How does the government get away with not reporting liabilities that it requires private companies to report? It simply exempts itself from those rules. Thus, while GM and other corporations, operating under accrual-based accounting, must account for retirement promises, “the government follows ‘obligation-based’ accounting standards, which require the recognition of future promises not when they become material but only when they are legally binding,” Lawrence explains.
Essentially, even though the government has promised $33.8 trillion worth of benefits to current and future retirees, it only has to report those liabilities when the bills come due because it always has the option of reducing or terminating them prior to that time.
That Medicare is subject to the whims of politicians is quite obvious. The terms of Medicare coverage change from time to time, and projected savings from lower future payments to healthcare providers are one of the key means by which ObamaCare allegedly will reduce the deficit in the coming years.
Less well known is that Social Security is just as dependent on politicians’ good graces for its continuation. Although many people still cling to the illusion that the taxes they pay into the program during their working years guarantee them a pension in their retirement, the fact is that the government is under absolutely no obligation to pay one thin dime in retirement benefits to anyone, regardless of the amount of taxes he has paid into the system. As the Supreme Court put it in a 1960 ruling (Flemming v. Nestor), the “entitlement to Social Security benefits is not a contractual right” and can be modified or rescinded at will. This, too, should be clear from the number times the tax rate, retirement age, and other terms of the program have changed over the years.
“Is it acceptable,” asks Lawrence, “that our leaders are able to promise trillions of dollars to the voters but do not have to recognize the cost because their promises can be rescinded?”
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