This is Article 6, Section 2:
Principle #2 of the “Fixed Pie Budget”: The Annual Budget Should Present a Full Picture of Future Obligations.
This principle is incredibly important. Achieving the goal of a “Fixed-Pie Budget” will not be possible until the annual budget presents a full picture of all future obligations.
The Independence Caucus respectfully proposes that there are 3 changes that are needed to create that full picture:
Change #1 - The annual budget must expose hidden “Un-Funded Liabilities” by no longer allowing “Off Budget” items:
An Un-funded liability is created when Congress passes a law that mandates future spending, but provides no plan to pay for that future spending.
Congress currently hides a significant portion of these un-funded liabilities by designating some budget items as “Off Budget”. Because the items are “Off budget”, they are not counted in the official budget numbers and they are supposed to be treated as a totally separate entity.
However, this “Off Budget” status is abused by Congress to make the annual budgets look better than they really are.
For example, Social Security is “Off budget”. But each year, after FICA taxes are collected, all excess FICA funds are “Borrowed” by the government and these borrowed funds are then counted as REVENUE and added to this year’s budget. (In other words, these “revenues” make the annual budget numbers look better than they are.)
However, the future debt that is created by borrowing this money is NEVER counted in this year’s budget…or any future budgets… because that debt is left “off budget”. (In other words, these debts would make the annual budget numbers look worse, but they are not counted!)
These “Off budget” Congressional games help to explain why during our national debt managed to grow every year during the last 4 years of the Clinton administration, even though the government was reporting budget surpluses in each of those years. (After all, if you have a “surplus”, the national debt should go down, not up!)
The total difference between the $559 billion surplus that was reported by the Clinton administration, and the actual $484 billion deficit that was revealed by the Comptroller General’s audited numbers (which included the “off-budget liabilities”) was more than a $1 trillion dollar gap….for just those 4 years alone!
By changing to not allowing any items to be “off budget”, these hidden debts and liabilities will be accounted for as true deficits, which will cause the budget to continue with "Deficit Spending Procedures" each and every year...until these debts are either fully finded or eliminated.
Change #2 - The annual budget must account for future “Un-Funded Liabilities” by requiring a measurement of all future obligations in the current federal budget
The total liabilities of all benefits that our Congress has promised to pay in the future (such as Social Security and Medicare) are also never counted or considered during the annual budget process.
Here’s how large our future un-funded liabilities have grown:
1- The Total NATIONAL DEBT is officially $9 trillion, but that official number does not count the future un-funded liabilities.
2- Future un-funded liabilities (money congress has mandated to be paid but has not allocated any finds for) are now estimated as of 2008 to exceed $44 trillion, which makes the total true National debt actually $53.3 trillion.
For those of you keeping score at home, the $53.3 trillion debt is just about 6 times worse than the “official” debt.
This “budgeting by credit card”, with no payments planned for along the way, misleads the General Public (that’s you and me) about our country’s financial health. Worse, it demonstrates a total disregard for what the general public believes is a long term commitment from their government.
And managing the country's financial health isn't rocket science. Families all over the United States understand how to manage the costs of long-term financial commitments. They can quickly calculate how much they owe on their mortgage, car, and other long-term obligations, and when those obligations will be fully paid.
More importantly, families cannot commit to new financial obligations without demonstrating that they can pay for them. For example, potential homeowners must first make a substantial down payment and show that they can afford the monthly payments.
Businesses operate under similar fiscal constraints. A business is required to disclose the size and scope of its obligations on financial statements so that shareholders, oversight entities, and potential investors can understand the true nature of its financial condition and can make informed decisions.
The federal government is under no such constraints. The federal budget does not include any measure of the federal government's future obligations and thus misinforms citizens about the true fiscal burden facing the nation. This allows Congress to ignore the need for fiscal planning and reforms. Lawmakers can commit to a massive financial entitlement (such as the Medicare drug benefit) with no down payment, no set monthly payments, and no standard "credit check" to determine which commitments are affordable.
The entire open-ended spending spree is placed on a credit card with no spending limit, relying on blind faith--rather than annual planning--that future generations will pay the balance. (That would be our kids and grand kids)
Do NOT fall for the Red Herring that estimating the future costs of these programs is too difficult. While measuring these types of liabilities is difficult, requiring the annual budget to include the best estimate of such liabilities--and their annual impact on the bottom line--is far superior to pretending that no obligation exists.
While the exact method of determining the annual cost of a future liability is not as important as actually doing the accounting in the first place, the Independence Caucus would suggest the following as one just one workable option:
Treat the estimated cost of a promised benefit over the next 50 years as a “50 year mortgage” and establish what the annual payment would be required to maintain and fulfill that estimated cost over the next 50 years. That annual payment would then be included in this year’s budget and set aside.
The amounts that are set aside and the estimated costs for this “50 year mortgage” would then be recalculated and reviewed each subsequent year for each subsequent budget. In this way, the government will continually re-assess future obligations and be able to make relatively minor “course corrections” now to avoid major fiscal problems down the road.
When the annual budget begins including these measurements, Congress would no longer be able to ignore these liabilities and would have to begin budgeting for their costs. Along the way, the yearly cost of these future debts and liabilities will be accounted for as additional true deficits, which will subject the budget to Deficit Spending Procedures each and every year until these future debts are either properly funded or eliminated.
Change #3 - The annual budget must eliminate annually recurring “Un-Funded Liabilities” by requiring the inclusion of projected “Emergency Spending” into the current budget process.
Virtually every year, Congress must deal with “Emergency Spending” bills and/or “Supplemental Funding” bills. In recent years, these included funding for things such as the troops in Iraq and Afghanistan, and relief funds for victims of Hurricane Katrina.
Emergency spending is typically excluded from annual appropriations bills and is instead relegated to ad hoc budgeting outside of normal budget constraints. As a result, that spending always adds to and exceeds projected budget deficits, and becomes yet another “Un-funded Liability”.
Even worse, every supplemental spending bill offers yet another opportunity for Congress to air drop in additional earmarks for their campaign donors….and Congress never fails to take advantage of these “opportunities”.
The Independence Caucus recommends that the annual budget plan ahead for these emergencies by including a reserve that the administration can use immediately whenever an emergency like Hurricane Katrina occurs.
While the exact method of determining the amount of an “Emergency Spending Reserve” is not as important as actually setting aside the reserve in the first place, the Independence Caucus would suggest the following as one option that would work:
Begin by asking one simple question: Over the past 5 years, what have we actually spent for Emergency and Supplemental spending? Divide that amount by 5…to detemine the average amount spent over the past 5 years…and budget that amount into the Emergency Spending Reserve.
If the full reserved amount is not needed, the remaining balance would be applied to reducing the national debt or set aside for other unfunded liabilities that exist.
If the full reserved amount is exhausted before the end of the year and additional funds are needed for emergencies that year, Congress would meet to allocate additional Emergency Spending, just as they currently do anyway. However, this would become the exception instead of the rule.
In summary, the 3 changes needed to ensure that the Annual Budget presents a Full Picture of Future Obligations are:
1 – Eliminate “Off Budget” items: (All revenues and All spending would be incorporated in one unified budget.)
2 – Measure and Account for all promised future obligations in each annual budget
3 – Budget for projected “Emergency Spending” every year.
No matter what political party you belong to or identify with….These 3 simple steps make sense, don’t they?
