It sometimes seems that the political class will use every possible opportunity to describe what they are doing in a manner designed to confuse the greatest number of voters. If you understand the following analogy, you probably understand a significant part of the recently enacted BBB.
Assume your current cable bill is based on a temporary promotional rate that is due to expire and then revert to a higher amount. Before the expiration of your promotional rate, you negotiate an indefinite extension at your lower promo rate. Did you get a price cut?
Investors should be aware that, for a variety of reasons, federal government accounting principles often bear little resemblance to the generally accepted accounting principles (GAAP) rules that govern most non-government entities. Accordingly, it is incumbent on investors, commentators and others to completely understand the accounting.
For example, inherently long-term programs, such as a new airplane, are funded through annual appropriations, even though expenditures are expected to continue for many years. Each year’s appropriation funds a few aircraft, even though the government may eventually purchase several hundred.
In government accounting, spending more this year than last year, but less than planned or budgeted, is a cut.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
