With the U.S. Gross national debt recently exceeding $38 trillion, observers hastened to ring alarm bells. The amount is certainly staggering. However, having been elected to the U.S. Congress in 1984 with a platform centered on fiscal responsibility—and being the first actively practicing CPA to serve in Congress—I feel compelled to issue a more crucial caution: the figure might be far less significant than it appears. We'll never accurately ascertain the true national debt, nor effectively address it, until the federal government embraces full GAAP accounting.
TL;DR
- The U.S. national debt exceeding $38 trillion is less significant without full GAAP accounting.
- Current debt figures are cash-based, omitting long-term liabilities and creating an illusion of precision.
- Inadequate GAAP reporting hinders effective policy responses and accurate financial planning.
- Full GAAP adoption and implementation of the CFO Act are crucial for transparency and fiscal health.
A long-standing caution becomes more pressing
During my congressional campaign, it was considered a long shot. The expectation was that a practicing CPA wouldn't win, but I prevailed. My victory was based on the premise that the U.S. Government's financial records lacked a transparent, contemporary accounting structure. My stance then, which remains my position today, is that without adhering to Generally Accepted Accounting Principles (GAAP), we operate without clear direction.
Driven by that same belief, I sponsored the Chief Financial Officers (CFO) Act of 1990, which President George H. W. Bush enacted. The legislation aimed to embed professional accounting, auditing, and financial reporting standards—aligned with GAAP—across all principal federal agencies. Regrettably, after more than thirty years, its complete potential hasn't been achieved. Similar to our unresolved debt accounting, the CFO Act itself is only partially in effect, and until its full execution, Congress and the public will continue to be without an accurate view of our government's actual financial state.
With the $38 trillion+ figure prominently featured in today's news, my long-standing argument, along with the core objective of the CFO Act, gains even greater significance.
What the headlines accurately report—and what they overlook
Federal debt outstanding has now surpassed $38 trillion, according to the Treasury's latest figures. While this is a significant and attention-grabbing figure that's likely to fuel public worry, the accounting structure behind it receives considerably less focus.
The current federal “debt” figure is almost entirely a cash/modified cash-basis number. It doesn’t fully reflect many longer-term liabilities (pensions, retiree health benefits, unfunded mandates) in the same way that a GAAP-prepared corporation or a sound provincial or state government would present.
At the federal level, there's practically no mandate for the government to generate a complete balance sheet based on accrual accounting, detailing all assets, all liabilities, and the resultant net position (equity).
Absent that, each “$38 trillion” figure represents less of a precise measurement and more of an estimate—a cumulative total of lent securities alongside government holdings—than a significant “what we owe net of what we own” declaration.
And this accounting deficiency imposes two major dangers:
- Illusion of precision: Both the public and policymakers act as if the $38 trillion figure is exact and accurately calculated, despite the reality that significant parts of federal commitments are not recorded on the balance sheet, are buried in footnotes, or are held within trust funds that don't offer comparable clarity.
- Inadequate policy response: If you're unaware of your actual liabilities and assets, how can you develop a sound plan for repayment or management? Lacking comprehensive GAAP reporting means you might only address the obvious portion of a problem, overlooking its substantial hidden elements.
GAAP: Federal finances' missing piece
During my tenure in Congress as a CPA, a primary objective was advocating for enhanced bookkeeping and financial reporting standards for the federal government. Consider the requirements of GAAP: a comprehensive balance sheet detailing all assets and liabilities, encompassing pensions, retiree benefits, contingent liabilities, environmental obligations, and more; an income statement (or statement of changes in net position) that outlines revenues, expenses (including non-cash items), and the year-over-year changes in net position; clear disclosures and footnotes enabling users to understand assumptions, commitments, risks, and deferred items; and comparative annual data, reconciliations, and audit opinions, preferably from an independent auditor.
According to GAAP, the U.S. Government wouldn't just state “we borrowed $X” and “our debt outstanding is $Y.” Instead, we'd understand “we hold assets worth A, liabilities of L, net position (equity) of E, and here’s the trend.” Revealing the actual areas of concern.
Why the risk is now magnified
As the national debt surpasses $38 trillion and accelerates its growth, the price of inaction escalates. The longer we postpone implementing sound accounting practices, the higher the likelihood of undisclosed debts surfacing, interest expenses skyrocketing, and the true financial health becoming unclear. Key points to consider include:
The interest paid on the national debt is increasingly taking up federal budget resources. Without a complete understanding of the total debt, it's impossible to accurately forecast the impact of increasing interest rates or decelerating economic growth on its long-term viability.
Longer-term financial obligations will be fueled by demographic shifts and program demands, including Social Security, Medicare, and veterans’ benefits. These liabilities are partially concealed without complete accrual accounting practices.
Decisions regarding policy (like tax reductions, spending pledges, and new entitlement expansions) are formulated using incomplete information. Without understanding the actual foundation, it's impossible to accurately evaluate new incremental risks.
The way ahead—what's next
Here’s what I believe must be done—based on the CPA discipline that first took me into Congress:
- Require the federal government to fully adopt GAAP accounting principles, encompassing not only operational outcomes but also a complete balance sheet, net position disclosures, and audited financial reports.
- Ensure complete implementation of the CFO Act of 1990, requiring all agencies and departments to prepare and release audited financial statements based on GAAP, adhering to uniform standards and holding them accountable for adherence.
- Detailed reports mirroring a fiduciary's approach for significant trust funds, revealing complete actuarial obligations for retiree benefits, pensions, health coverage, and similar programs.
- Incorporate macroeconomic policy into financial reporting; mandate that significant legislation, such as tax reductions or program expansions, must specify their effects on net position and comprehensive accounting, not solely on the budget year's appropriations.
- Inform and involve citizens regarding the actual “net debt” figure — the public shouldn't be swayed solely by headline debt figures; they ought to examine net assets against net liabilities, observe trend lines, and assess risk exposures.
The significance of this matter—and its pressing urgency
As I have long argued, dealing with national debt isn’t simply a matter of “let’s cut spending or raise taxes.” It is fundamentally about being honest with ourselves as a country about our financial condition. When a business fails to adopt GAAP, investors lose confidence; when governments ignore accrual accounting, hidden risks can build until they snap.
With the debt now exceeding $38 trillion, the situation demands immediate attention. This isn't merely a recurrence of concerning figures; it signifies a critical warning that our operations lack complete openness, a comprehensive financial statement, and the essential controls expected of any reputable entity.
Final word
During my congressional campaign, many dismissed my stance as theoretical; however, I was actually applying the rigor of a CPA to public finance. I contended that our most significant long-term danger wasn't external, but rather fiscal. Given that we're now confronting record-breaking federal debt, that perspective has become not merely pertinent, but essential.
Unless the U.S. Government fully embraces GAAP accounting and enacts the CFO Act I created, the “national debt” will continue to be a prominent issue—imprecise and obscured—limiting our capacity to effectively address it. Citizens merit superior treatment. The future requires transparency.
The perspectives shared in Coins2Day.com commentary articles represent exclusively the viewpoints of their creators and don't always align with the viewpoints and convictions of Coins2Day .