues.  Do we cut the EPA and Education Departments or do we cut some of the Defense agencies or programs? 

I only know one thing for sure.  Not one candidate out there has a clue how to restore fiscal stability to the federal government.

[HonestJohn]

The three largest costs in our budget are: social security, medicare, and medicaid.

If we were to close down the government entirely, disbanding the military... we'd still be at nearly the tipping point due to just these three programs.

We can't just 'cut the waste' or 'close government agencies' to deal with this.

We need to actually look at our tax code... and increasing the total number of taxpayers.  Eliminating the social security cutoff could help.  So could eliminating tax loopholes (personal and corporate).  Ending the double taxation boondoggle that keeps overseas corporate profits out of America is another (as they'll then spend some of it here, which is then taxed on the receiving end - a la earned income).

And accepting young immigrants will also help, as they'll pay into social security as well (for 30-40 years, without taking anything out of it).

---

Or, we could just reduce the number of people collecting social security and medicare.  I don't really favor this option, though.

[Sanguine]

....

And accepting young immigrants will also help, as they'll pay into social security as well (for 30-40 years, without taking anything out of it).

That could be true if they weren't taking any welfare, but we know that the majority of immigrants, legal or not, do take welfare.  They become an economic negative from the beginning.  Immigration should be a positive thing; we need to be more selective with who we allow in.

---

Or, we could just reduce the number of people collecting social security and medicare.  I don't really favor this option, though.

We should be limiting the number of people collecting SSI and medicaid.  Medicare - that's a tough one.  But, one we need to tackle.

[HonestJohn]

I forgot to mention that this is going to be a self-correcting problem over the next 10-20 years.  It's a sad truism that the elderly die.  So the drain on social security and medicare will eventually fall back down to historical norms.

What is generating the problem now is that there is a bulge at the older end of the demographic spectrum, with more elderly starting to collect benefits.  And not enough younger workers to pay for it all.

Which is why immigration is the 'quick fix', as we suddenly get working age adults to balance the equation out.  More traditional methods require 18-22 years before new workers are ready (ie: increased childbirth).

[HonestJohn]

That could be true if they weren't taking any welfare, but we know that the majority of immigrants, legal or not, do take welfare.  They become an economic negative from the beginning.  Immigration should be a positive thing; we need to be more selective with who we allow in.

We should be limiting the number of people collecting SSI and medicaid.  Medicare - that's a tough one.  But, one we need to tackle.

That's why we need to make sure they get jobs when they come.  Germany has a good work placement program (for everyone, not specifically immigrants), which we should take a look at.

[MACVSOG68]

The three largest costs in our budget are: social security, medicare, and medicaid.

If we were to close down the government entirely, disbanding the military... we'd still be at nearly the tipping point due to just these three programs.

We can't just 'cut the waste' or 'close government agencies' to deal with this.

We need to actually look at our tax code... and increasing the total number of taxpayers.  Eliminating the social security cutoff could help.  So could eliminating tax loopholes (personal and corporate).  Ending the double taxation boondoggle that keeps overseas corporate profits out of America is another (as they'll then spend some of it here, which is then taxed on the receiving end - a la earned income).

And accepting young immigrants will also help, as they'll pay into social security as well (for 30-40 years, without taking anything out of it).

---

Or, we could just reduce the number of people collecting social security and medicare.  I don't really favor this option, though.

It's true that the non-military portion of the discretionary budget is only 17% of the spending. Two of the most abused programs are SNAP and the SS disability program, both I believe mandatory.  Still Social Security and Medicare are paid for currently.  Means tested programs aren't.  One suggestion has been to raise the ceiling on contributions, while disallowing the collection of benefits if other means of retirement exist.  Don't try to sell that one to anyone. 

As for the tax code, each of the four remaining candidates reduces tax rates in one way or another with Cruz being the most substantial change to the code itself.  But again none has shared any reasonable program of spending cuts that will, in conjunction with the decrease in federal revenues address the growing debt.

As for immigrant taxpayers, I have no problem with this while others obviously do.  But adding job seekers also requires that somehow jobs themselves will also return to or be created within the US.  The issue a Republican president will face is telling the Country that tax cuts will be so good for the economy, the jobs will flow back.  Yes there are projected economic benefits, but getting a split congress to agree will be the challenge.

[Sanguine]

That's why we need to make sure they get jobs when they come.  Germany has a good work placement program (for everyone, not specifically immigrants), which we should take a look at.

"Germany has a good work placement program"  We're not Germany!  We are deliberately and significantly different.  Who are you suggesting run this "work placement program"?  Who should fund it?

Immigrants should be a positive.  They should benefit us, or at a minimum, not be a drag on us.  That has been the pattern of immigration until very recently, and it has helped create a vibrant, wealthy culture.  Unlike the pattern in Europe.

[HonestJohn]

"Germany has a good work placement program"  We're not Germany!  We are deliberately and significantly different.  Who are you suggesting run this "work placement program"?  Who should fund it?

Immigrants should be a positive.  They should benefit us, or at a minimum, not be a drag on us.  That has been the pattern of immigration until very recently, and it has helped create a vibrant, wealthy culture.  Unlike the pattern in Europe.

Germany businesses pay for it.  In return, they provide a list of their job needs and the program then tries to find people that can fill them.  The program also helps business forecast out future year hiring needs, identifying the fields that might be needed.  The program then coordinates with universities to help steer inbound students to those fields.

[Sanguine]

Germany businesses pay for it.  In return, they provide a list of their job needs and the program then tries to find people that can fill them.  The program also helps business forecast out future year hiring needs, identifying the fields that might be needed.  The program then coordinates with universities to help steer inbound students to those fields.

OK, Honest John, who runs the program?  Who do these businesses pay?

[HonestJohn]

OK, Honest John, who runs the program?  Who do these businesses pay?

I don't understand your post. 

Who runs the program as in the name of the director?  I don't know that.
Who runs the program as in 'is it part of a government agency'?  It's its own stand-alone agency.
Who runs the program as in 'what party'?  There isn't a political party controlling it.

So I don't follow what you're trying to say.

https://www.arbeitsagentur.de/web/content/EN/index.htm

[Sanguine]

I don't understand your post. 

Who runs the program as in the name of the director?  I don't know that.
Who runs the program as in 'is it part of a government agency'?  It's its own stand-alone agency.
Who runs the program as in 'what party'?  There isn't a political party controlling it.

So I don't follow what you're trying to say.

https://www.arbeitsagentur.de/web/content/EN/index.htm

It's a federal government program, John.  And, businesses don't voluntarily support it; it's a tax.  So you're suggesting another federal program. 

Oh, and "businesses pay for it"?  No, people pay for it.  The businesses pass the costs on to the consumers as with all other costs.  It's how business works.

[HonestJohn]

It's a federal government program, John.  And, businesses don't voluntarily support it; it's a tax.  So you're suggesting another federal program. 

Oh, and "businesses pay for it"?  No, people pay for it.  The businesses pass the costs on to the consumers as with all other costs.  It's how business works.

Well, which is cheaper... something like this, or the welfare?

And I said we should look at it.  Not copy it whole-hog.  Maybe something run by the Better Business Bureau?  The point is that we don't have anything like this and so some companies can't find enough labor to meet their needs... while others have an oversupply.

That oversupply leads to the welfare you mention. 

[Scottftlc]

It's true that the non-military portion of the discretionary budget is only 17% of the spending. Two of the most abused programs are SNAP and the SS disability program, both I believe mandatory.  Still Social Security and Medicare are paid for currently.  Means tested programs aren't.  One suggestion has been to raise the ceiling on contributions, while disallowing the collection of benefits if other means of retirement exist.  Don't try to sell that one to anyone. 

As for the tax code, each of the four remaining candidates reduces tax rates in one way or another with Cruz being the most substantial change to the code itself.  But again none has shared any reasonable program of spending cuts that will, in conjunction with the decrease in federal revenues address the growing debt.

As for immigrant taxpayers, I have no problem with this while others obviously do.  But adding job seekers also requires that somehow jobs themselves will also return to or be created within the US.  The issue a Republican president will face is telling the Country that tax cuts will be so good for the economy, the jobs will flow back.  Yes there are projected economic benefits, but getting a split congress to agree will be the challenge.

Tax cuts are good for the economy in that they are a stimulus, however they won't solve fundamental economic problems by themselves. One example: Environmental laws and regulations, and the ability to litigate associated with them, need to be relaxed to allow large scale projects to move forward within a reasonable time and at a reduced overall cost.  Particularly in regard to infrastructure (such as transportation or energy infrastructure).

The next problem with tax cuts is that we have taken to funding them in recent decades with increased debt and not with reduced expenditures. This is a medium and long-term liability that soon defeats the benefit of the short-term stimulus.

[Sanguine]

Well, which is cheaper... something like this, or the welfare?

And I said we should look at it.  Not copy it whole-hog.  Maybe something run by the Better Business Bureau?  The point is that we don't have anything like this and so some companies can't find enough labor to meet their needs... while others have an oversupply.

That oversupply leads to the welfare you mention.

Here's an idea - how about we control our borders?

[MACVSOG68]

Tax cuts are good for the economy in that they are a stimulus, however they won't solve fundamental economic problems by themselves. One example: Environmental laws and regulations, and the ability to litigate associated with them, need to be relaxed to allow large scale projects to move forward within a reasonable time and at a reduced overall cost.  Particularly in regard to infrastructure (such as transportation or energy infrastructure).

The next problem with tax cuts is that we have taken to funding them in recent decades with increased debt and not with reduced expenditures. This is a medium and long-term liability that soon defeats the benefit of the short-term stimulus.

Tax cuts do provide a stimulus to a point.  But historically, neither tax cuts nor tax increases resulted in any long-term effect.  And again I agree that other factors such as environmental laws can and do have an impact on business.  Add other restrictive regulations and while they can impede job growth, they may not always.  Among the states with the higher job growth estimates for 2016, South Carolina and California both have around 2.5%. 

As for funding tax cuts, I couldn't agree with you more.  In 1980 the national debt was about 30% of GDP.  Beginning with the Reagan Administration, tax cuts and spending were both funded by debt and it hasn't looked back since.  Today it's over 100%.

In any case, none of the candidates is talking about this seriously.