Op-Ed Contributor: The Debt No One Wants to Talk About

 February 4, 2004
  By DAVID M. WALKER

 WASHINGTON - We might hope to see the finances of the Union
 as clear and intelligible as a merchant's books," President
 Thomas Jefferson wrote to his secretary of the Treasury in
 1802, "so that every member of Congress, and every man of
 any mind in the Union, should be able to comprehend them,
 to investigate abuses, and consequently to control them."
 Unfortunately, straightforward government financial
 information seems as elusive in 2004 as it did in
 Jefferson's day.

 The truth is that the United States faces a long-term
 deficit that will only increase as the baby boomers retire.
 The resulting fiscal imbalance will test the nation's
 spending and tax policies. Washington's recent difficulty
 in maintaining fiscal restraint has not helped matters.

 The fiscal 2005 budget President Bush released on Monday
 includes a deficit of $364 billion. Although the
 administration and the Congressional Budget Office show
 declining deficits in the years ahead, and an improving
 economy will reduce deficits further, the long-term
 projected gap is now so large that we will not be able
 simply to grow our way out of the problem. Difficult
 choices are inevitable.

 But the current system of federal financial reporting
 provides an unrealistic and even misleading picture of the
 government's overall performance and financial condition.
 Few agencies adequately show the results they are getting
 with the taxpayer dollars they spend, and too many
 significant government commitments and obligations are not
 fully disclosed.

 Particularly troubling are the many big-ticket items that
 taxpayers will eventually have to reckon with, including
 Social Security, Medicare, civilian and military retirement
 and health care benefits, and veterans' medical care.
 Despite their serious implications for future budgets, tax
 burdens and spending flexibility, these future obligations
 get short shrift in the government's financial statements
 and in budgetary deliberations.

 The federal government's gross debt - the accumulation of
 its annual deficits - was about $7 trillion last September,
 which works out to about $24,000 for every man, woman and
 child in this country. But that number excludes items like
 the gap between the government's Social Security and
 Medicare commitments and the money put aside to pay for
 them. If these items are factored in, the burden for every
 American rises to well over $100,000.

 The new Medicare prescription drug benefit will add
 thousands more to that tab. This benefit is unquestionably
 popular and will make it easier for some older Americans to
 afford expensive prescription drugs. But it also comes with
 a steep price tag that few want to talk about. The truth is
 that the drug benefit as signed into law is one of the
 largest commitments ever undertaken by the federal
 government. Preliminary estimates of its long-term cost in
 current dollars range up to $8 trillion.

 To put that number into perspective: it is about four times
 the entire federal budget. Long-term simulations from the
 legislative agency I head, the General Accounting Office,
 paint a chilling picture. Even before the new drug benefit
 was enacted, these simulations showed that by 2040 current
 policy could require a 50 percent reduction in federal
 spending or a doubling of taxes to balance the budget.

 Either would be devastating. And keep in mind, it is likely
 that efforts will be made to expand the drug benefit in the
 future.

 A key lesson from Enron, Worldcom and other business
 failures is that our free-market system depends on public
 confidence in the accuracy of corporate financial
 information. Recent G.A.O. reports have highlighted the
 increasing frequency of corporate earnings restatements.
 Who would knowingly buy stock in, lend to, or do business
 with a company that conceals its true financial condition?

 As Jefferson pointed out, truth and transparency are even
 more essential in the public sector. Government services -
 mail delivery, food inspection, Social Security and
 defense, to name a few - directly affect the well-being of
 every American. But sound decisions on federal programs and
 policies are nearly impossible without timely, accurate and
 useful information.

 Fortunately, we are starting to see efforts to address the
 shortcomings in federal financial reporting. The latest
 annual report of the federal government focuses more on the
 nation's long-range fiscal imbalance. The president's
 Management Agenda, which closely reflects G.A.O.'s list of
 high-risk government programs, is bringing additional
 attention to troubled areas and is trying to better assess
 the results that programs are getting with the resources
 they are given. The Federal Accounting Standards Advisory
 Board is also making progress.

 The General Accounting Office and other budget experts
 continue to encourage reforms in the federal budget process
 to better reflect the government's commitments and to
 signal emerging problems. Among other things, the G.A.O.
 has recommended the government issue an annual report on
 major fiscal exposures - explicit and implicit promises for
 future government spending.

 Much more must be done, however. A top-to-bottom review of
 government activities to ensure their relevance for the
 21st century is long overdue.

 >From a practical standpoint, our elected representatives
 are not likely to get too far out in front of the American
 people when addressing complex and controversial issues.
 These fiscal risks, however, are a long-term problem whose
 impact will not be felt for some time. The understanding
 and support of the American people will be critical in
 providing a foundation for action.

 A national education campaign to help the public understand
 the nature and magnitude of the long-term financial
 challenge facing this nation is essential. After all, an
 informed electorate is indispensable for a sound democracy.
 Young Americans especially need to become active in this
 discussion - because they and their children will bear the
 heaviest burden if today's leaders fail to act.

 Public officials will have more incentive to make difficult
 but necessary choices if the public has the facts and comes
 to support serious and sustained action to address our
 fiscal challenges. Without meaningful public debate,
 however, real and lasting change is unlikely. The sooner we
 act, the easier it will be to turn things around.

 David M. Walker is comptroller general of the United
 States.