With very little fanfare, the national debt topped $19 trillion on Wednesday for the first time ever.
The debt has been expanding at its most rapid pace ever, and most likely will continue unchecked with the suspended debt ceiling in place until March 2017.
But some argue that the national debt is much, much higher -- possibly $65 trillion or more. Former Comptroller General of the United States David Walker claims that the amount is much higher and should include what the government owes in the future. This includes future payable benefits to social security to give a more realistic figure
Walker's claim is based on the GAAP (Generally Accepted Accounting Principles) methodology that states that if one entity owes another at a future date, that amount is carried as a liability for the payor and an asset for the payee.
This is no different than what we see in daily life: a person with a car loan holds a debt payable in the future, while it is counted as an asset by the bank.
The major difference, however, is that the government does not use GAAP accounting for its expenditures.When a business buys an asset (for instance a vehicle) it must be held as an asset and then depreciated over time -- this is how the business is able to reclaim the value of the capital by earning nontaxable revenue.
But when the government buys an asset (for instance an aircraft carrier), it is treated as an expense. It is not represented as an asset to the federal government (see the government's balance sheet).
Likewise, debts payable in the future are not included in the government's balance sheet, only debts that are immediately payable.
Why is this?
Part of the reason is that the federal government doesn't pay taxes to itself (it would be rather redundant), but most of the reason is that it would be too complicated to track, calculate, and depreciate the assets if it was done like in the private sector.
Imagine just the 400+ ships in the U.S. Navy, the U.S. Interstate System, or the Tennessee Valley Authority (one of the few profitable government projects). How many accountants would it take just to track those three government projects?
So in reality, the government does in fact owe a walloping debt to its citizens at a future date. But it still wouldn't be appropriate to include this number in the national debt.
What we need to focus on is the interest bearing debts we have, and who we are paying these debts to. If all of the federal debt was held by Americans, who cares if it runs sky-high? The interest just counts as income to our people, but we are paying the interest overseas, something that depletes our economy.
If we really wanted to change the way the federal debt worked in America, we'd limit who could buy it and then create programs that encouraged citizens to hold it (like the 401k programs of the 70s and 80s that drove millions into the stock market).
If you can't fix the debt, at least fix who is getting all the benefit from the interest.