#96 - Government accounting or not the accounting you learned in school (Watt Thoughts)

Have you ever been puzzled by the various accounting terms or claims you hear out of the press and by the government on the various items about the government budgets and spending? Terms you hear there may not be what you think they mean or what they mean in normal accounting for normal American families. In some ways Enron, WorldCom, and others had nothing on the accounting used by the government.

What is a tax cut? First thought is that it is where the amount of taxes we pay is reduced. However as you listen you will learn that a tax cut not only means a reduction in taxes paid by people, but also that it must also include a payment (tax cut) to those who pay no taxes. And to be fair it must be same amount to everyone. That is opposite of tax increase which is that not only taxes go up for those who [pay taxes, but it must increase even more on richer people.

Spending cuts. You hear politician after politician claim how they have cut spending and agencies claim that spending cuts have hurt them quite often. Yet when you look you discover tat usually they really have more money than the previous year. It is a spending cut because they did not get as big of increase as they wanted and had to cut the increase. In your home accounting it would be an increase. If I asked my dad for a $5 increase in my allowance and he only gave me $4 he can go around on government accounting claming he cut my spending while I have $4 more. Now keep in mind sometimes real cuts occur, and sometimes no increase means literally same amount not same growth. For instance teachers in Georgia received no cost of living increase, which means for many of us absolutely no raise.

Tax credit. Sounds similar to a tax cut and it is. You would think you could only use a tax credit against actual taxes paid. But a tax credit can actually mean the government owes you money. Sorta like me taking a $4 off coupon to McDonalds in the morning getting a $3 meal and telling them they owe me $1 and the $3 meal and I owe nothing.

Income tax. We need to learn that income taxes are only taxes on income we earn in a year. Social security, FICA and Medicare taxes are not income taxes; they are not on our income. It is possible to be richest person in US and owe no income taxes. How you ask? Simple if I am that person and I have no income then I still may be richest person, but I owe no income tax. The highest payers are those with highest incomes, not always the richest.

Payroll taxes. These are the items we let out in income taxes. It is based on the amount you make in payroll payment. What amazes me here is one payroll tax, Social Security or FICA. We continuously are hearing it is going broke (projections I saw today are 2039) and that we need to find some way to make more secure. Like put in a lock box. But what have we been hearing as a way to jump start the economy, but cut payroll taxes, even for a short period, which raises the issue of how much sooner will it be bankrupt?

Balanced budget. What is a balanced budget for the US government and for the state governments and for you are three different animals. A balanced budget for the US government means it spends no more in a year than it takes in. It can not borrow to make spending higher. For a state government, you hear often that in most cases they must have a balanced government every year. However when you look, they are borrowing money for capital projects, etc, and claiming they have a balanced budget and why can't US government. But the US government can't borrow for capital and not include it as money spent this year. You most likely do same thing at home. We hear all the time that the US government should be able to balance budget since citizens have to every year. But yet if you borrow $15000 for a car this year, you don't consider your self as spending $15000 that you must have that much income for this year, but only amount each year that you pay bank back.

So as you hear all those claims, remember what George Bush said in 1980 against Ronald Reagan in the primaries, that it is "voodoo" economics, and when you look it may be voodoo accounting.

Dwight

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