Late last week, just before a long weekend, the United States Treasury Department released the annual Financial Report of the U.S. Government. This important report was greeted as it usually is, with deafening silence.
One reason for the lack of attention has to do with its reliability. This year, as it has every year since 1997, the GAO issued a disclaimer of opinion on the financial statements, citing the same fundamental weaknesses in our government’s accounting and internal controls.
The 2016 report came out over a month earlier than it did last year. This being the last year of the outgoing Obama administration, there may have been more pedal-to-the-metal in getting the report out before the transition. But if the government can do this in transition years, why can’t it deliver the report earlier in non-transition years?
The latest report was introduced, as it always is, with an introductory “Message from the Secretary.” That would be Jacob Lew, the Secretary of the Treasury. Mr. Lew opened his message with the note that this was the final report of the Obama Administration, and a report that “reflects an economy that has come a long way since 2008.”
Here, we have a public steward reporting on the financial condition of our government, but laying claim to responsibility for the overall U.S. economy. That is more appropriately the province of NIPA (National Income and Product Accounts, or GDP) reporting, even assuming that GDP accounts should be prepared in the first place.
So how has the government’s financial position evolved since 2008? How did it change last year?
When we look at the financial position, we see marked deterioration since 2008, and deterioration that accelerated in the last two years. Based on the information we rely upon in this report, we are likely to raise our estimate of the “true” federal government debt significantly higher.
Later on in his introductory message, Secretary Lew claimed that the “Government’s long-term fiscal gap continues to be reduced by the provisions of the Affordable Care Act of 2010, Budget Control Act of 2011, and the American Taxpayer Relief Act of 2013.”
Unfortunately, the government’s measure of its own fiscal gap actually rose sharply last year, by a full one-third. The “fiscal gap” is the combination of tax increases and/or spending cuts needed to keep the ratio of government debt to GDP from rising in the future. Under current law and policy, this ratio is projected to rise sharply, in ways the government itself describes as "unsustainable."
Concluding his introductory message, Secretary Lew stated that he was “pleased to share this strong report.”