Following decades of international debate over how to rewrite the taxation of multinational businesses, nearly 140 countries, including the Biden administration, agreed to an outline for a new global tax system. Since then, the proposal has been met with criticism and skepticism from Congressional Republicans and other critics who argue that it will harm American taxpayers and infringe on U.S. sovereignty. Most recently, ten House Republicans proposed stripping U.S. funding for the Organisation for Economic Co-operation and Development (OECD), the international organization facilitating the reforms.

The proposal includes two “pillars” which build on decades of past work carried out by the OECD. The first pillar includes a new system for allocating the right to tax certain types of corporate income between countries based on where consumers are instead of where businesses are located. The second pillar consists of a series of new rules that enforce a global minimum tax of 15 percent. Pillar Two is currently being adopted by countries across the EU, among others. Pillar One is less developed due to ongoing disagreements over dividing taxing rights.

The OECD’s work is often reported as a technocratic solution to increase efficient and fair tax collection. However, the OECD is better thought of as an aspiring international cartel of revenue-maximizing tax collectors intent on one thing: higher taxes. The last decade or more of OECD work rests on the false premise that international taxation in the digital economy deprives countries of tax revenue. Instead, while corporate tax rates have been cut in half, corporate tax revenue has increased.

Tax Rates Down, Revenue Up

The OECD aims to remake the international corporate tax system in response to what it terms base erosion and profit shifting (BEPS) by multinational businesses. The reforms are based on the premise that tax competition between countries has resulted in a “race to the bottom” that will “ultimately drive applicable tax rates on certain mobile sources of income to zero for all countries, whether or not this was the tax policy a country wished to pursue.” The OECD overstates this dynamic, but tax competition for global businesses and talent is a beneficial feature of free trade and free movement. It often leads to more business investment and employment, and better overall economic policies by constraining the government’s ability to pursue policies that would drive people and businesses from their borders.

So, has the dreaded race to the bottom resulted in starving governments of corporate tax revenue? Data from the OECD shows that tax revenue has trended up, not down, over time. Figure 1 shows that corporate tax revenue as a share of the economy has increased from 2.4 percent in 1981 to 3.5 percent in 2021 across 22 OECD countries for which we have consistent data. Similarly, corporate tax revenue as a share of all revenue has also trended up since the 1980s.

The solid corporate tax receipts during this period are even more impressive given that the average corporate income tax rate across the same OECD countries was cut in half, falling from about 48 percent in the early-1980s to 24 percent in 2021. Tax competition has not yet eroded tax revenue in the United States or across the OECD. As my colleague Chris Edwards points out, this is an excellent example of the Laffer Curve at work—rates are down, but revenues are up. Lower rates allow business investment to expand and decrease the benefit of costly tax planning schemes to avoid the tax in the first place. Together with base-broadening in some countries, lower rates have resulted in higher corporate revenue.

Congress Should Reassert its Authority and Defund the OECD

The OECD was established in 1961 to promote global economic growth. Its early days focused on the worthy goals of increasing free trade and ensuring international businesses are not subject to multiple taxations of the same income. In more recent years, the OECD has promoted a very different agenda that aims to increase taxes on large international employers and other anti-market initiatives. President Biden’s administration has used the OECD to circumvent Congress to raise taxes on American businesses.

The OECD’s tax work has shifted from primarily working to coordinate tax systems to eliminate double taxation to proposing ever more complicated new tax systems and reporting requirements in the last few decades. In a 2012 article, Andrew Morriss and Lotta Moberg characterize the OECD’s campaign against tax competition as the organization’s effort to form an international tax cartel run by a special interest group of tax collectors. Recent events make Morriss and Moberg’s argument quite prescient—the OECD’s Two-Pillar proposal would allow the organization to not only decide the global tax rate but also redistribute taxing rights to new countries. This agenda threatens to reverse countries’ progress in pro-growth business tax reforms.

The Biden Administration has used the OECD as an extra-legislative venue to advance policies that do not have congressional buy-in. By working with the OECD to develop their Two-Pillar approach and agreeing to the proposed outline for the new rules, the Administration has effectively sidelined Congress in an effort to upend decades of international tax norms. The Two-Pillar proposal opens American businesses up to new and higher taxes and approves new forms of extra-territorial taxation that could violate U.S. sovereignty.

Ten House Republicans recently asked the Appropriations Committee to prohibit any U.S. funding for the OECD in next year’s budget. They explain that the “OECD has evolved into a venue that advocates against the economic interests of United States’ workers and business.” These members are right to want to exercise the congressional purse strings to reign in an organization that the President is using to circumvent Congress on critical issues of business taxation. As I wrote back in 2018, the U.S. should either cut OECD funding entirely or, at a minimum, withhold funding until it returns to the original mission of economic growth and commits to doing an “equal amount of research on ways to cut government spending, reduce taxation, and make bureaucracies smaller and more efficient,” instead of their current focus on the opposite agenda.

Rather than rushing to adopt the OECD plans, Congress should reclaim its rightful role in developing tax policies for U.S. businesses. Congress should credibly commit to rejecting the OECD Two-Pillar proposal, withdraw U.S. funding for the OECD, and pursue pro-growth tax and spending reforms to attract multinational companies to invest in the United States.

Federal government spending soared 40 percent between 2019 and 2023. The government passed large spending bills in response to the pandemic, but spending remains high today even though the crisis has passed.

The ratcheting-up of spending is evident with the Supplemental Nutrition Assistance Program (SNAP). SNAP benefits, or food stamps, are administered by the states but funded by the U.S. Department of Agriculture (USDA) and ultimately federal taxpayers.

SNAP spending doubled from $63 billion in 2019 to $127 billion in 2023. The Congressional Budget Office (CBO) projects that spending will dip as pandemic benefits expire but will remain far above the 2019 level, as shown in the chart.

Here are some causes of the SNAP spending spike:

• The number of recipients increased from 36 million in 2019 to 42 million in 2023. In 2019, CBO projected that the number would fall to 34 million by 2023.
• The March 2020 pandemic bill provided additional SNAP benefits called emergency allotments, and the Biden administration boosted the amounts. The benefits ended in March 2023.
• The December 2020 pandemic bill temporarily increased benefits 15 percent, and the Biden administration extended the increase through September 2021.
• Some SNAP recipients are subject to a three-month limit on benefits. This work requirement was suspended during the pandemic but is set to be reinstated in 2023.
• Recipients were allowed to delay eligibility recertification during the early pandemic.
• The 2018 farm bill directed the USDA to update the Thrifty Food Plan (TFP), which helps to determine benefit amounts. Angela Rachidi says the update should have been cost-neutral, but in 2021 the USDA permanently boosted overall benefits by 21 percent.
• SNAP benefits are adjusted annually for inflation.

Some of these changes were temporary, but the TFP and inflation adjustments boosted benefits permanently. AEI analysts calculate that the maximum benefit for a family of four has jumped 46 percent since 2019, while CBPP analysts calculate that the average per-person benefit has jumped 50 percent.

SNAP is up for reauthorization in this year’s farm bill, which is an opportunity for policymakers to cut costs. The federal government needs to pursue broad spending reforms to reduce dangerously high budget deficits.

Here are some options for SNAP reform:

• Beef up work requirements, as proposed by two dozen House Republicans.
• Eliminate broad categorical eligibility, which states use to loosen eligibility standards notes Leslie Ford.
• Repeal the 21 percent TFP increase, which was an administrative action that costs taxpayers more than $20 billion a year.
• Convert SNAP to a fixed block grant for the states and cut spending.
• Devolve the SNAP program, including funding, to the states as part of a broader effort to revive federalism. There are few advantages in funding such programs federally but many disadvantages.

According to the Social Security and Medicare Boards of Trustees’ 2023 reports, Medicare and Social Security now exceed $78 trillion in long-term unfunded obligations. This equates to an obligation of more than $600,000 for every U.S. household. That’s three times all the goods and services produced in the United States last year, as measured by gross domestic product (GDP).

Each year the Social Security and Medicare Boards of Trustees prepare 75-year estimates assessing the programs’ long-term financial conditions. While such long-range estimates are inherently uncertain, these projections provide important information about the direction and magnitude of entitlement spending and revenues. The unfunded obligation represents the amount of money U.S. taxpayers would need to set aside today to cover the deficits Medicare and Social Security will incur over the next 75 years.

Most governmental and media coverage focuses on the trust funds’ health. This is misguided because the Medicare and Social Security trust funds are no such thing. Neither Medicare’s nor Social Security’s trust fund holds any real assets beyond IOUs against future U.S. taxpayers. Special-issue Treasury bonds credited as assets to these trust funds don’t make paying obligations possible. They merely grant Treasury the authority to issue government debt to cover the difference between payroll tax revenues and obligated spending. Instead, this blog will focus on the overall financial burden imposed by excess spending growth from Medicare and Social Security.

Any payroll tax revenues collected in the past were not invested nor saved to pay for future Medicare and Social Security obligations. The money was spent immediately to finance other government objectives. There’s no trust fund to draw down, only a financial ledger to borrow against.

This inconvenient truth inevitably causes consternation among U.S. seniors, who’ve been told that they paid for their Medicare and Social Security benefits. It’s important to confront the truth if we are to make progress on reforming unsustainable entitlement programs into sustainable benefits that keep seniors out of poverty in old age. As it stands, the federal government has promised benefits to millions of Americans that it can’t pay for, creating an uncertain and unsustainable future for those most in need.

So first, let’s make some clarifying corrections to the summary ‘fact’ sheet provided by the U.S. Treasury [my additions in bold]:

• [Medicare’s] Hospital Insurance (HI) Trust Fund, which provides spending authority for Medicare Part A, will be able to is legally authorized to pay 100 percent of total scheduled benefits until 2031 by borrowing from the public to cover benefit costs that exceed payroll tax revenues… At that point, that fund’s reserves will become depleted borrowing authority will be exhausted and continuing program income will be sufficient to pay 89 percent of total scheduled benefits. If Congress fails to act, Medicare hospital benefits will be cut indiscriminately by 11 percent.
• [Social Security’s] Old-Age and Survivors Insurance (OASI) Trust Fund will be able to is legally authorized to pay 100 percent of total scheduled benefits until 2033… At that time, that fund’s reserves will become depleted borrowing authority will be exhausted and continuing program income will be sufficient to pay 77 percent of total scheduled benefits. If Congress fails to act, Social Security benefits will be cut indiscriminately by 23 percent.
• The Supplementary Medical Insurance (SMI) Trust Fund, which provides funding authority for Medicare Parts B and D, is adequately financed into the indefinite future has unlimited borrowing authority because, unlike the other ‘not-really trust funds’, its main financing sources — premiums on enrolled beneficiaries and federal contributions from the Treasurytaxes levied on current and future U.S. taxpayers — are automatically adjusted each year to cover costs for the upcoming year, meaning this program will borrow however much is needed to pay for whatever benefit costs it incurs. Although the financing is assured, Even though the government pretends that the money to finance benefits beyond the premiums paid by beneficiaries grows on trees, the rapidly rising SMI costs have been placing steadily increasing demands place an unsustainable burden on beneficiaries and general current and future U.S. taxpayers.

To sum it up in the words of my Cato colleague Michael Cannon:

“the whole idea of the Social Security and Medicare “trust funds” is a lie. An institutionalized, ritualized lie that the U.S. government tells the American people. One perpetuated by both political parties, as well as others with an interest in hiding the reality of these programs’ unfunded liabilities. One that many journalists uncritically repeat.”

And now, for some actual facts about the burdens posed by unsustainable entitlement promises made by the U.S. government to Medicare and Social Security beneficiaries:

• Medicare (including offsetting receipts from premiums paid by beneficiaries) spent $1.16 trillion in 2022. Medicare spending will more than double over the next 10 years to $2.4 trillion by 2033.
• Social Security (excluding spending on disability benefits) spent $1.07 trillion in 2022. Social Security spending will nearly double to $2.12 trillion by 2033.
• Of the $78.4 trillion in 75-year unfunded obligations for Medicare and Social Security, $48.4 trillion or 60 percent is due to spending on Medicare Parts B and D, which have unlimited borrowing authority to cover deficits – the difference between what beneficiaries pay in premiums and the benefits they receive. Only Medicare Part A is financed through payroll taxes.
• Medicare and Social Security are responsible for 95 percent of total U.S. long-term unfunded obligations.
• Medicare and Social Security already make up a significant share of annual federal deficits. According to the Congressional Budget Office (CBO) Medicare will be responsible for 1.7 percent of GDP in deficits, or one third of the entire 2023 federal deficit of 5.3 percent of GDP. Social Security will be responsible for 0.6 percent of GDP in deficits, or 11 percent of the entire 2023 federal deficit.

Medicare and Social Security are the largest and most popular federal government programs and they are also imposing huge financial and economic burdens on American workers and taxpayers for as long as Congress fails to stop their excessive spending growth. Alternatively, if Congress does nothing, even the most vulnerable Medicare and Social Security beneficiaries would see their benefits drastically cut within the next 10 years.

As the U.S. Treasury, the Congressional Budget Office, the Medicare and Social Security Board of Trustees, and the Government Accountability Office keep stating: Medicare and Social Security spending is unsustainable. Reform is both urgent and necessary.

Congress should establish an independent commission that applies the successful model of the Base Realignment and Closure Commission to enact sensible entitlement reforms before Medicare’s and Social Security’s unsustainable deficit spending triggers a U.S. fiscal crisis in the future. Failure to act soon will hurt the most vulnerable workers and seniors the most, as delay merely postpones the inevitable and eliminates the option to make gradual changes in place of sudden and large benefit cuts and tax increases.

For the fifth consecutive year, the State of California is missing the March 31 deadline for filing its audited financial statements. Last Friday, the State Treasurer’s Office notified the municipal bond market that the state’s Annual Comprehensive Financial Report (ACFR) for the Fiscal Year Ending June 30, 2022 would be late. The last time the state filed its report within the required nine month reporting window was for its 2017 fiscal year.

As Sheila Weinberg, Founder and CEO of Truth in Accounting told me:

Timeliness is an important characteristic of information in state financial reporting. As the Governmental Accounting Standards Board highlights in its first concept statement, “If financial reports are to be useful, they must be issued soon enough after the reported events to affect decisions. Timeliness alone does not make information useful, but the passage of time usually diminishes the usefulness that the information otherwise would have had.”

One set of decisions that tardy financial statements cannot impact are choices made during the budget process, which in California must be completed by June 15 for the following fiscal year. But as budget hearings get underway for FY 2024, lawmakers will not only not have access to California’s FY 2022 audited financials, but even the state’s FY 2021 ACFR remains unavailable.

The lack of audited, accrual-based financial data can lead to confusion over the state’s true fiscal condition. As Weinberg also noted:

California voters reelected the governor and many legislators after being told the state had a multi-billion-dollar budget surplus. The state’s financial report would have told them how much debt had been accumulated, while the voters were told the state budget was balanced. Based on California’s FY2020 financial report Truth in Accounting determined the state needed $283.7 billion to pay its bills, equaling $21,900 per taxpayer.

Truth in Accounting’s Financial State of the States found that California is the only state that has not issued its financial report for FY 2021. And while a nine month filing period is standard for municipal securities issuers and governments reporting on their federal grants, the Government Financial Officers Association (GFOA) recommends the publication of state and local government reports within 180 days of the fiscal year end.

While some states often meet that higher standard, California was reliably in the 6 to 9 month range in the years before 2018, after which its timeliness has steadily deteriorated as shown in the accompanying chart.

State officials blame California’s deteriorating turnaround time on the problematic rollout of a new financial system known as Fi$Cal. The accounting system project began all the way back in 2005 and has cost the state $1 billion. In its last review of the Fi$Cal project the State Auditor observed that even though California was officially declaring the project finished in 2022, Fi$Cal was still not suitable for preparing the state’s ACFR thereby obliging the State Controller to continue using a legacy system.

In its most recent annual report to municipal bond investors, the California State Treasurer’s Office predicted that filing delays will continue for “one or more subsequent fiscal years”. But, on a more hopeful note, the chronic problem may be receiving some much needed high-level attention:

Newly elected Controller, Malia Cohen, is committed to restoring the timely issuance of the Annual Comprehensive Financial Report. To that end, the Controller’s Office intends to have collaborative discussion and consultation with the state legislature, other state officials and state departments, including the State Auditor’s Office, to evaluate the efforts needed to increase the timeliness of the release of the state’s basic financial statements.

The State of California is the largest subnational government in the United States, and thus the most important filer in the municipal bond market and the federal grant oversight process. Its ongoing failure to report in a timely manner undermines the entire system of state and local government financial reporting and thus merits greater attention at the federal level.

Holman Jenkins discusses problems with the air traffic control (ATC) system today in the Wall Street Journal. He mentions failures stemming from government ownership, something I’ve documented with many federal activities. If activities such ATC and postal services can be supported by private revenues, they should be privatized.

Private businesses fail all the time—everything from Silicon Valley Bank to neighborhood restaurants. They should be allowed to fail, and they will be replaced by better-run enterprises. The problem with government is that the failings are continual but the agencies are not replaced and rarely reformed.

Also, government-run businesses suffer from unique failings, a few of which Jenkins touches on:

Political Manipulation. One reason government-run businesses are inefficient is that self-interested politicians micromanage them. Jenkins says that the Federal Aviation Administration (FAA) has been “stymied for more than a year by Sen. Chuck Schumer and organized labor” in reallocating workers on the East Coast to mitigate air traffic delays. There are similar problems with the U.S. Postal Service. Its improvements are stymied by politicians intervening to protect their districts at the expense of nationwide efficiencies.

Inexperienced Leaders. Presidents often appoint inexperienced partisans to run large and complex agencies. Putting small-town mayor Pete Buttigieg in charge of the Department of Transportation is a good example, as Jenkins notes. Jenkins also points to Biden’s recent nominee to head the FAA: “Phil Washington, who lacked aviation experience except a single year running the Denver airport.” During the George W. Bush administration, the disastrous response to Hurricane Katrina partly stemmed from Homeland Security being stuffed with inexperienced party loyalists. And administrations of both parties have long appointed big money donors to ambassador posts rather than people who know about foreign policy or their host countries.

Lack of Innovation. Government bureaucracies do not innovate, and so it is especially harmful when they are imposed on industries that are changing rapidly around them. Jenkins compares the FAA’s backwards technology to advances in the private ATC systems of Canada and the U.K. “London City Airport now has a digital control tower allowing personnel to be used far more efficiently. Canada’s system has been commercially self-funding since 1996 and speedily incorporates new technology. The U.S. still relies on radar operators handing slips of paper to each other.”

I discuss Canada’s ATC privatization here, and the move toward digital towers abroad here. The photo below is the London ATC facility that Jenkins mentions.

There are many types of government failure and many advantages of privatizing government services. We need more columnists and news services focused on federal bureaucratic failure. With the government growing 40 percent in the past four years, it is a target-rich environment.

Can the government impose an income tax when you never had income? That may seem like a trick question, but it’s exactly what happened to Charles and Kathleen Moore. In 2006, the Moores invested in a start‐​up Indian company called KisanKraft, whose goal was to provide low‐​cost, efficient tools to rural Indian farmers. The Moores believed in KisanKraft’s mission and retained their shares of KisanKraft for over a decade, never selling it for a profit. And KisanKraft reinvested all of its own profits in the company, never paying dividends. For that reason, the Moores never saw a dollar from their investment.

Yet in 2017, the Moores suddenly received a hefty federal tax bill for their ownership stake in KisanKraft. How could that be, if they never earned any money from their holdings? The reason is a provision of the 2017 Tax Cuts and Jobs Act called the Mandatory Repatriation Tax. For U.S. taxpayers who met a certain minimum threshold of ownership in certain foreign corporations, the Mandatory Repatriation Tax imposed a tax bill as if those taxpayers had earned a 2017 dividend from the corporation for profits going back years. Because the Moores owned roughly 13 percent of KisanKraft shares, they were taxed as if KisanKraft had paid them a 2017 dividend worth 13 percent of KisanKraft’s earnings since 2006. Even though that 2017 dividend was fictional, their tax bill was very real.

The Moores challenged this tax in court, arguing that it was unconstitutional. Under the original Constitution, the federal government could only impose “direct” taxes if those taxes were apportioned among the states based on population (that is, such taxes were only allowed if the total amount of money collected from each state was equal on a per capita basis). After the Supreme Court held that a federal income tax would be a direct tax subject to this apportionment requirement, Congress proposed and the states ratified the Sixteenth Amendment. That amendment explicitly exempted “income” taxes from the apportionment requirement, allowing the regime of federal income taxes that we live with today.

But since the Sixteenth Amendment was enacted, the Supreme Court has consistently held that a tax only qualifies as an “income” tax if it is imposed on money that a taxpayer has actually “realized,” in tax law parlance. The Moores argued that since they never realized any income from their ownership stake in KisanKraft, the Mandatory Repatriation Tax cannot be an “income tax.” And there is no dispute that the Mandatory Repatriation Tax was not apportioned among the states on an equal per capita basis, so if it is not an income tax, it is unconstitutional.

But a federal district court and the Court of Appeals for the Ninth Circuit both rejected this argument, holding that the Mandatory Repatriation Tax is an income tax. Surprisingly, the Ninth Circuit explicitly held that realization of income is not a requirement for an income tax. Now the Moores have petitioned the Supreme Court to take their case, and the Cato Institute has filed an amicus brief supporting that petition.

In our brief (which was co‐​authored by Fenwick & West attorneys David Forst & Sean McElroy), we recount how the Supreme Court has consistently held that an “income” tax can only be imposed on realized income. Most relevant to this case, the Supreme Court explicitly held in Eisner v. Macomber (1920) that a mere rise in the value of stock holdings, without a monetary dividend, is “capital, not income.” The Moores similarly never received a monetary dividend from their holdings, which means they also never received income.

If the bright-line rule requiring realization for an income tax to be imposed were jettisoned, then there would be no limit to the types of taxes the federal government could enact. Indeed, such a rule would open the door for the federal government to impose a future wealth tax entirely divorced from any connection to actual income. To ensure we do not start down that path, the Supreme Court should take this case and reject the Ninth Circuit’s approach.

The Financial Report of the United States Government (also known as the Financial Report) raises significant concerns about the country’s long-term financial health with increasing deficits and debt levels. Over the next 75 years, U.S. taxpayers face nearly $80 trillion in long-term unfunded obligations. What’s more, 95 percent of this unfunded obligation is driven by only two federal government programs: Medicare and Social Security.

Here are five key takeaways from the Financial Report:

Over the next 75 years, the U.S. government’s unfunded obligations total $79.5 trillion. Over the next 75 years, the unfunded obligations are the difference between the present value of projected non-interest spending of $430.2 trillion (see Figure 1) and the present value of total receipts of $350.6 trillion over the same period. Present value means that future cash flows have been discounted to adjust for expected inflation and interest rates, recognizing that one dollar today is more valuable than one dollar tomorrow. The discount rate reflects the expected rate of return taxpayers could have received over the next 75 years if they invested the 2022 value.

Over the next 75 years, Medicare and Social Security funding shortfalls comprise 95 percent of the total unfunded obligation. As shown in Figure 2 below, of the $79.5 trillion in unfunded U.S. government obligations over the next 75 years, Medicare and Social Security’s funding shortfalls make up $75.9 trillion, or 95 percent. The Statement of Social Insurance (SOSI) shows the present value of the government’s projected expenditures for Social Security and Medicare Parts A, B, and D, as well as the railroad retirement and black lung benefits programs, in comparison to social insurance revenue. Of the total unfunded obligation, less than 0.2 percent is due to railroad retirement and black lung benefits.

The financial report projects the debt-to-GDP ratio will reach 200 percent by 2046 and 566 percent by 2097, based on current policy. The report’s authors state the obvious, albeit in muted terms: “The continuous rise of the debt-to-GDP ratio indicates that current fiscal policy is unsustainable.”

Closing the fiscal gap requires primary (non-interest) deficit reduction of 4.9 percent of gross domestic product (GDP) over the next 75 years. The fiscal gap is an estimate of what it would take, over the next 75 years, to stabilize fiscal policy. The financial report indicates that closing the fiscal gap would require non-interest spending reductions and or revenue increases of 4.9 percent of GDP annually, over the next 75 years. Any delays in adopting this deficit reduction would substantially increase required future deficit reductions. If legislators delay reforms for 10 years, to begin in 2033, closing the fiscal gap will require 5.7 percent of GDP. Delaying reforms by 20 years increases the required deficit reduction to 7.0 percent of GDP. The fiscal gap is an effective way to measure the burden that current U.S. government budget policy will impose on future generations.

Overshadowed by the CBO Outlook

The Financial Report of the United States Government received a silent reception in Washington and across the country when it was published on February 14. Readers of this blog will be hard-pressed to find mention of it among any of the major news outlets. This is in stark contrast to the Congressional Budget Office’s (CBO’s) Budget and Economic Outlook, which dropped the next day and made headlines far and wide.

Perhaps it was the unfortunate timing of the Financial Report that led to it getting buried. Or perhaps the focus on a 10-year budget outlook over a 75-year projection of government revenues and spending is one more example of the myopia that characterizes U.S. fiscal policy. While both the CBO and Treasury reports provide legislators and the public with valuable information about the U.S. government’s fiscal health, they focus on different time horizons and present different data.

The Financial Report of the United States Government provides a comprehensive overview of the government’s financial position, including long-term trends and risks. In it, readers will find a detailed analysis of the government’s assets, liabilities, revenues, expenses, and projections of future obligations, prepared in accordance with general accounting standards. It is intended to provide a long-term view of the government’s financial health.

In contrast, the CBO Budget and Economic Outlook is a budgetary analysis that provides 10-year projections of federal spending, revenues, deficits, and debt. CBO also provides estimates of key economic indicators such as GDP, inflation, and unemployment. This report is intended to provide a short-term view of the government’s financial health, including the baseline against which new spending and tax proposals will be scored. Such scores inform legislators about the fiscal impact their proposals would have on 10-year budget projections and whether they would trigger deficit-reduction rules such as CUT-GO, a House rule that requires offsetting spending reductions if legislation were to increase mandatory spending during the decade.

The Financial Report Deserves More Attention

The Financial Report of the U.S. Government deserves more attention. The report’s findings are especially relevant in today’s political climate where politicians from both parties feel pressure to distance themselves from benefit cuts to Medicare and Social Security. The report makes it painfully obvious that Medicare and Social Security spending are the primary drivers of government debt. Adopting sensible reforms to old age entitlement programs is both necessary and urgent.