WASHINGTON – Senate Governmental Affairs Committee Ranking Member Joe Lieberman, D-Conn., Thursday asked the Treasury Department for a formal explanation of why an eye-opening analysis of the Federal Government’s long-term budget obligations was suppressed by the Bush Administration.
The Financial Times and other news media last week reported that an analysis commissioned by the Treasury Department – which showed that the shortfall in funding to pay Medicare and Social Security entitlement benefits over the next 75 years would be $26 trillion higher than previously projected – was stripped out of the Fiscal Year 2004 Budget at the last minute and has been kept from public view since then.
In a letter sent to Treasury Secretary John Snow, Lieberman said he wanted answers to a number of questions surrounding the decision to bury the long-term obligations report, and called on Snow to immediately release the full analysis and the budget document based on it to the general public.
“These accounts — which have been confirmed independently by my staff – are deeply troubling, suggesting that this Administration is trying to hide the true nature of our financial obligations from the American people in order to advance its agenda of cutting taxes indiscriminately,” Lieberman wrote.
“I believe the public we serve is owed a full accounting – both of the facts surrounding the suppression of this study, and of what it says about our fiscal stability and the Administration’s fiscal policy.”
Lieberman said the need for the report to be made public could not be “more plain or more urgent.” He cited the more than $2 trillion in revenue the government will lose from the two major Bush tax cuts — which will grow exponentially if those cuts are made permanent — and the record-breaking deficits the government is projecting, largely as a result of those tax cuts.
“If we are going to have an honest and credible dialogue about our ability to afford these burdens, we must have honest and credible information about our long-term obligations to Social Security, Medicare, and other entitlement beneficiaries,” Lieberman said.
Previous estimates of the Federal Government’s shortfall in revenue to meet its entitlement obligations had put the cost at $18 trillion over the next 75 years. The suppressed Treasury analysis, which used a different form of accounting that is prevalent in the private sector, put the cost at $44 trillion.
What follows is the full text of the Lieberman letter to Treasury Secretary Snow:
June 4, 2003
The Honorable John W. Snow
Secretary of the Treasury
U.S. Treasury Department
15th and Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Dear Secretary Snow:
As you are aware, the Financial Times and other news media last week reported that the Bush Administration suppressed an analysis showing that the Federal Government’s long-term budget liabilities are far greater than previously acknowledged. These accounts – which have been confirmed independently by my staff – are deeply troubling, suggesting that this Administration is trying to hide the true nature of our financial obligations from the American people in order to advance its agenda of cutting taxes indiscriminately.
I believe the public we serve is owed a full accounting – both of the facts surrounding the suppression of this study, and of what it says about our fiscal stability and the Administration’s fiscal policy. Therefore, I am requesting a formal explanation for why this important study was edited out of the Fiscal Year 2004 Budget and kept from public view at a time when the Administration was securing enactment of the tax cut. In the meantime, I am requesting that you immediately release to the public a copy of the analyses prepared at government expense by former Deputy Assistant Secretary for Economic Policy Kent Smetters and Treasury Department consultant Jagadeesh Gokhale.
The need for this report to be made public could not be more plain or more urgent. The President just signed a tax cut that many forecasters project will end up reducing government revenues by $800-to-$1 trillion over ten years. It follows a tax cut from the last Congress that most forecasters project will end up reducing government revenues by nearly $1.3 trillion over ten years. If these tax cuts are made permanent, the revenue cost increases exponentially. These tax cuts have contributed substantially to record-breaking deficits for the next two years and largely account for massive deficits well beyond. If we are going to have an honest and credible dialogue about our ability to afford these burdens, we must have honest and credible information about our long-term liabilities for Social Security, Medicare, and other entitlements.
That apparently was the goal of the analyses conducted by Dr. Smetters and Dr. Gokhale. In 2002 they were tasked by the Treasury Department to prepare an estimate of the “net present value” of the Federal Government’s liabilities measured without a specific time limit. As you well know, it is standard practice for the private sector to use net present value methodology – which assesses how much needs to be set aside today to meet bills due tomorrow – to calculate its long-term pension and other obligations. But it is not standard practice for the Federal Government, which has relied primarily on a cash accounting model to determine its fiscal position including its entitlement liabilities. Many experts believe that applying net present value accounting without a cutoff date would provide a more accurate picture of what we will owe, when we will owe it, and what we must to do now to prepare to honor these obligations. This is what Drs. Smetters and Gokhale provided.
What those analyses found, as we have learned from the news media reports confirmed by my staff, is staggering – namely, that the net present value of our entitlement commitments is $44 trillion, and that this amount grows substantially every year that these funds are not set aside. This is more than twice the previous estimate. However, as we have also learned, while these findings were included in the page proofs of the Budget, they were deleted several days before it went to final printing. That same budget called for passage of the second largest tax cut in history and paying for it by adding to the deficit and the national debt.
The suppression of these reports raises a number of serious questions that I ask you to answer in your explanation. Specifically, please provide the following information and documents; where you are asked to identify individuals, please include their full names, titles, and the agencies, departments or offices with which they are (or were at the relevant time) affiliated.
(1) As noted above, the findings of Dr. Smetters’ and Dr. Gokhale’s net present value analysis, which showed that the Federal Government’s long-term budget liabilities are far greater than previously acknowledged, was deleted from the final, printed version of the FY 2004 budget.
(a) Who made the final decision to delete these findings from the FY 2004 budget?
(b) Who else was involved in the decision to delete the analysis? Please include, but do not limit your response to, all individuals with whom the final decisionmaker(s) communicated about the issue prior to making the decision.
(c) When was the possibility of deleting the findings from the FY 2004 budget first raised and by whom?
(d) When was the final decision to delete these findings made?
(e) What was or were the reason or reasons for the decision to delete the findings?
(f) Did anyone raise objections to, or express concerns about, the deletion of the analysis from the FY 2004 budget? If so, please identify these individuals.
(g) Please provide all documents and other materials, whether in printed, electronic or other form, including but not limited to e-mail messages, interoffice communications, memoranda, phone logs, and notes memorializing meetings and telephone conversations, referring or relating to the decision to delete the findings from the FY 2004 budget.
(h) Please provide all versions of the net present value analysis that appeared in the drafts of the FY 2004 budget.
(i) Please provide copies of all other indefinite-term net present value analyses or reports related to liabilities for Social Security, Medicare or other entitlements that have been prepared by Dr. Smetters and/or Dr. Gokhale or by anyone else at federal government expense and/or under federal government direction.
(2) The Social Security Trustees possessed net present value estimates (calculated for an indefinite time frame by Drs. Smetters and Gokhale) for both Social Security and Medicare. Nonetheless, in a report this March, the Trustees chose to release only such estimates for Social Security and not for Medicare.
(a) Who made the decision to include the Social Security net present value estimates but exclude those for Medicare from the recent report?
(b) Who else was involved in the decision to include the Social Security estimates but exclude those from Medicare? Please include, but do not limit your response to, all individuals with whom the final decisionmaker(s) communicated about the issue prior to making the decision.
(c) Was including the Medicare estimates in the report ever considered? If not, why not?
(d) What was or were the reason or reasons for excluding the Medicare estimates from the report?
(e) When was the possibility of excluding the Medicare estimates first raised and by whom?
(f) When was the final decision to exclude the Medicare estimates made?
(g) Did anyone raise objections to, or express concerns about, exclusion of the Medicare estimates from the report? If so, please identify these individuals.
(j) Please provide all documents and other materials, whether in printed, electronic or other form, including but not limited to e-mail messages, interoffice communications, memoranda, phone logs, and notes memorializing meetings and telephone conversations, referring or relating to the decision to exclude the Medicare net present value estimates from the report.
(3) Although the Treasury Department included 75-year net present value estimates of Social Security and Medicare liabilities in the separately released Financial Report of the United States Government, it did not include the net present value estimates without a cutoff date that had been prepared for it by Drs. Smetters and Gokhale.
(a) Who made the decision to exclude the indefinite-term net present value estimates from the Financial Report of the United States Government?
(b) Who else was involved in the decision to exclude the indefinite-term net present value estimates from the Financial Report? Please include, but do not limit your response to, all individuals with whom the final decisionmaker(s) communicated about the issue prior to making the decision.
(c) Was including the indefinite-term net present value estimates in the report considered? If not, why not?
(d) What was or were the reason or reasons for excluding the indefinite-term net present value estimates from the report?
(e) When was the possibility of excluding the indefinite-term net present value estimates first raised and by whom?
(f) When was the final decision to exclude the indefinite-term net present value estimates made?
(g) Did anyone raise objections to, or express concerns about, exclusion of the indefinite term net present value estimates from the Financial Report? If so, please identify these individuals.
(h) Please provide all documents and other materials, whether in printed, electronic or other form, including but not limited to e-mail messages, interoffice communications, memoranda, phone logs, and notes memorializing meetings and telephone conversations, referring or relating to the decision to exclude the indefinite-term net present value estimates from the Financial Report.
(4) I am very much concerned about the Administration’s determination to pursue policies that take us from a projected ten year $5.6 trillion budget surplus (estimated by the Congressional Budget Office in January 2001) to possibly increasing the public debt by $4.2 trillion over the next ten years (Goldman Sachs, March 14, 2003), a negative swing of $9.8 trillion. Please provide your rationale for such an approach on the eve of the retirement of the Baby Boom generation.
If the public debt rises by $4.2 trillion, and we add the implicit liabilities documented in this study, then the debt to GDP ratio rises to 490%. I’m sure you are aware of the consequences of this for the Baby Boom generation and the generations following it — the first of the 85 million Baby Boomers can retire entitled to full benefits on September 2, 2011.
Thank you for your assistance in this matter. If your staff has any questions about these requests, please have them contact Susan Propper (202-224-2627) or Chuck Ludlam (202-224-4041) of my staff.
Sincerely,
Joseph I. Lieberman
Ranking Member
Senate Governmental Affairs Committee