This is Congress' Answer to Our Debt Crisis — And You Probably Didn't Know About It

Millennials claim that the debt is a high political priority for them. Given that budget deficit will exceed $500 billion this year, it is clear that Washington is not listening. If the debt is important to you, you should be aware of the Inter-Generational Financial Obligations Reform Act (INFORM Act), and you should tell other people about it. It simply requires the government to provide more accurate spending information. 

The public and Congress get information based primarily on cash flow. The most important thing to understand about this type of accounting is that it is illegal for publicly traded companies. It is illegal because this approach to accounting delivers information that mangles the picture of a company's financial health, and introduces perverse incentives encouraging management to make counterproductive decisions.

Take Social Security, for example. Do you wonder why the trustees of the system say that on the one hand, the system has $2.7 trillion available to pay benefits, and on the other hand, says that the country needs to add $23 trillion just to make the system break even? (See page 17 of the 2013 Trustees Report). The answer is because the trustees provide two different pictures of the system's finances. One figure uses traditional government accounting practices and the other is based on generational accounting, which includes bills that have yet to be paid.

Understanding the difference is critical to understanding why the INFORM Act is so important. The $2.7 trillion is like an ATM balance of a checking account which does not reflect all of the checks that you have written. In the example above, Social Security is a like a checking account with $1,000, on which you have written $10,000 in checks. The ATM will show you a balance of $1,000.

As a millennial, do you really want decision-makers to think that they have $1,000 to spend or that they need to stop spending so much?

Social Security is only a single example of a larger problem. The reason that Social Security has two different numbers is because the trustees already provide information compliant with generational accounting. And this information is a valuable counter-balance to those who think we have $2.7 trillion to spend. The INFORM Act would only require that other government agencies provide more accurate information.

Politically-motivated agendas manipulate the less accurate process. And this isn't a recent problem. Back in 1990, The Philadelphia Inquirer reported on a range of Bush administration tactics to "save" money. One of those tactics would have accelerated billions of dollars of Medicare expenses so that the expenses would be recognized the then current budget year. Politically, this move created future savings by creating current year expenses. Financially, that tactic, some 20 years ago, created interest expenses for which millennials will pay for the rest of their lives.

Twelve Nobel Laureates in economics have endorsed this act. I am asking you only to consider the bill, and endorse it if you think it is right. The Can Kicks Back (TCKB), a non-partisan millennial movement, provides an action page for this effort.

(Related Policymic Reading: "INFORM Act is One Reform to the Budget Process Every Millennial Should Support" by Nick Troiano)

How much do you trust the information in this article?

Brenton Smith

Professionally, I manage credit risk in bank deriviatives. Politically I write commentary for www.FixSSNow.Org on the issue of Social Security reform.

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