Tuesday, October 24, 2006

Real accounting for Social Security

FASB has recommended that the US government recognize the future obligations it has for Medicare and Social Security by stating them, as liabilities, on their books today.

Small businesses, sole proprieterships, and governments operate a "cash accounting" system that basically counts money in vs money out in a given year, and does not take any notice of long terms assets or liabilities. Corporations do not use this system -- they are required to place long term liabilities, and assets, on the books today even if those bills will not come true in the future.

Marginal Revolution seems ambivelent about the proposed accounting changes because he would prefer to see the benefits cut, not taxes raised. I think the change is a great thing, because having your benefits cut or your taxes raised are essentially two sides of the same coin (someone who pays the same but gets less benefit is as worse off as someone who pays more and gets the same benefit).

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