In Washington, we know that the federal government spends more than it takes in and that it borrows more than it should, but do we really know where our finances stand?
The answer is simple: we don’t. What we do know is that the federal government does not adequately account for assets, expenditures and liabilities on its annual financial statement. That means we don’t know how much money we have, how much money we spend and how much money we owe. How can Congress make decisions about our country’s financial future if we don’t have a clear picture of our finances today?
We are encouraged that there is a growing consensus among Democrats, Republicans and independents in Congress that we must reduce our debt and eliminate our deficits; however, there is little agreement on how to accomplish this goal. Part of the problem is that there is a fundamental misunderstanding of the actual size of our assets, liabilities and deficit. Lawmakers, media personalities and opinion leaders commonly discuss the need to fix the country’s budget, but at the end of the day, no one actually knows the full extent of the problem. It’s time for the federal government to be honest with the American people and provide the transparency and accountability that they expect and deserve.
Each year, the federal government produces financial statements and the Government Accountability Office audits them. It’s important to note that the GAO has never been able to issue an “unqualified” or “clean” audit of the U.S. government’s financial statements. The federal government requires public companies to have “clean” audited statements to operate and sell securities, yet the federal government can’t meet that same standard.
In the private sector, accounting standards used by public companies are set by an independent accounting standards board, the Federal Accounting Standards Board (FASB). Recognizing a difference between the private sector and government, the Government Accounting Standards Board (GASB) was created to set accounting standards for state and local governments. However, the federal government does not use either of these organizations’ accounting principles when drafting its financial statements. The accounting standards used by the Treasury when compiling the consolidated financial statement are set by the Federal Accounting Standards Advisory Board (FASAB). Establishing this board was a great start to fixing the problem, but it was set up differently than the FASB and the GASB. It is not as independent, which makes it vulnerable to political influence. Playing politics with our financial statements opens the door to the question: are we using the best accounting standards? Clearly, the answer is no.
In 1996, President Bill Clinton recognized that the federal government’s accounting standards were inadequate when he signed into law a bill that would help to codify standards set by the FASAB. However, the Treasury continues to leave one of the largest liabilities, the social insurance funds, off of the balance sheet. In fiscal 2012, the balance sheet compiled by the Treasury showed a net accumulated deficit of $16.1 trillion and in fiscal 2013 a net accumulated deficit of $16.9 trillion. If the social insurance obligations were reflected on the balance sheet, the accumulated deficits could easily top $60 trillion.
This incongruity makes it difficult for policymakers to identify the true drivers of our debt and enact legislation that will put our country on a more sustainable path. Making the tough decisions necessary to balance the federal budget will never be easy, but all parties should agree that a reasonable starting point to developing a plan to eliminate our deficit and reduce the debt is a true and accurate accounting of our nation’s assets and liabilities.
It is far past time to stop talking — it’s time to start acting. This is why we have introduced the Federal Financial Statement Transparency Act, a bill that will lead to an honest depiction of our nation’s finances and ultimately allow Congress to more effectively address our growing debt.
A business cannot plan for its future without assessing its financial outlook first, yet the government continues to operate without accurate data year after year leading us down a path of fiscal mismanagement at the expense of tomorrow’s taxpayers. It is imperative that we reform the FASAB so that it can produce improved financial reporting standards — bringing an increased level of transparency and accountability to the federal government similar to what is effective in the private sector. Passage of this legislation is a critical first step in addressing our nation’s dire fiscal situation and ensuring a more prosperous America for our children and grandchildren.
Rep. James B. Renacci is a Republican from Ohio and serves on the Ways and Means Committee. Rep. John Carney is a Democrat from Delaware and serves on the Financial Services Committee. They are co-founders of the Bipartisan Working Group.