If the Defense Department can’t get its books straight, how can it be trusted with a budget of more than $800 billion per year?

Written by Connor Echols | November 22, 2022

Last week, the Department of Defense revealed that it had failed its fifth consecutive audit. 

“I would not say that we flunked,” said DoD Comptroller Mike McCord, although his office did notethat the Pentagon only managed to account for 39 percent of its $3.5 trillion in assets. “The process isimportant for us to do, and it is making us get better. It is not making us get better as fast as we want.”

The news came as no surprise to Pentagon watchers. After all, the U.S. military has the distinction ofbeing the only U.S. government agency to have never passed a comprehensive audit.

But what did raise some eyebrows was the fact that DoD made almost no progress in this year’sbookkeeping: Of the 27 areas investigated, only seven earned a clean bill of financial health, whichMcCord described as “basically the same picture as last year.”

Given this accounting disaster, it should come as no surprise that the Pentagon has a habit of badfinancial math. This is especially true when it comes to estimating the cost of weapons programs.

The Pentagon’s most famous recent boondoggle is the F-35 program, which has gone over its originalbudget by $165 billion to date. But examples of overruns abound: As Sens. Jim Inhofe (R-Okla.) andJack Reed (D-RI) wrote in 2020, the lead vessel for every one of the Navy’s last eight combatant shipscame in at least 10 percent over budget, leading to more than $8 billion in additional costs.

And another major overrun is poised to happen soon, according to a recent report from theCongressional Budget Office. 

The Navy plans to expand its ship production in an effort to maintain an edge over China, with aparticular focus on a new attack submarine and destroyer ship. The Pentagon has proposed threeversions of this plan at an average cost of $27 billion per year between 2023 and 2052, a 10 percentjump from current annual shipbuilding costs. 

But the CBO says this is a big underestimate. The independent agency’s math says the average annualcost of this shipbuilding initiative will be over $31 billion, meaning that the Navy is underestimatingcosts by $120 billion over the program’s life.

As Mark Thompson of the Project on Government Oversight recently noted, these overruns “shouldn’tcome as a shock” to anyone who has paid attention to DoD acquisitions in recent years. “But it doessuggest a continuing, and stunning, inability by the Navy to get its ducks, and dollars, in a row,”Thompson wrote

So will the Pentagon manage to get its financial house in order any time soon? It’s possible, if a bitunlikely. 

Despite the long odds, a bipartisan group of lawmakers led by Sen. Bernie Sanders (I-Vt.) proposed abill last year that could help make that happen. The legislation would cut one percent off the top of thebudget of any part of the Pentagon that fails an audit. That means that, if the proposal had alreadypassed, 20 of the agency’s 27 auditing units would face a budget cut this year.

Unfortunately, momentum around that bill appears to have fizzled out, leaving the Pentagon’saccountants as the last line of defense. Per Comptroller McCord, the DoD hopes to finally pass an audit by 2027, a mere 14 years after every other agency in the U.S. government blew past that milestone.That may coincide with another historical moment, according to Andrew Lautz of the NationalTaxpayers Union.

“We could reach a $1 trillion defense budget five years sooner [than the CBO estimates], in 2027,”Lautz wrote.

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Centrist parties of the left and right came together 30 years ago to save pensions from insolvency. 

By Johan Norberg | Feb. 22, 2023 12:54 pm ET 

‘There are few issues on which Sweden and the United States are not in perfect sync,” then-Vice President Joe Biden said here in 2016. Here’s one: Social Security. President Biden refuses to consider any reforms, and so do many Republicans. But that won’t save the program; it’ll doom it. In a little over a decade, the trust fund will be exhausted. 

Sweden faced the same problem in the early 1990s. The old pay-as-you-go pension system had promised too much. With fewer births and longer lives, projections showed the system would be insolvent a decade later. As Mr. Biden has said in another context, Sweden has “an ethic of decency.” Its politicians chose not to deceive the voters. The center-left Social Democrats acknowledged that the system “would not withstand the stresses that can be foreseen.” 

In 1994 the Social Democrats agreed with the four center-right parties to create an entirely new system based on the principle that pensions should correspond to what the beneficiary pays into the system—a system in which the contribution, not the benefits, is defined. 

The reforms were designed to make it impossible to run a deficit and pass the costs to future generations. Crucially, the agreement introduced a balancing mechanism nicknamed “the brake.” When the economy is doing worse than expected, pension benefits are automatically reduced, and when the economy picks up again, the brake is released. 

Sweden introduced partial privatization of the kind the American left derides as a Republican plot to gamble our money away on the stock market. The Swedish government withholds roughly 2.3% of wages and puts it into individual pension accounts. Workers are allowed to choose up to five different funds in which to invest this money, according to their own risk preference, and can change them at any time free. 

Commentators claim partial privatization would mean that pensions could be lost in a financial crash. That ignores that the money isn’t all invested or withdrawn at the same time, meaning that the performance in a single year isn’t crucial. The returns from the normal income pension is around 2% per year, but from the private accounts the average Swede has made an impressive average return of roughly 10% a year since its inception in 1995, despite the dot-com crash, the financial crisis and the pandemic. 

Swedish social security isn’t perfect and doesn’t satisfy everyone, but it has the obvious advantage that it actually works and is sustainable in the long run. Far from being a cautionary tale, Sweden’s pension system was recently described as the world’s best by the insurance group Allianz, based on a combination of sustainability and adequacy. 

The Swedish far left and far right never accepted the reform and have demanded and sometimes won higher payouts. But most of the system remains intact after almost 30 years. No doubt, part of the explanation is that Swedish politicians prepared their citizens with an adult conversation about costs, benefits and what was possible, instead of merely rehearsing slogans and ignoring the inevitable crash. 

A MESSAGE TO THE PUBLIC: 

The Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs each year. This document summarizes the findings of the 2023 reports. As in prior years, we found that the Social Security and Medicare programs both continue to face significant financing issues. 

Based on our best estimates, this year’s reports show that: 

• The Hospital Insurance (HI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2031, three years later than reported last year. At that point, the fund’s reserves will become depleted and continuing program income will be sufficient to pay 89 percent of total scheduled benefits. 

• The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, one year earlier than reported last year. At that time, the fund’s reserves will become depleted and continuing program income will be sufficient to pay 77 percent of scheduled benefits. 

• The Disability Insurance (DI) Trust Fund is projected to be able to pay 100 percent of total scheduled benefits through at least 2097, the last year of this report’s projection period. By comparison, last year’s report projected that the DI Trust Fund would be able to pay scheduled benefits through at least 2096, the last year of that report’s projection period. 

• If the OASI Trust Fund and the DI Trust Fund projections are added together, the resulting projected fund (designated OASDI) would be able to pay 100 percent of total scheduled benefits until 2034, one year earlier than reported last year. At that time, the projected fund’s reserves will become depleted and continuing total fund income will be sufficient to pay 80 percent of scheduled benefits. (The two funds could not actually be combined unless there were a change in the law, but the combined projection of the two funds is frequently used to indicate the overall status of the Social Security program.) 

• The Supplemental Medical Insurance (SMI) Trust Fund is adequately financed into the indefinite future because, unlike the other trust funds, its main financing sources–premiums on enrolled beneficiaries and federal contributions from the Treasury–are automatically adjusted each year to cover costs for the upcoming year. Although the financing is assured, the rapidly rising SMI costs have been steadily increasing demands on beneficiaries and general taxpayers. 

Since last year’s reports, projected long-term finances of the OASI and the OASDI Trust Funds worsened due to the Trustees revising down the expected levels of gross domestic product (GDP) and labor productivity by about 3 percent over the projection window. The Trustees made this change as they reassessed their expectations for the economy in light of recent developments, including updated data on inflation and U.S. economic output. 

Despite the downward revision to economic assumptions, the projected long-term finances of the HI Trust Fund improved since last year’s report. The improvement is mainly due to lower projected health-care spending stemming from updated analysis that uses more recent data. 

SMI Trust Fund expenditures for Medicare Part B as a share of GDP are also projected to be lower than previously estimated in part for the same reason. In addition, expenditures on drugs under SMI in Medicare Parts B and D are projected to be markedly lower as a share of GDP due to the impact of provisions of the Inflation Reduction Act, which became law in August 2022. 

Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls. We urge Congress to consider such options for both Medicare and Social Security, like the proposal for Medicare in the President’s FY24 Budget. With each year that lawmakers do not act, the public has less time to prepare for the changes.

A SUMMARY OF THE 2023 ANNUAL SOCIAL SECURITY AND MEDICARE TRUST FUND REPORTS

Table 1 lists the 2023 Trustees Reports’ key findings for each of the separate trust funds established under the law.

Table 1: Key Findings of the 2023 Trustees Reports