We all can recite some of the biggest accounting scandals in history. Lehman Brothers, Enron, and AIG all come to mind. Each of their accounting “practices” lost their investors money. But would you believe that our government is also using accounting tactics to make the deficit appear smaller than it really is?
According to a recent report by USA Today the US government reports that the federal deficit is at $1.3 trillion. However, those calculations do not include liabilities for retirement programs such as Social Security and Medicare. Those two liabilities alone rose $3.7 trillion in just the last year.
So, how can the federal government make such a large discrepancy in the national debt? Congress actually exempts itself from having to include retirement liabilities in its debt projections. Yet all other business-like entities including corporations and state and local governments are required by law to report their retirement liabilities on their financial statements.
What does this mean for younger workers? You may not believe that this will have an effect on you but if you’re not yet retired, it may. There is a chance that the government may increase taxes and/or decrease retirement benefits in the years ahead out of necessity. If tomorrow, Congress passes a law that increases taxes by 15% to try and get the deficit under control, would you feel comfortable in your current financial situation? Consider that question carefully as the deficit continues to grow.