Solving the nation's math problem

WASHINGTON — Awaiting Rob Portman when he becomes director of the White House Office of Management and Budget is this chilling fact: By one measure, the government's budget deficit is twice as big as last year's official total of $319 billion.

President Bush on Tuesday picked Portman, a friend and the current U.S. trade representative, to head the budget office, or OMB. The former Ohio congressman, 50, is widely praised for his smarts and pluck. He'll need that — and more — for his new job.

If confirmed by the Senate, as expected, Portman will wrestle with chronic budget deficits and severe government accounting problems to head off a fiscal crisis.

"Director Portman will be inheriting the most dire long-term fiscal outlook we've ever had," said Brian Riedl, chief budget analyst for The Heritage Foundation, a conservative think tank.

"The first baby boomers retire in 18 months, and the Social Security, Medicare and Medicaid costs are set to explode. On top of that, he'll be dealing with a Congress that's absolutely addicted to runaway spending and pork."

Conservatives such as Riedl complain that federal spending has grown 45 percent since 2001 and that the budget deficit for fiscal 2005 was a whopping $319 billion.

High price of promises

But it's actually more. When Treasury Secretary John Snow signed off in mid-December on the 2005 Financial Report of the United States Government — the official federal balance sheet — he acknowledged that a parallel accounting method showed the budget deficit was actually about $760 billion.

That's a difference of $441 billion.

The $319 billion deficit is based on cash-basis accounting, which tracks money flowing in and out of federal coffers as payments are made or received.

But since 1997, the government also has estimated the present-day cost of promised future spending using accrual-basis accounting, which is the norm in corporate America.

Think of it as the government making a purchase on a credit card. The goods and services are paid for in the future, but they're counted as liabilities immediately, such as pension commitments to veterans.

"The [cash-basis] budget deficit doesn't pick up those long-term obligations because they have no current effect," said Donald Hammond, assistant treasury secretary for government financial operations.

The $760 billion accrual-basis deficit for fiscal 2005 was up sharply from the $615.6 billion deficit of a year earlier. Indeed, the accrual-basis deficit has grown each year of the Bush presidency.

If the bigger-than-advertised deficit isn't troubling enough, there's this attention-grabbing fact buried in the government's 158-page financial statement: The U.S. government's unfunded liabilities — financial promises to be paid by future generations — exceed $46 trillion.

Yes, $46 trillion, enough to give $155,932.18 to each of 295 million Americans.

The bulk of that number, $36 trillion, reflects a present-day value on promises the government has made for health and retirement benefits to 76 million baby boomers born between 1946 and 1964. The first boomers reach the early retirement age of 62 in 2008.

Looking for a sign

Douglas Holtz-Eakin, a former economic adviser to Bush and until recently director of the nonpartisan Congressional Budget Office, thinks the focus on unfunded liabilities is overstated.

"Unfunded in the private sector means you do not have funds in your hands to meet [commitments]. The government has the power to tax, so what constitutes funded or unfunded? You've got me," he said.

But Bush rules out raising taxes. He favors tax cuts, saying they'll promote growth and thus bring in more revenue. Economists are divided over how much revenue tax cuts generate, but most agree economic growth alone won't generate enough to meet the government's promises to future generations.

Ultimately, Congress decides federal spending, tax and debt questions.

Many experts think that if Congress is going to tackle the deficit, it needs a sign from Portman and Joshua Bolten, the new White House chief of staff who previously headed OMB, that the Bush administration is serious about it, too.