Section-by-Section:

Honest Government Accounting Act of 2003

Senator Lieberman, S. 1915 (November 11, 2003)

Section 1: Short Title is "Honest Government Accounting Act of 2003"

Section 2: Findings

Section 3: Preparation of Net Present Value Calculation of Major Liabilities and Commitments

The Government Management Act is amended to require that the government's financial statement of liabilities include calculations of the net present value (NPV) of the overall liabilities and commitments (herein after "government's overall liabilities and commitments") of the United States, including "the net present value of all future government spending other than spending incident to servicing the current and future net debt held by the public, the net present value of all future government tax and nontax receipts, including tax receipts, net income of public enterprises, fees, and other levies imposed on the United States citizens and residents, annual transfers to the Treasury from the Federal Reserve System, and the outstanding debt held by the public,."  New subsection 331(e)(3)(A)(i).  In addition, the statement of liabilities will be required to calculate the NPV of all future payrolls using the same economic and other relevant assumptions. This is the key calculation that triggers action in the legislation.

Also included is a requirement to prepare calculations of the NPV of the public debt, OASI, DI, HI, SMI, Railroad Retirement, Black Lung (Part C) program, and Federal retirement and health plans.

The calculations are to be prepared on a 75-year and indefinite time horizon.

The methodology of the calculations for OASI, DI, HI, and SMI is specified.  Both open and closed group calculations for these programs must be prepared.

The first calculations are to be prepared within 180 days of the date of enactment and subsequent calculations must appear when the U.S. Financial Report is issued each March.

Section 4: Presidential Plan for Reducing the Net Present Value of Overall Government Liabilities and Commitments

When the net present value of the government's overall liabilities and commitments exceeds 1.25% of the present discounted value of all future earnings subject to payroll taxes[1] (approximately $5.25 trillion or half of the current year GDP), the President must submit a plan or plans to reduce the total to no more than this amount by September 2, 2011 (when Baby Boomers can retire with full Social Security benefits). (The current present value of these liabilities and commitments is approximately 17%.)

It is plausible that the Government can finance liabilities and commitment of this magnitude; it becomes increasingly implausible if the unfunded liability and commitments exceeds this amount.

The plan calculation is submitted to the Congress and the Commission on Long-Term Government Liabilities and Commitments (Section 5).

The plan must be submitted by September 15, 2005.

Section 5: Commission on Long-Term Government Liabilities and Commitments

A bipartisan commission is established to make recommendations on how to reduce the net present value of the public debt and entitlement program commitments to the goal specified above.

The commission shall consider the plan submitted by the President.

The commission shall make recommendations regarding the issue and the President's plan by December 15, 2005.  This date makes this a top priority for the President whose term begins in January 2005.

Section 6: Submission of Calculation and Plan to Accompany Legislative Recommendations Included in the President's Budget

When the President submits legislative recommendations that have an adverse impact on the NPV of the government's overall liabilities and commitments that exceeds 0.25% of present discounted value of all future earnings subject to payroll taxes[2] (approximately $1 trillion or 10% of the current year GDP), the President must submit an calculation and a plan to hold the government's overall liabilities and commitments to this amount.

To prevent drafting of legislation to evade this point of order (e.g. through the use of sunsets), the calculation shall assume that legislative measure "will be a permanent change in law and disregard any changes in the terms of the legislative recommendation beyond the date of enactment and any formula or mechanism for adjustments in the recommendations beyond this date to the extent that such change, formula, or mechanism increases the net present value of the Government's liabilities and commitments over 75 years or an indefinite time period." 

Section 7: Congressional Budget Resolution

The Budget Resolution shall include calculations of the net present value of government's overall liabilities and commitments over a 75-year and indefinite time horizon for the previous fiscal year.

Section 8: Point of Order Established Against Legislation Adversely Affecting Net Present Value of Government Liabilities and Commitments

A point of order is established against any bill or amendment that adversely affects the net present value of government's overall liabilities and commitments by greater than 0.25% of the present discounted value of future earnings subject to payroll taxes[3] (approximately $1 trillion or 10% o the current year GDP) over 75 years or an indefinite time period.  The calculation with respect to which the point of order is made shall assume that legislative measure "will be a permanent change in law and disregard any changes in the terms of the legislative recommendation beyond the date of enactment and any formula or mechanism for adjustments in the recommendations beyond this date to the extent that such change, formula, or mechanism increases the net present value of the Government's unfunded liabilities and commitments."

Section 9: Trustee Report of Liabilities

Requires Trustees to give prominence to the closed group calculation and annual changes in closed group calculation.  Requires federal agencies to utilize annual change in closed-group calculation, as opposed to cash flow surplus, to the extent that the annual performance of Social Security is consolidated into Federal budgetary aggregates.

Section 10: Treasury Department Analysis of Tax Provisions Present Value

Requires Treasury Department to develop methodology for NPV calculations for legislation that defers tax liability or causes long-term revenue effects that are not captured in a cash flow calculation over 5 or 10 years.

Requires President to submit NPV calculations for those tax incentives that have an adverse

impact greater than 0.25% of the present discounted value of all future earnings subject to payroll taxes[4] (approximately $1 trillion or 10% of the current year GDP).

Section 11: Bar Use of Expedited Procedures to Enact Legislation Aggravating the Budget Deficit or Reducing the Surplus.

Bars use of Reconciliation Procedures to expedite passage of legislation unless it reduces the budget deficit or increases the surplus.

Section 12: Reinstatement of Pay-As-You-Go Enforcement

Reinstates an effective pay-go rule for direct spending or tax bills.  It does not apply if there is a declaration of war. It applies if the bill reduces a surplus, not just if it creates a deficit. A waiver must be passed by 60 votes in the Senate. 

Addendum: Present discounted value of future earnings subject to payroll taxes

Because, the fiscal imbalance calculation is similar to a “stock of debt” it is more appropriate to compare it to another stock measure such as the present discounted value of the Gross Domestic Product or a tax base out of which the overall (or each particular program’s) fiscal imbalance would be financed.  Although some view it useful to calculate the share of each year’s Gross Domestic Product that must be set aside to pay for the imbalance, the entire Gross Domestic Product does not (and is not likely to ever) constitute the base on which taxes are levied. For example, the service flow from the nation’s housing stock and depreciated capital are not currently (nor are ever likely to be) included in the federal tax base. Hence, it would be better to calculate the share of a tax base that must be set aside annually to finance the imbalance.  Because future payrolls constitute the most general base for most taxes, this legislation utilizes its present discounted value in setting policy triggers.

* 1.25% of the present discounted value of all future earnings subject to payroll taxes

= approximately $5.25 trillion or 50% of the current year GDP

* 0.25% of the present discounted value of all future earnings subject to payroll taxes

= approximately $1 trillion or 10% of the current year GDP