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Blue Dog Coalition

Location: Washington, DC

BLUE DOG COALITION -- (House of Representatives - May 02, 2006)


Mr. COOPER. Madam Speaker, I appreciate the gentleman's friendship and leadership of the Blue Dog Coalition because we are perhaps the leading voice in Congress for fiscal restraint and fiscal responsibility.

The chart the gentleman has been referring to showing our national debt and each individual's share of the national debt is a truly scary document. But as the gentleman knows, I am afraid there are even scarier numbers in Washington than that because the debt figures that the gentleman is holding shows what the debt is according to a cash basis; and that is, unfortunately, a very weak form of accounting that is illegal for most businesses in America, certainly businesses of any size.

I want to put that in context for folks both in this Congress and back home because the numbers the gentleman referred to come from this document here, which is the President's budget. Every Congressman gets a hand-delivered copy of this. It is widely publicized in the media. It has a lot of good information in it, but it is the budget of the United States on a cash basis, counting dollars when they come in and go out.

There is another document which is even more important. It is almost secret. It is not classified secret, but it is even better than that. It was distributed on Christmas Eve without a press release by the United States Department of the Treasury. They only printed a thousand copies for all of America, so it is not exactly like they wanted everybody to read it. This is called the ``Financial Report of the United States Government.'' It is issued by the Treasury Department and signed by Secretary John Snow, and it also gives a picture of our financial situation. But it does not use cash accounting; it uses modern accounting that all large corporations in America are required by law to use. So if you really want government to be run like a business, you pretty much have to use this document.

The gentleman referred to our MBA President, the first one we have had in American history, and how so many Americans expected him, with his MBA degree, to run our country like a business. But this is still a largely secret and ignored document.

Why would that be? Because the numbers in it are so grim.

Mr. BOYD. So do I understand it to be Federal law that any business over $5 million has to use that accrual accounting procedure?

Mr. COOPER. That is exactly right. Modern accounting is required of all businesses in America with revenues over $5 million. That basically says any business larger than, say, a single McDonald's would be required to use modern accrual accounting. And lest anyone not hear the word correctly, ``accrual'' has nothing to do with the word ``cruel.'' In fact, accrual accounting is probably the kindest form of accounting because it remembers our elderly and sick and disabled. Cash accounting tends not to do that.

So modern accrual accounting is a very important innovation in accounting. All our businesses have used it for years. In fact, generally accepted accounting principles, GAAP accounting, really says that all businesses of every size should use accrual accounting because it is a more accurate picture of where we are.

As the gentleman knows, because he has a business background himself, the saying in business is if you can't measure it, you can't manage it. If you can't measure it, you can't manage it. That is what accounting does, it helps us measure our financial situation. This shows a picture of our financial situation. I hope it is clear.

Maybe I should come down to the gentleman's easel.

This is a very important chart because it shows us in clear perspective the difference between the budget numbers calculated on a cash basis and on an accrual basis. This top number of $319 billion is the cash deficit for the year 2005. That is a lot of money. That is the third largest budget deficit in all of American history in absolute dollar terms. It is not quite the third largest in percent of GDP terms; but it is a huge, whopping number.

If you look down the chart, you will see if you do not count the borrowing from the Social Security trust fund, the true cash deficit for the year 2005 was $494 billion, almost $500 billion. That is still using the old-fashioned, antique cash accounting method.

If you use modern accrual accounting, according to the Treasury Department and the Bush administration, Secretary Snow says the deficit for 2005 was $760 billion. That is starting to be a truly large number. That takes into account many of the obligations that we have in future years because what accrual accounting means, it takes into account when you use that national credit card to buy something. You have obligated yourself to buy something. It might have been pensions for our elderly, health care for our elderly, health care for the disabled, things that we know we are going to have to spend money on but we have not actually paid cash yet. That is the $760 billion number; but that is not the scariest number on the chart.

Everybody in this body has said that they believe Social Security and Medicare are vitally important programs for our Nation and that those benefits should be preserved for our seniors and those who are going to be seniors. Guess what, folks. The accrual number, as good as it is, does not take into account Social Security and Medicare benefits. How could that possibly be? Well, the reason is under modern accounting methods you only take into account contractual obligations, and Social Security and Medicare are not contractual obligations. Congress retains the right to vary the benefits.

Because of that, those numbers are left out of this deficit calculation. So I believe if you truly care about preserving Social Security benefits and Medicare benefits, as I do and most Members of Congress do, certainly on the Democrat side, you have to look at these other numbers because the budget deficit for 2005 actually goes up to $1.7 trillion if you include the anticipated Social Security benefits that we are going to have to pay in the incremental increase of 1 year.

If you add Medicare to that, the true budget deficit for 2005 was an astronomical $2.7 trillion.

I am indebted for these last two numbers to the professor of law and accounting at Harvard Law School, a gentleman named Howell Jackson who did these calculations. And they are still in draft form and subject to some refinement. But it is the first time we have really taken the numbers that originally professors at the Wharton School of Business and a business economist in Washington, D.C. have helped put together. Those gentlemen are Kent Smetters and Jagadeesh Gokhale. Those gentlemen have shown America and the world that our true unfunded liabilities are astronomical. If you look out a few decades, they are on the order of $49 trillion to $67 trillion.

So it is a situation where if you are just trying to measure it so you can manage it. Look at one year's annual deficit: you will see that the number we are given by the administration of $319 billion is probably not an accurate number. In fact, it is probably only one-tenth of the true size of the deficit because if you believe in Social Security and Medicare, as I do, you have to take into account the obligations that we are incurring on an annual basis to fund those programs.

These numbers are huge, Madam Speaker, because even this number of $760 billion, that is a deficit for the year that is greater than most all of the discretionary spending of the Federal Government. That is greater than the entire defense budget and greater than all of the road programs, agricultural programs, parks, recreation, arts, all of the things that the Federal Government is involved with. So that is a large number. But this number down here of $2.7 trillion, that is greater than the total Federal budget of the United States.

Madam Speaker, I think we should look at these accounting numbers, these facts, these fiscal facts so that men and women of goodwill all across America can evaluate our situation. As I said earlier, if you can't measure it, you can't manage it.

This should not be a partisan issue. I am taking these figures primarily from administration documents. This is a reality that I especially think all of our business people should pay attention to. The Tennessee bankers were in today. I acquainted them today with all of these numbers, and we had a number of Tennessee insurance agents visiting today. Unfortunately, our media have not seen fit to do many stories on these numbers. Perhaps they are too large for the media to understand. I think it is very important for America to focus on this. What they really spell is a crisis for our country.

We are borrowing so much of this money; and we are not just borrowing it from ourselves, we are borrowing it from foreign nations.

I am proud to stand with my friend from Florida who is a great leader of the Blue Dog cause. It is very important that we get the word out on these facts.

There are many different ways to measure it. JOHN TANNER from Tennessee points out that it took 204 years of American history to borrow our first trillion dollars. That is 204 years, all of the way from George Washington through almost Jimmy Carter to borrow $1 trillion. Then we started on this pace where we are borrowing a trillion dollars now almost every 18 months, something that it took us 204 years to do before. That is unsustainable, to put it politely. It is crazy if you use more normal language.

There are other things that are going on that are worrisome. Under President Bush's administration, we have borrowed more money than all previous presidencies in America put together. President Bush is our 43rd President, and that means he has borrowed more money than our first President, George Washington, all of the way through our 42nd President, Bill Clinton. That is an amazing thing. And it is not just borrowing in general; it is borrowing from foreign nations. We have borrowed more money from foreign nations today than all previous Presidents in American history.

I am hoping that men and women of goodwill across this country will focus on some of these accounting facts. Maybe ask a little more of your newspapers and TV stations back home to get more real news because I think this will do more to determine the future of our kids and grandkids than anything else we talk about on the floor of Congress, because when you run deficits like this, that means you accumulate debt and that debt carries a high interest rate, and that interest simply must be paid.

That is the one tax increase that can never be repealed, and those debt costs are mounting every year. Petty soon the debt that we are having to pay our creditors, many of whom are foreign, is getting to be so large it is almost larger than the entire defense budget of the United States.

So it is a crisis, Madam Speaker. It is something that we must deal with, and I hope that our colleagues will pay more attention to these issues.

We understand that next week the budget is supposed to come up for a floor vote. They were unable to pass a budget a few weeks ago. It is vitally important that not only do we have a budget, but we have a budget that reflects reality. The budget that will be brought to the House floor will not reflect these true numbers. They will still be focused on the cash numbers with inadequate accounting.

However, I was able to get passed in the Budget Committee unanimously, House Democrats and Republicans, an amendment that said for next year we will start using the more accurate, accrual-based numbers. I think that is progress. Accrual will not replace cash budgeting, but at least you will be able to refer to both sets of numbers as we do the budget so that you can see what our true fiscal situation is.

Madam Speaker, I thank my colleague and friend from Florida for yielding. He has been a great leader of the Blue Dogs for a long time now, and I appreciate his leadership, and together I think we can continue to make progress on these issues.


Mr. COOPER. I thank the gentleman for yielding.

I just wanted to add a note to what the gentlewoman from California said talking about pay as you go. That is a policy that former Federal Reserve Chairman Alan Greenspan said would be the single most important thing we could do in Congress to help get our fiscal house in order. Alan Greenspan saying the single most important thing we could do to get it in order.

Because Chairman Greenspan and most other economists know that PAYGO worked very well from 1990 when it was first put in place, until 2002, when the Republican majority allowed it to expire. Chairman Greenspan can even remember the day and the hour that PAYGO was allowed to expire, because he knew then that our Nation was risking serious trouble.

But we have not really been allowed to vote on bringing back pay as you go. It is a shame, because that pay as you go policy forces Congressmen to make responsible decisions. You cannot increase spending unless you find offsetting cuts somewhere else, and you cannot reduce taxes unless you find some way to pay for it. It is very sensible. It is the sort of policy we all have to do in our own household expenses, and our Nation was doing so well with it for 12 years, from 1990 to 2002. But, since 2002, we have not had PAYGO, and that is one reason you are seeing these terrifically high deficits.

Mr. BOYD. If the gentleman would yield.

I know the gentleman served in Congress prior to 1994 and is actually on his second trip back and was not here in 1997 when we did the 1997 Balanced Budget Act. But Congresswoman SANCHEZ and myself were. And one of the keys to that 1997 Balanced Budget Act which led us to balancing the budget here in this era was PAYGO.

Spending caps was another key element of that. You put caps on spending programs, and you leave them there, and you agree upon that. Those are not here anymore, as you know, under this administration, this Republican-led Congress and Republican administration. Back then, it was President Bill Clinton, a Democrat, Speaker Newt Gingrich, a Republican, and Majority Leader of the Senate, TRENT LOTT, a Republican, sat together and said how do we do this in a bipartisan way. You don't have any of that at work anymore.

I think that is the thing that disappoints me more than anything, is I know that there are people of goodwill that would work in good faith all over this country that serve in this body that don't have that opportunity because we are not allowed to sit down. The majority party in many cases just won't sit down with us and work together to solve these problems. So these are very, very difficult solutions.

I know the chart that showed the accrual accounting and the $2.7 trillion deficit, those are hard numbers to understand. Here is one that is not hard to understand. This is what you actually owe today. We owe as a government today $8.352 trillion. That is trillion with a T. $28,000 for every man, woman and child. That is what our debt is today. And somebody has to pay that back. We also have to pay the interest on that. We have to service that debt on a regular basis. And as the interest rates go up, then, obviously, that is what I call a debt tax which cannot be repealed. It has got to be paid.

Mr. COOPER. If the gentleman will yield.

He is exactly right. Those numbers are much clearer than the numbers I gave, because every American can look at that $28,000 and say that is what I owe. That is what my spouse owes. That is what each of my kids owes.

But if the gentleman would like the modern accounting comparison for those numbers, under accrual accounting, each American today owes $156,000 apiece, $156,000 for every man, woman and child in this country. And that would mean for a family of five, that is almost 3/4 of $1 million. That is a luxury house anywhere in America, the cost of a luxury house. And yet we don't get to live in the house. We just get the mortgage. And that is on top of our real house and our real expenses and car payments and rent and all those things we have to pay.

So it is a terrific and crushing financial obligation that has been put on us just in the last few years.


Mr. COOPER. If the gentleman would yield, many Blue Dogs have asked where are the war bonds for the Iraq war. Because during World War II, we had war bonds and it was a patriotic obligation, if you could afford to, to lend money to our government to conduct the war. The administration has not asked for war bonds for Iraq. Nor have we asked for Katrina bonds. That would be a great way that Americans could show their support. I saw in the newspaper today that a Middle Eastern country, Qatar, has offered to pay millions of dollars to New Orleans. There should be an effort for the American people to lend ourselves the money we need to get through this. Instead, we run up $1 trillion of debt with China. Already many countries have gigantic amounts. You may have seen the cartoon. When the President of China, Hu Jintao, came to visit a couple of weeks ago, there was a cartoon in the paper where there was a little balloon out of the White House saying, ``Oh, our landlord's here.'' When you start lending money on that scale from China to the United States and we have to pay that back to China, that almost means that we are beholden to them, and that is a very dangerous security risk for our country.

So I appreciate the gentleman's leadership on this issue.


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