Sunday, February 24, 2013

“Congress Cooks the Books”

That's the title of an article (Star Tribune, 2/22/13) by Paul Gutterman, director of the Masters of Business Taxation Program at the University of Minnesota Carlson School of Management. In that article, he writes, “Congress plays games with the budget in so many ways that it is hardly a stretch to say that if it was held to the same accounting standards as public corporations the entire Congress would be in jail for fraud.”

Gutterman's favorite example is the Roth individual retirement account (IRA). A traditional IRA defers taxes until withdrawal or death. Converting a traditional IRA to a Roth IRA means paying taxes on earnings to date but saves the participant from paying taxes on future contributions to the fund. The government receives immediate benefit of increased revenue—but at the expense of far greater loss in future taxes. But since Congress only budgets out ten years, the loss of revenue from Roth IRAs will occur beyond ten years and hence is treated as never happening from a budget viewpoint. In the 2013 fiscal-cliff agreement, this “long term revenue loser was scored as raising $12.1 billion over the next ten years.”

This is just one example of government using “the manipulation of accounting rules to grossly understate future effects of today's legislation. Indeed it is hardly an exaggeration to say that Congress is cooking the books to minimize our long-term budget difficulties. The bottom line is that no matter how bad you think the budget deficit is, it is actually far worse,” says Gutterman.

Congress' manipulation of accounting rules is reminiscent of the actions of Greece and other European countries that have caused huge currency problems there. In my new book The Impending Monetary Revolution, the Dollar and Gold, I explain the implications for the future of the dollar and give examples of some of European accounting manipulations that created long-term budget problems for short term gains, just as the U.S. has done. These include:

France struck a deal under which France Telecom paid the government a lump sum of 5 billion relating to future privatization, in return for France accepting pension liability for France Telecom's workers. The quick 5 billion lowered France's deficit sufficiently for it to qualify for euro-zone membership.”

J.P. Morgan arranged a currency swap for Italy that allowed it to receive large payments upfront that improved its current deficit picture, while pushing less-favorable numbers into the future.”

Deutche Bank executed currency swaps for Portugal, but the bank says they were within 'the framework of sovereign debt management.'...However, in reports to the Eurostat statistics authority, [Portugal] classified its subsidies to the Lisbon subway as equity.”

The “chickens are already coming to roost,” as the saying goes, for European countries. To see what lies ahead for the United States, read the book! Go to

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