Charles V. Zehren
February 1, 2004
Lloyd Silverstein worked as a senior vice president of finance at Computer Associates International Inc. when federal prosecutors say the giant software maker created 35-day months to hit sales targets.
While he was there, the company booked $1 billion in revenue from anticipated contracts. This propped up CA's stock. Silverstein kept his job.
In Washington, President George W. Bush and the Republican-controlled Congress created a $400 billion Medicare prescription drug plan to hit political targets.
They didn't book upfront expenditures but quietly pushed the actual anticipated $2 trillion cost out to the year 2024. They did this to pump up their stock with the voters and keep their jobs.
Silverstein eventually got fired, pleaded guilty last week to lying to authorities and faces five years in prison and a $250,000 fine. The president and members of Congress keep their jobs, rake in millions in campaign contributions, and look forward to probable re-election.
As we enter another federal budget season, it's good to remind ourselves of the difference between the public and private sectors. This year's tax-and-spend game is getting off to a rousing start with the Jan. 20 State of the Union address and tommorow's rollout of the Bush administration's $2.3 trillion fiscal year '05 spending plan.
So rousing, in fact, that the Republican Party's usual conservative allies are tripping over themselves to criticize the president and Congress for spending too much and engaging in the sort of fiscal gimmickry that has executives like Silverstein standing in the dock.
Like a political version of a 1990s dot-com IPO road show, the marketing plan sounds great, yet the projected revenues and profits don't add up.
Congress and the White House are pushing the costs of popular programs into future reporting periods to gain the support of the nation's shareholders and guarantee their fat bonuses, paid in the form of power.
The bill for the Medicare prescription drug benefit costs very little in the next few years but then escalates dramatically to $2 trillion, not coming due until 15 years after Bush would finish his second term, according to Douglas Holtz-Eakin, director of the nonpartisan Congressional Budget Office.
When it passed the legislation, Congress assured Americans the benefit would cost only $400 billion. Sen. Edward Kennedy (D.-Mass.) knows spending. Maybe that's why he called the $400 billion a "down payment."
Bush also says his budget plan will slow the annual rate of growth in non-defense, non-homeland security, non-Social Security, non-Medicare spending from 6 percent to 1 percent. But that covers only about one-fifth of the total budget, which is now growing at more than 5 percent annually. And don't look for the proposed spending plan to include the true cost of rebuilding Iraq. Even though it knows what these costs will be, the White House doesn't want to inject such a controversial - and crucial - issue into an already complicated election-year budget process. Or maybe the White House wants to force an Iraq vote on the Democrats right before the election. Bottom line: The $50 billion cost of future operations in Iraq will expand the $477 billion budget deficit later this year.
In what the libertarian Cato Institute called the "most striking hyprocrisy" of the State of the Union address, Congress rose to its feet to applaud the president's call for eliminating wasteful spending. Yet, in just three years, Bush and the Republican Congress have teamed to outspend President Bill Clinton. CBO figures show spending during Clinton's first three years - two with a Democratic Congress, one with a Republican - rose by 11 percent vs. 23 percent for Bush and the Republicans. (Exhibit A: Case for divided government.)
The 9/11 terror attacks, of course, stressed the budget, but the White House and Congress didn't compensate by reducing spending on corporate welfare and at the Departments of Energy, Education and Agriculture. The president and Congress raised nondefense discretionary outlays by 31 percent and failed to prepare the nation for an explosion in Social Security and Medicare entitlements. "After only three years in office, President Bush may be heading to the record books as one of the biggest spending presidents," a recent Cato study concluded.
On the revenue side, making the tax cuts permanent, as the president suggests, would be great. Why raise our taxes? But it's only fair to note that in doing so, the administration would be shifting another liability into a future reporting period. Indeed, the impact on the federal budget of giving up $356 billion in revenue would not be felt until 2010, the year after he left office, assuming he is re-elected.
The pain of all this triangulation is proving too much for some Republicans, who are hoping Bush might help them at the polls by handing up his first veto of a major spending bill. Others on the right have been reduced to arguing that deficits don't matter. Well, we may not see the effect on interest rates now. But longer term, the deficits will burden future generations and sap the private sector of vitality.
After Silverstein pleaded guilty in U.S. District Court in Brooklyn, his attorney James Walden said his client had decided to admit his crimes before he was accused or charged. "Lloyd Silverstein reported wrongdoing to the government even though he knew that the decision would have personal consequences," Walden said. So where does the government go to report on itself?
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