America’s Biggest Crook

by Walter Williams, 4/17/2002

       The Enron case made headlines because fraud and deception of such magnitude is fairly unusual in the corporate world. Washington fraud and deception of a much greater magnitude doesn’t make the headlines because fraud and deception in government is standard practice. That’s what’s so disgusting when politicians posture and demand that something be done to ensure honest corporate accounting practices.
       You say, “Williams, what are you talking about—Washington fraud?” Suppose a company had run up debt that it wanted to conceal from its stockholders, lenders and the Security Exchange Commission (SEC). The CEO comes up with the accounting gimmick of transferring money from its employees’ retirement account to the company’s budget account. That way, when auditors come around, the books are balanced showing no debt. While the company’s books are balanced, the company’s debt has not disappeared. It still has debt. It’s just owed to a different group of people: its employees. If a CEO commits this kind of fraud and deception, he should be summarily jailed.
       Washington politicians have for decades been doing precisely what Enron has been accused of doing—concealing debt with accounting tricks. Congressmen tell us that our Social Security taxes go into a trust fund to pay for future retirement pensions. That is a boldface lie. The Social Security trust fund has no money in it. What Congress does with Social Security trust fund money is buy government bonds. The purchase of government bonds disguises the deficit by reducing the national debt.
       In essence, here’s what happens: Congress takes $100 billion of Social Security trust fund money to retire government debt, and the national debt will be $100 billion dollars less. But now the Social Security system is owed $100 billion dollars.
       You say, “Williams, what good does that do them? There’s still $100 billion dollars worth of debt.” That’s where you’re wrong and where congressional treachery and accounting gimmicks comes in: Money owed by one government agency to another is not counted as part of the national debt. Thus, Congress’ accounting gimmick is to move debt from where it’s counted (public debt) to where it’s not counted (Social Security debt)—but it’s debt nonetheless.
       How will Congress cope with the forthcoming fallout of its crooked accounting? It will be easy. Congress will simply cheat people out of their retirement pension by gradually raising the retirement age. For example, Congress can legislate that 75 years of age, instead of 65, is when you’re eligible for Social Security benefits. Unfortunately, they can’t legislate that you live 10 years longer. That means you will have been cheated out of 10 years of Social Security checks.
       Enron used accounting gimmicks to hide debt and make corporate executives look good and earn fat bonuses. Congress does the same thing. Each year, it transfers vast sums of money from the Social Security and the Federal Highway trust funds to hide debt, and they boastfully lie to us saying they’ve not only balanced the budget but created a surplus.
       Corporations employ accounting practices promulgated by the Financial Accounting Standards Board (FASB) that established Generally Accepted Accounting Principles (GAAP). Government accounting practices don’t come close to the honesty of private accounting practices.
       But the mystery to me is why Americans are so upset over an isolated case of a private company using devious accounting gimmicks and demanding that Congress do something, while we accept without question the accounting fraud and deception that has become an inherent feature of government. I’d like to think that it’s ignorance rather than a preference for government dishonesty.