JERRY HEASTER: Uncle Sam is a lot like Enron
By JERRY HEASTER
Columnist

With all the hand-wringing over Enron Corp.'s alleged loosey-goosey accounting methods, you'd think more great minds would make the connection with how similar Enron's number-crunching approach was to Uncle Sam's.

When it comes to duplicitous accounting practices, the federal government takes a back seat to nobody, whether it's the private sector or public sector. This especially is so when it comes to accounting for surplus Social Security revenues and how they're used to create a"trust" fund, even though the money is either spent or used to pay down the public part of the national debt.

The joke for years among those who understand the federal accounting process is that if corporate execs tried what Washington has been doing with Social Security, they would go to jail. Well, it's no longer a joke, which is why a lot of Enron execs are taking the Fifth Amendment when called upon by Congress to explain their actions.

One of the sins Enron is being called upon to account for is imaginative use of accounting legerdemain to hide much of its humongous debt. If only the citizenry were as concerned about the government accounting practices that transform debt into what's characterized as"assets" for future Social Security beneficiaries.

It works like this: Social Security tax revenue not needed to finance benefits cannot be saved. There is no legal mechanism allowing the federal government to save or invest its extra money. Thus, when substantial Social Security tax increases implemented in the mid 1980s began throwing off huge windfalls of surplus funds, it was a bonanza for Congress.

The system allowed Washington to spend excess Social Security revenues on general budget outlays, and the Social Security trust fund was credited with a like amount in the form of a nonmarketable Treasury security."Nonmarketable" means it has no market value and therefore cannot be considered a financial asset in the accepted sense of the term.

In essence, this accounting sleight of hand created a situation in which a dollar spent was a dollar saved. And even though the credit to the trust fund creates an unfunded liability the federal government must someday honor, it's still sold to the public as an asset.

Consider: Washington claims to having achieved over a half trillion dollars in budget surpluses over the past four years. Even so, the national debt still rose and now its legal limit must be raised. Why? The federal government's accounting system allows it to spend more money than it is taking in and simultaneously claim budget surpluses.

What is the difference between Uncle Sam and Enron? Government has the power to decide what's legal and what's not for itself. If Congress allows for a dollar of federal outlays to be transformed into a dollar's worth of Social Security trust fund assets, so be it.

It doesn't mean the trust fund has a real cache of money on which to draw when benefits begin to outstrip tax revenues. It merely means that nobody responsible will be held criminally liable for creating this accounting sham.

Execs with private companies, on the other hand, don't have the power to create special laws to protect themselves and put themselves above the dictates of generally accepted accounting principles.


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Jerry Heaster's column appears Wednesdays, Fridays, Saturdays and Sundays. To reach him, write the business desk at The Kansas City Star, 1729 Grand Blvd., Kansas City, MO 64108, call (816) 234-4297 or send e-mail to jheaster@kcstar.com.

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