To: homestead AT lists.ibiblio.org, RGod2 AT aol.com
Cc:
Subject: [Homestead] WHAAPED OUT by The Master Whapper
Date: Thu, 17 Feb 2005 15:23:33 -0500
WHAAP'd Out
*When it comes to accountability and accounting, the White House is
making Corporate America look good*
*WEB EXCLUSIVE*
*By Allan Sloan*
Newsweek
Updated: 12:35 p.m. ET Feb. 15, 2005
Feb. 15 - We're in our fourth year of post-Enron corporate scandals,
with no end in sight. Barely a month goes by without a new scandal, or a
new trial from an old scandal. But there's good news to report for
business—on the public relations front, that is. It's that Congress and
the White House have managed the seemingly impossible: When it comes to
accountability and accounting, they're making corporate America look good.
On the accountability front, Hewlett-Packard's board fired chief
executive **Carly Fiorina*
<http://www.msnbc.msn.com/id/6959745/site/newsweek/>* last week for
constantly missing profit projections and for failing to get results
from the $24 billion purchase of Compaq Computer. On the accounting
front, former WorldCom chief executive Bernie Ebbers and former
HealthSouth chief executive Richard Scrushy spent last week on trial for
their alleged roles in promoting phony numbers to the investing public,
and face jail time if they lose.
While Fiorina, Ebbers and Scrushy are being called to account, no one in
Congress or the White House is being held responsible for the cost
explosion in President Bush's Medicare prescription drug plan. And it
looks like there will be no penalty at all assessed on the White House
for last week's budget numbers, which seem to have been drawn up in
fantasyland.
In fact, the White House crunches numbers in such a unique way that it
takes a new accounting method to describe them. Corporations report
numbers based on GAAP: generally accepted accounting principles. But the
numbers crunchers at 1600 Pennsylvania Ave. use WHAAP: White House
accepted accounting principles. Under these rules, numbers are presented
in the most favorable—or least unfavorable—way.
Some examples. In 2001, the Bushies used WHAAP to declare that their tax
cuts would cost $1.3 trillion over 10 years. That number, though,
assumed that the cuts would expire in their 10th year. No one thought
that would happen, but the stated cost stuck anyway. They played a
similar game to low-ball the cost of the 2003 cuts, by assuming all
sorts of tax cut phase-ins and phase-outs.
WHAAP works on the spending side, too. In 2003, you may recall, Bush
pitched his prescription drug plan as costing $400 billion over 10
years. Last week, though, even the fuzzy-math crew at the White House
showed a 10-year cost of $720 billion. That's an 80 percent increase.
Look a few years out, and $1 trillion looms.
To students of WHAAP, this isn't a surprise. One way Bush got to his
10-year cost of $400 billion was by including two zero-cost years,
because the plan doesn't start until 2006. When updated numbers came out
last week, those two years had been replaced by two years in which the
program will be in full effect. Same plan, different period, way
different number.
One way that you can tell that nothing much has changed about the
program's 10-year cost other than the period being measured comes from
calculations produced by Jagadeesh Gokhale of the Cato Institute and
Kent Smetters of the University of Pennsylvania's Wharton School.
Last week, they said the drug program's shortfall over what numbers
crunchers call an "infinite horizon" is $17.6 trillion, up from the
original $17.2 trillion. Smetters told me that increase, less than 3
percent, stems from interest calculations rather than any change in the
program.
(An aside: Yes, I've been wary of infinite-horizon numbers because
nothing, especially a government program, is forever. I'm using them
here just to underscore how there's been no fundamental change even
though the 10-year number has risen by 80 percent.)
This Medicare fiasco is a cautionary tale about taking White House
numbers at face value. Do that and you're likely to get WHAAPed,
big-time, when real numbers finally emerge. Sooner or later, they always
do.
The budget numbers the White House released last week are WHAAP at its
worst. It's now widely recognized that those numbers assumed no expenses
for Iraq and Afghanistan after next year, no cost for fixing the
alternative minimum tax, no cost for privatizing Social Security. And
they're using a five-year time horizon rather than the conventional
10-year horizon because the shorter-term numbers look better.
Now, let's flip back to corporate America, Washington's whipping boy. Do
you think any corporate chief financial officer in her right mind would
sign off on such numbers? No way. And any CEO who certified them would
be well-advised to immediately hire a defense lawyer, because he'd be
virtually certain to face charges under the Sarbanes-Oxley corporate
reform act.
Congress passed Sarbanes-Oxley to make corporations produce honest
numbers and assume responsibility for their actions. These requirements,
however, don't apply to Congress or the White House. Too bad. If they
did, we might get some honest debate and honest math in Washington. And,
at the very least, we would no longer have to deal with numbers that are
totally WHAAPed out.