The Feds' Financial Statements in Perspective

K.E. Campbell
The federal budget, debt, and deficit figures being bandied about are so gargantuan that many people struggle to comprehend them or put them in perspective. Auditors, analysts and accountants have a tool that can help in this regard. Financial statements of different-size entities can be recast into a uniform common-size format. Common-size financial statements make comparisons easier.

The table below uses the administration's 2012 fiscal budget, calculates its major components as a percentage of total receipts (i.e., revenue), and applies those percentages to the median household income in the U.S. in 2008 ($50,303) to derive a roughly comparable household-level financial snapshot.


 
Federal Govt.

% of

 
2012

receipts

Receipts

$2,627,000,000,000

100.0%

Outlays, excl. interest

-$3,487,000,000,000

-132.7%

Interest

-$242,000,000,000

-9.2%

   Deficit

-$1,102,000,000,000

-41.9%

   
Debt

$15,813,000,000,000

 = 6x receipts

   
Unfunded Medicare & Social Security obligations

$45,600,000,000,000

= 17.3x receipts

   
 
Household

Household

 
(annual)

(monthly)

Receipts

$50,303

$4,192

Outlays excl. interest (-132.7%)*

-$66,771

-$5,564

Interest*

-$4,634

-$386

   Deficit (-41.9%)

-$21,102

-$1,758

   
Debt (6x receipts)*

$302,795

 
   
Unfunded obligations (17.3x receipts)*

$873,170

 
    

            * computed


The household above has a spending problem. Leaving aside the asset part of the equation, it also has a debt problem. In the real world, this household would be in bankruptcy court. To take the analogy further, we could consider the national debt as mortgage debt and the unfunded obligations as unsecured claims, like credit-card debt. The crushing effect of this household's debt burden shown above would be compounded if interest rates rise from current low levels.

Liberals would argue that such a comparison highlights the need for more revenue (read: higher taxes). However, as explained by W. Kurt Hauser, "over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate." And if anyone believes that an increase in government revenue wouldn't be offset by a proportional increase in spending, I've got some swampland to sell you.

Using a common-size financial statement perspective, by how much did Congress agree to cut fiscal 2011 spending last Friday in its "historic" deal? The agreed-upon $38.5 billion in cuts equates to approximately $737 annually for the above household. That is, the debt-strapped family would spend $5,503 per month rather than $5,564 per month. I don't think a financial counselor, trustee, or bankruptcy judge would be impressed.
The federal budget, debt, and deficit figures being bandied about are so gargantuan that many people struggle to comprehend them or put them in perspective. Auditors, analysts and accountants have a tool that can help in this regard. Financial statements of different-size entities can be recast into a uniform common-size format. Common-size financial statements make comparisons easier.

The table below uses the administration's 2012 fiscal budget, calculates its major components as a percentage of total receipts (i.e., revenue), and applies those percentages to the median household income in the U.S. in 2008 ($50,303) to derive a roughly comparable household-level financial snapshot.


 
Federal Govt.

% of

 
2012

receipts

Receipts

$2,627,000,000,000

100.0%

Outlays, excl. interest

-$3,487,000,000,000

-132.7%

Interest

-$242,000,000,000

-9.2%

   Deficit

-$1,102,000,000,000

-41.9%

   
Debt

$15,813,000,000,000

 = 6x receipts

   
Unfunded Medicare & Social Security obligations

$45,600,000,000,000

= 17.3x receipts

   
 
Household

Household

 
(annual)

(monthly)

Receipts

$50,303

$4,192

Outlays excl. interest (-132.7%)*

-$66,771

-$5,564

Interest*

-$4,634

-$386

   Deficit (-41.9%)

-$21,102

-$1,758

   
Debt (6x receipts)*

$302,795

 
   
Unfunded obligations (17.3x receipts)*

$873,170

 
    

            * computed


The household above has a spending problem. Leaving aside the asset part of the equation, it also has a debt problem. In the real world, this household would be in bankruptcy court. To take the analogy further, we could consider the national debt as mortgage debt and the unfunded obligations as unsecured claims, like credit-card debt. The crushing effect of this household's debt burden shown above would be compounded if interest rates rise from current low levels.

Liberals would argue that such a comparison highlights the need for more revenue (read: higher taxes). However, as explained by W. Kurt Hauser, "over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate." And if anyone believes that an increase in government revenue wouldn't be offset by a proportional increase in spending, I've got some swampland to sell you.

Using a common-size financial statement perspective, by how much did Congress agree to cut fiscal 2011 spending last Friday in its "historic" deal? The agreed-upon $38.5 billion in cuts equates to approximately $737 annually for the above household. That is, the debt-strapped family would spend $5,503 per month rather than $5,564 per month. I don't think a financial counselor, trustee, or bankruptcy judge would be impressed.