Accrual Accounting for Federal Entitlements: Issues and Estimates

The weak connection between federal budget totals and the long-term obligations that the Congress regularly incurs raises the question of whether federal accounting rules are in need of fundamental reform. A reform that addresses the concern that obligations should be recognized when they are incurred, rather than when they are paid for, is to put more programs in the federal budget on an accrual basis. In this paper I examine what this would entail, both practically and conceptually, and provide rough estimates of how the 2002 budget balance would have changed had Social Security, Medicare, and the retirement programs for federal workers and military personnel, been recorded on a true accrual basis.