Manipulating the Federal Budget Deficit
Response to the following problem:
Assume that you are the paymaster in charge of all U.S. Department of Defense (DOD) payroll matters. The total amount that you disburse in payroll checks in any given week is in excess of $1 billion.
Assume also that tax receipts have been lower than expected and that a federal budget deficit, and not a surplus, is now projected. Currently, Congress is struggling to reduce the projected budget deficit. It is an election year, and the members of Congress are worried that they will be stuck with a "tax and spend" label if the government runs a deficit this year. Of course, the DOD budget has been scrutinized very carefully to reduce reported expenditures as much as possible
Yesterday, a congressional leader came to your office with a disturbing proposal. Because the federal budget numbers are reported on a cash basis, rather than on an accrual basis, expenses are reported when they are paid instead of when they are incurred. This year, the final DOD payday of the year happens to fall on the last day of the federal government's fiscal year (September 30). The congressional leader suggested that you delay issuing the payroll checks by one day. This would push the actual payment of the cash into the next fiscal year. Thus, even though the payment would be for services performed in the current fiscal year, the expense wouldn't be reported until next year. With this simple trick, the reported deficit for this year (an election year) can be reduced by $1 billion.
What should you do?