The Lie of Magic Budgets

Government taxes people to support itself. This is a basic, undeniable fact of life going back as far as there have ever been governments. Call it fees, patronage, tribute, whatever you will, it always comes down to the fact that if you have a group of people representing the city, state or nation, you will be paying taxes to support them.

People do not like taxes. Sometimes people resent paying for government at all, but more often people resent paying for things they find morally wrong. Politicians using public money to build monuments to themselves, to advance agendas that the public never voted to support, or to pursue personal interests that conflict with their duty to the nation and the limits of their constitutional powers, are likely to be opposed as autocrats and crooks.

So, government lies to the public about taxes and spending. Useless and selfish acts that are likely to get called out, instead get linked to unrelated acts which have broad public support, are given misleading names like ‘stimulus’ to hide their porcine nature, or are otherwise hidden or mislabeled. The problems are these; first, for all the belief that government officials have that they have fooled the public, over time the public begins to sense that they have been lied to, and this degrades trust in the government as an honest steward of the public’s welfare, which mistrust builds cumulatively through time. The politicians who do this lying, however, generally face no consequences in the short term, and so expand the practice in scope and quantity, especially when the politician in question believes his political seat is secure, especially when his party is in power.

This brings us to the magic budget. Moving money around to hide fraud is an old and popular practice, and to prevent this and make detection of crime easier, accountants created what are called Generally Accepted Accounting Principles, or GAAP. The US Government has enacted laws which require public businesses to operate by GAAP, as defined by the Securities and Exchange Commission, which in turn requests guidance from the Financial Accounting Standards Board, or FASB. GAAP can seem complex, but it is determined on the basis of nine fundamental principles:

• Principle of regularity: Conformity to enforced rules and laws.

• Principle of consistency: Apply the same methods and procedures from period to period.

• Principle of sincerity: The accounting unit should reflect in good faith the reality of the company’s financial status.

• Principle of the permanence of methods: Aims at allowing the coherence and comparison of the financial information published by the company.

• Principle of non-compensation: Show the full details of the financial information and not seek to compensate a debt with an asset, a revenue with an expense, etc.

• Principle of prudence: Show the reality “as is” Typically, a revenue should be recorded only when it is certain and a provision should be entered for an expense which is probable.

• Principle of continuity: When stating financial information, one should assume that the business will not be interrupted. This principle mitigates the principle of prudence: assets do not have to be accounted at their disposable value, but it is accepted that they are at their historical value (see depreciation).

• Principle of periodicity: Each accounting entry should be allocated to a given period, and split accordingly if it covers several periods. If a client pre-pays a subscription (or lease, etc.), the given revenue should be split to the entire time-span and not counted for entirely on the date of the transaction.

• Principle of Full Disclosure/Materiality: All information and values pertaining to the financial position of a business must be disclosed in the records.

(principles outline courtesy of wikipedia)

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The major provisions of the Sarbanes-Oxley Act of 2002, for example, are built on these principles. The Congress of the United States, however, does not use GAAP in its budget determination. Presidents, Congressmen and Senators regular play fast and loose with the numbers to say whatever they want to say. I must emphasize that this is neither a Republican nor Democrat ploy, the practice going back for almost two centuries. Explaining difficult transactions and getting around statutory limits is a common motive for politicians to play games with the facts. Thomas Jefferson did as much in justifying the Louisiana Purchase, and every President since has done the same to justify his actions or just hide the cost when he thought it would be hard to explain. World Wars 1 and 2 cost a lot more than the government admitted while fighting them, as did Social Security and Medicare – take a look sometime at what the government projected their costs to be, and compare those numbers with later reports once those entitlements were in place. And remember that “surplus” from the Clinton Administration? While certain liars like to claim that the subsequent administration spent or wasted that ‘surplus’, in actual fact no such surplus ever existed, the numbers were created by manipulating projections of future revenue and spending to project an optimal budgetary condition which had in fact never existed in the history of the United States, about as realistic as a personal budget that assumes no discretionary spending of any kind for four years. That’s not to say the Bush Administration did not also play budget games; many costs of the Iraq War were buried in non-related department budgets to conceal the costs. The government demands that public corporations comply with GAAP, but the government has never even tried to do so much, let alone hold itself accountable.

So along comes Barack Obama, a man whose resume was built on snake oil and manipulation. Is it really any wonder that this guy actually believes he could load the taxpayer with trillions of dollars in new spending, yet pretend that his plan will somehow reduce the deficit? That he can payoff special interest buddies with tax money, yet claim that it’s all to restart the economy? That he could load up his cabinet with tax cheats and paranoid radicals, yet imagine he could sell it as a model of ethical propriety? Obama is simply a savvier version of Blagojevich, a crook who thinks he knows what he can and cannot get away with, and he plays his cards accordingly.

Republicans imagine that they can catch out President Obama, but they forget that the public is tired of the game by both sides. The Democrats are the party of William Jefferson and Barney Frank, but the Republicans are the party of Larry Craig and Arlen Specter. And where the deficits, pork, and slime are concerned, the GOP is delusional if they believe they can claim moral high ground on this matter. The time is perfect for a genuine leader, someone with the moral honesty and intellectual capacity to understand when a point of no return is approaching. That’s not to say that some kind of violent revolution is coming. Rather, something of the opposite is already underway, a response of non-compliance in an expanding variety of ways. At some point, government officials need to understand that control is an illusion if the people do not accept their leadership, that the principles under which an official is entrusted with an office require accountability and honesty, without which the officials’ authority is as fictitious as the accounting of his spending.

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