Flawed Federal Accounting Bankrupting America
Simple, but significant defects and contradictions in federal accounting of revenues and expenses of US Treasury and federal managed trust funds (i.e. Social Security Retirement) have fostered levels of debt and deficits that are beyond control. US government accounting is so convoluted and complex that it allows the government to spend money it hasn’t received, doesn’t have and cannot account for.
Without immediate correction of these basic accounting defects, the President’s debt and deficit commission will lead to further misunderstanding and chaos. If adopted, the commission’s recommendations will perpetuate, not solve, the debt/deficit problem.
However bi-partisan or well intended, it doesn’t mean squat what actions are enacted into law if the drafters do not recognize the fundamental federal accounting imperfections. The opinion of 1000 men is of no value if none of them know anything about the subject. Marcus Aurelius.
I’ll use the Old-Age, Survivors Insurance (OASI) Trust Fund accounting to prove the point. Because of accounting flaws, income to the Old-Age, Survivors Insurance (OASI) is grossly overstated. The fund reports assets of approximately $2.5 trillion is false and expenses are understated because expenses haven’t been adjusted for the $50 billion annual costs refunded to qualified recipients of the Earned Income Tax Credit (EITC).
First, because the alleged cash surpluses have already been spent on other programs and unmarketable IOUs were placed in the Trust Fund, These unmarketable IOUs are be redeemable only by printing more IOUs, raising taxes or printing money.
Second, the gross reported Federal Insurance Contributions Act (FICA) taxes reported to the Trust Fund have not been adjusted for Corporate Wage Expense Deduction that includes all the FIT & FICA taxes removed from employee paychecks. Commingling FICA & FIT taxes at the source has led to erroneous accounting at the federal level. Approximately 1/3 of employee tax withholdings are refunded to their employers. Gross FICA taxes are reported to the OASI Trust Fund, but have not been adjusted for:
Business Expense Deduction of employee FICA and FIT Taxes as Wages
IRS Publication 535
QUOTE: If you have employees, you must withhold various taxes from your employees' pay. Most employers must withhold their employees' share of social security and Medicare taxes along with state and federal income taxes. You may also need to pay certain employment taxes from your own funds. These include your share of social security and Medicare taxes as an employer, along with unemployment taxes.
You should treat the taxes you withhold from your employees' pay as wages on your tax return. You can deduct the employment taxes you must pay from your own funds as taxes. Example provided by IRS (THINK ABOUT THIS): You pay your employee $18,000 a year. However, after you withhold various taxes, your employee receives $14,500. You also pay an additional $1,500 in employment taxes. You should deduct the full $18,000 as wages. You can deduct the $1,500 you pay from your own funds as taxes. UNQUOTE
Recommendations
1. Change law so that only cash and marketable investments can be placed in the OASI Trust Fund
2. Reconcile US Treasury and OASI trust fund accounting conflicts so net cash flow accounting between collections and expenses are is identical.
3. Discontinue the Business Wage Expense deduction of individual FIT & FICA taxes.
4. Transition away from the deduction of interest expense on all federal tax returns.
Summary
There is much more to be done to put US fiscal and monetary policies on a new track. I believe now is the right time to begin or Debt will continue to destroy the American Dream. This is not a time to place blame. It is the time to put the future of this Great Country before all other interests. Failure to act now presents the greatest challenge and threats to national security and future prosperity this country has ever confronted. United We Stand!
Note: For background and fuller understanding of this article, scroll down to article that appears just below this one: The Legacy of Perpetual Debt . That article was recently updated and comprehensively revised.
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