Diapositive 1 - Truth in Accounting

Diapositive 1 - Truth in Accounting

It aint what you dont know that gets you in trouble. Its what you know for sure that just aint so. - Mark Twain Ernest Hemmingway was asked: How did you go bankrupt? Two ways. Gradually, then suddenly. What Crisis Will Our Next President Face? The Nation is Closing in on Financial Armageddon: All Federal and State Financial Reporting are Fraudulent and Unconstitutional! October 24, 2016 Joseph H. Marren Opening Remarks for Panel Discussion Hosted by Truth in Accounting and The Center for Financial Services at DePaul University Justice Anthony Kennedys Words of Wisdom A nation cannot plunder its own treasury without putting its Constitution and its survival in peril Liberty is always at stake when one or more of the branches seeks

to transgress the separation of powers. Money is the instrument of policy and policy affects the lives of citizens. The individual loses liberty in a real sense if that instrument is not subject to traditional constitutional constraints. The Constitution is not bereft of controls over improvident spending. Federalism is one safeguard.The other principal mechanism, of course, is control of the political branches by an informed and responsible electorate. 1 All Reporting Must Comply with Article I, Section 9 Clause 7 No Money shall be drawn from the Treasury but in Consequence of Appropriations made by law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time The first part is called the Appropriations Clause and the second part is called the Statement and Account Clause. The federal government is falsely reporting total receipts, total expenditures and the resulting deficit

2 What Has Led to Fraudulent Financial Reporting? Our political leaders have subverted the democratic process to protect their self-interests Congress, the Executive branch and the States have spent enormous sums to endear themselves to the electorate They DO NOT want to be held accountable for the full extent of their spending and have colluded to under-report expenses To achieve their goal they have enlisted the support of the accounting profession including the AICPA, FAF, FASAB and GASB There is a real question as to whether the accounting profession has been complicit in a Political Protection Racket. 3 What are the Consequences? Voters in the upcoming election have no idea how large federal and state expenditures are or have been for much of the last century Voters disenchanted with the current state of affairs cannot send the politicians responsible packing because they retired years ago Current representatives say that their hands are tied on mandatory spending and that they cannot be held accountable The bottom line is that our republic is plagued with successive budget deficit and debt ceiling crises The nation is on the brink of financial Armageddon 4

No Report Complies with Constitution or Reflects Economic Reality Presidents Budget The Financial Report of the United States Government Combined Statement of Receipts, Outlays and Balances The Official Statement and Cash-based financials that Account. do not include any social insurance costs associated with obligations that must Accrual-based financials published It is cash-based. It is not known be paid by law in the future by the Treasury and OMB that has or used by the public including the media, not central to any and does not include all two major flaws discussion of the nations government entities finances and is not viewed as a major publication by any recent Congress or Administration 5

Feds Accounting Does Not Comply With Constitution Because. Financial statements need to consolidate: - All entities that are funded with public money including the Federal Reserve, Fannie Mae & Freddie Mac - The full cost of the nations social insurance programs (Medicare & Social Security) as well as Medicaid There are no exceptions for entities/ programs funded with public money that our politicians want to avoid accountability for by excluding them, putting them off balance sheet or describing them only in footnotes The federal governments

current financial reporting practices do not comply with the Constitutions all public money requirement and they violate the antifraud provisions of the nations securities laws 6 Money in Appropriations Clause is Not Same Money in S&A Clause The Federal Governments fraud is two-fold: Congress effectively defines permanent appropriations to be an ongoing series of one-year appropriations wherein the appropriations beyond one-year do not rise to the level of a legal commitment. Hence, they do not have to be recorded. They divide and conquer by defining the concept of a liability, a key component of Money, differently for financial reporting purposes than for purposes of appropriations law 7 Liability Defined Differently in GAOs 2005 A Glossary of Terms Used in the Federal Budget Process Liability Defined

differently for Obligation (or budgetary) and proprietary (or financial) accounting purposes. Obligational accounting.is based on the concept of legal liability. Proprietary accounting.is based on the concept of accounting liability. 8 Why Do Different Definitions of Liability Matter? Practically speaking this means that Medicare, Social Security and Medicaid, which are clearly legal obligations under appropriations law, are re-defined for accounting purposes as NOT BEING LEGAL OBLIGATIONS of the U.S. Government The result is that expenses and liabilities associated with these programs are significantly understated in all of the Federal Governments published financial reports Publishing financials that do not include all of the nations legal obligations constitutes a fraud on the electorate and violates their right to an accounting under the Statement and Account Clause 9 Process by Which Federal Govt Sets GAAP is Unconstitutional Congress has unlawfully delegated responsibility for determining

accounting principles and policies to the Comptroller General, the highest ranking officer of a Congressional agency Over the last century the Executive branch and Comptroller General have been at odds over proper accounting standards because the Executive branch refused to agree that the CG could set them. Why? Because the Executive branch knew that it is unconstitutional for the Comptroller General to set accounting standards SCOTUS made clear in 1986 in Bowsher v. Synar that Congress cant delegate lawmaking authority to a subset/subsidiary of itself 1 0 Medicaid Disclosures By All Fifty States are Fraudulent. Based on the $27.3 trillion federal government obligation reported in the 2015 Financial Report the fifty states aggregate net present value obligation for the Medicaid program is $16.8 trillion Both the $27.3 trillion and the $16.8 trillion figures are significantly understated (double these amounts) No state record the full cost of its share of the Medicaid program costs in its income statement or balance sheet. Between 2005 and 2008 federal contributions averaged 57% and state contributions averaged 43% 1 1 And They Violate the Antifraud Provisions With Which States are Required to Comply

Omitting the disclosure of material facts clearly violates the antifraud provisions as a matter of law All states have inadequate financial disclosure regarding an aggregate Medicaid obligation that at approximately $17 trillion is over four times the size of the $3.7 trillion municipal securities market or the $4 trillion pension underfunding issue 1 2 Process by Which GAAP is Set for States is Unconstitutional Electorate has a fundamental right to financial information and unelected accounting professionals not subject to substantial oversight by Federal / State govts cannot determine how that information is prepared

None of the AICPA, Financial Accounting Foundation (FAF) or Governmental Accounting Standards Board (GASB) has been delegated legal authority by either Federal or State governments The arrangement that exists today for GAAP standards setting is legislative delegation in its most obnoxious form 1 3 Why Does It Matter to All Americans? Private Rights Guaranteed By Our Constitution Have Been Violated Right to Financial Information See Richmond Newspapers v. Virginia Freedom of Speech See FEC v. Citizens United Right to Vote - See FEC v. Akins Right to Political Accountability See New York v. U.S. Equal Protection See South Dakota v. Dole Due Process See Caperton v. A.T. Massey Coal Co.

1 4 Enron on Steroids Reporting Is Unconstitutional and Must Stop The Supreme Court is our only hope for returning the governments financial reporting to the requirements called for in our Constitution Citizens rights have been reduced to representation without accountability Once all parties must deal with the truth, the hard political choices will be made to put our finances in order In closing my hope is that you view my remarks as being in keeping with Jesuit tradition of searching for the truth in the world even if that truth is not what you want to find 1 5 APPENDICES APPROPRIATIONS/ POWER OF THE PURSE Congress Power of the Purse The power of the purse is the power to appropriate funds and to prescribe the conditions governing the use of those funds This power has been described as the most important single curb in the Constitution on Presidential power. Congress can determine what will be required to make an appropriation legally available

Courts have invalidated congressional funding restrictions when they violate some independent constitutional bar Legal Services Corp. v. Velasquez and ACLU v. Moneta 1 8 Limitations on Congress Power of the Purse The Statement and Account Clause and the Appropriations Clause represent independent constitutional bars Congress cannot create legislation with permanent appropriations and then define the permanent part out of existence Doing so permits the Legislature to mask its accountability for spending, which the Constitution does not permit The two basic authorities conferred by appropriation law are to incur obligations and to make expenditures Generally, funds are first obligated and then expended 1 9 Permanent Appropriations Diminish Accountability Several commentators have made the point that Congress renders meaningless the principle of Appropriations control if it creates spending authority without amount or time limitations and fails to subject such authority to periodic legislative review (18)

However, the Supreme Court has been clear that Congress has the power to enact such legislation 2 0 Article I, Section 9 Clause 7 Concepts are Connected Legislation that has been legally enacted and fully or partially funded with appropriations must be reflected in the Statement and Account to the full extent of the funded obligation Federal governments accounting principles declare that legally enacted legislation with appropriations ARE NOT legal obligations As such they dont need to be recorded in the Statement or Account or ANY of the nations financial statements The government uses the Due and Payable approach to record obligations associated with the entitlement programs FEDS approach cannot be reconciled with the Statement and Accounts all public Money requirement 2 1 Differing Definitions Prevents Disclosure of Appropriations The Federal Government cannot put spending and appropriations side-by-side in the Presidents Budget or the Financial Report because of the difference in definition

THAT is why neither of the two annual reports displays both appropriated amounts and expenditures In the Presidents Budget expenditures are shown for programs with appropriations which does not reveal the size of the appropriations 2 2 When Must an Obligation Be Recorded? The standards for proper recording are found in 31 U.S.C. sec. 1501 (a) Recording of grants and subsidies is governed by sec. 1501(a)(5) Obligating action under this sec. may take place by operation of law under a statutory formula Approach shows lengths that Congress/GAO will go to in order to obscure spending Spending is permanent but need 2-way legal obligation before recording the appropriation or the expenditure 2 3 ANTIFRAUD PROVISIONS Goal of Securities Regulation and Statement and Account Clause The broad goal is the same, to ensure full and fair disclosure Essence of disclosure philosophy is that when armed with information, investors or voters are well positioned They can evaluate opportunities or candidates and allocate their

capital or vote as they see fit The crux of both is that all material information must be disclosed Constitution does not need an anti-fraud amendment requiring government to publish truthful figures 2 4 Antifraud Provisions are Inherent In the Statement and Account Clause A government of the people, by the people and for the people with an explicit provision in its constitution requiring the publication of a Statement and Account of the Receipts and Expenditures of all public Money does not need an antifraud amendment to that constitution requiring the federal government to publish truthful figures To a certain extent Congress recognized the importance of the antifraud provisions by making the issuance of municipal securities subject to them 2 5 Supreme Court on Materiality What is a material misstatement or omission under the antifraud provisions of the federal securities laws? The Supreme Court in TSC Industries v. Northway held that a fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.

2 6 Flaw #1 Entities Excluded Violate the Antifraud Provisions Federal Reserve System, Fannie Mae and Freddie Mac have total assets of $4.5T (3/4/16), $3.3T (12/31/15) and $2.0T (12/31/15). They are clearly material to the 9/30/15 balance sheet with assets of $3.2T. Reasonable investors in government securities would view the availability of consolidated information as significantly altering the total mix of information available regarding the Nations future financial prospects 2 7 Flaw #2 Full Costs of Medicare & Social Security Omitted The net present value cost of Medicare and Social Security has been reported in the Statements of Social Insurance for many years The total adjusted cost for both as reported in the SOSI included in the 2015 Financial Report is $41.4 trillion

(See Exhibit 21 in the memorandum) However, SOSI does not inter-relate with the other statements financial Reasonable investors in government securities would clearly consider inter-related information as significantly altering the total mix of information available regarding the nations future financial prospects 2 8 Flaw #2 Full Costs of Medicaid Program Omitted The federal governments $24.2T net present value obligation for Medicaid was reported for the first time in the 2010 Financial Report. Omitting the disclosure of material information as was done from Medicaids creation through 2009, violates the antifraud provisions as a matter of law. In addition, the current disclosure violates the Supreme Courts buried facts doctrine The net present value of the federal governments portion of the Medicaid program as reported in the 2015 Financial Report is $27.3 trillion 2 9 Overview of the Municipal Securities Market

The municipal securities market is very diverse, with close to 44,000 state and local issuers, and with a total face amount of $3.7 trillion The Government Accounting Standards Board (GASB) establishes GAAP, which are used by many state and local governments The SEC lacks authority to prescribe standards in the municipal securities market 3 0 Municipal Securities Are Subject to the Antifraud Provisions The securities laws were enacted with broad exemptions for municipal securities from all their provisions, except for: The antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 Generally, these prohibit fraudulent or deceptive practices by issuers including making any untrue statement of a material fact or omitting to state a material fact necessary in order to make statements made not misleading 3 1 PENSION ISSUE Congress and the SEC are Focused

On the Pension Disclosure Issue In 2011 legislation entitled Public Employee Pension Transparency Act, was introduced in Congress The legislation would require states to report their pension finances and provide an express ban on federal bailouts - See Sara Murray, GOP Bill Takes Aim at Pension Disclosure, Wall Street Journal, Feb. 22, 2011 The SEC formed a specialized group within its Division of Enforcement to focus on public pension accounting and disclosure violations The SEC has brought actions against three states 3 3 Government Pension Funding Obligations are Front Page News Detroits bankruptcy has focused the nation on the importance of this issue Underfunding for state and other municipal government pension benefits may exceed $4 trillion - See U.S. Senate Committee on Finance, State and Local Government Defined Benefit Plans: The Pension Crisis that Threatens America, at 1, Jan 2012

3 4 In the Matter of State of New Jersey In 2010 the SEC found that New Jersey violated Section 17(a) in connection with the sale of over $26 billion in bonds from 2001 through 2007 State made material misrepresentations and omissions that created the fiscal illusion that its pension plans were being adequately funded and masked the fact that NJ was unable to contribute to the plans without raising taxes or cutting other services, or otherwise impacting the budget 3 5 The Importance of Information in Evaluating NJs Overall Finances As of June 30, 2009, the two largest pension funds had an unfunded actuarial accrued liability of approximately $27 billion The SEC found that information regarding the States under funding

of the pension plans and their financial health was important to investors in evaluating New Jerseys overall financial condition and future financial prospects 3 6 In the Matter of State of Illinois In 2013 the SEC found that in connection with multiple bond offerings raising over $2.2B from 2005 through 2009 the State misled bond investors about the adequacy of the statutory plan to fund its pension obligations and the risks created by the States underfunding of its pension systems As of 2011 Illinois Pension Systems were unfunded by $83 billion. In April 2012, the State acknowledged that [u]nsustainable pension costs are squeezing core programs in education, public safety, and human services, in addition to limiting [the States] ability to pay [its]

bills. 3 7 What Was the Significance of Information to Investors? The SEC determined that reasonable investors would have considered information regarding the underfunding of Illinois pensions, the risks created by that underfunding, and the financial condition of the pension plans to be important factors in the investment decision-making process Reasonable investors would have viewed such information as significantly altering the total mix of information available regarding the States future financial prospects 3 8 In the Matter of State of Kansas In August, 2014 the SEC found that in connection with eight series of bond offerings in 2009 and 2010 by the Kansas Development Finance Authority (KDFA) raising $273 million the State and its agencies misled bond investors about the significant unfunded liability in the

Kansas Public Employees Retirement System (KPERS). As of 12/31/2008 KPERS had a unfunded actuarial accrued liability (UAAL) of $8.3 billion and a 59% funded ratio. The Kansas Legislature must annually appropriate money to pay the principal and interest on debt. Bond holders are at risk that it may not choose to appropriate funds. 3 9 Failure to Disclose Underfunding Was Materially Misleading Issuers of municipal securities must ensure that financial information contained in their disclosure documents is not materially misleading. Proper disclosure allows investors to understand and evaluate the financial health of the municipality in which they invest. The SEC determined that the States bond offering documents (Official Statements) did not disclose the significant unfunded liability in the States pension system 4

0 FEDERAL GOVERNMENTS COVER-UP Fear and Greed Just as fear and greed are the primary motivators on Wall Street they heavily influence the actions of our political leaders To date there have not been any downside implications for the Legislative and Executive branches for fraudulent reporting Politicians have spent enormous sums in an effort to endear themselves to their constituents Fear of severe negative career consequences needs to be introduced into our leaders political calculus Applying the rule of law will restore accountability 4 2 Federal Governments Cover-up FASAB has promulgated accounting principles and standards that justify the accounting practices the federal government follows The fiction that FASAB has concocted to effectively eliminate enormous legal obligations is to define a category of transactions in such a manner that the obligation will only be recognized at the last possible moment when funds are being disbursed The transaction classification is called Nonexchange Transactions Nonexchange transactions have no basis in appropriations law They are an accounting fiction

4 3 FASAB View of Medicaid & Social Insurance Fully Funded Obligations the obligation may be more a matter of what is perceived as equitable and good public policy than a legally enforceable claim. Although there may be a high probability that a grant, a subsidy, or an income transfer will be made or will continue in future years, the recipients of such grants, subsidies, or transfers do not have a right to receive such payments in the future The fact that FASABs point of view contradicts appropriations law is never discussed 4 4 STATE GOVERNMENTS FRAUD State Governments Fraud If States properly accounted for their spending the capital markets

would require meaningfully higher returns on their debt Some might not have ANY access to the capital markets as they would be considered bankrupt This provides State politicians with substantial incentive to under-report their expenses States accounting for Medicaid clearly violates the antifraud provisions as a matter of law In addition, although they have never opined on the issue, state financial reporting should be held by SCOTUS and the SEC to violate the Statement and Account Clause 4 6 STATE GOVERNMENTS COVER-UP States Cover-up The Board believes that a government appropriation is NOT the equivalent to an authorization to pay an existing liabilityrather, an appropriation is essential to make the enabling legislation effective for a particular period of time. In these circumstances, the Board believes that a government does not have a liability to transmit resources under a particular program, and a recipient does not have a receivable, unless an appropriation for that program exists

and the period to which the appropriation applies has begun GASB has promulgated Statement No. 33 Accounting and Financial Reporting for Nonexchange Transactions that justifies the accounting practices that States follow with respect to the Medicaid program 4 8 2nd Reason Why GAAP Standards Setting for States is Unconstitutional Congress current funding of GASB provided for by DoddFrank sec 978 enables Congress to force the States to implement a federal program AICPA has designated FASAB and GASB to set GAAP Both entities and the rules that they promulgate

are unconstitutional and require fraudulent accounting Yet, if AICPA members do not follow GAAP as set by FASAB or GASB they will be disciplined pursuant to the AICPAs Code or Professional Conduct 5 0 3rd Reason Current Arrangement Violates Several Private Rights Private entities wielding power in a manner that is unfair to both investors and the electorate Violates Right to Financial Information, Right to Vote, Freedom of Speech, Political

Accountability, Equal Protection and Due Process Actions may be brought in federal court under section 1983 of the reconstruction Civil Rights Acts and the Administrative Procedures Act 5 1 POLITICAL PROTECTECTION RACKET Is Accounting Industry Complicit In a Political Protection Racket? Are the federal and state governments, AICPA, FAF, FASAB and GASB operating a criminal enterprise as defined under the RICO Act? The presumptive bargain struck for operating this criminal enterprise is that the federal and state governments will do certain things in return for the accounting industry promulgating accounting standards that politicians like The end result is that politicians at both the federal and state level will be largely shielded from the negative consequences of their

spending 5 3 Federal/State Governments Role in Political Protection Racket Permit the accounting industry to provide federal, state and local government agencies and entities assurance services (audits) and provide funding for the FAF, FASB and GASB Not point out that the AICPA has no legal authority to designate any accounting standards setting body for the federal and state governments Aide in the AICPAs membership growth as a result of the above actions Not pointing out that FAF and GASB have no legal authority to set GAAP for state and local governments 5 4 Accounting Industrys Role in Political Protection Racket Promulgate generally accepted accounting principles (GAAP) that substantially understate spending by the federal, state and local governments Prosecute AICPA members under its Code of Professional Conduct that do not conform to these GAAP standards FASAB and GASB will coordinate their rulemaking so as to minimize any possible difficulties associated with differing accounting rules for the federal and state governments

5 5 RIGHT TO FINANCIAL INFORMATION Right to Financial Information There is no other meaning that one can ascribe to Article I, Section 9, Clause 7 than it creates a right for the public to receive revenue nd expense data and a concurrent duty on the governments part to publish this information Justice Stewart in Houchins v. KQED, Inc. stated that the Constitution itself.is neither a Freedom of Information Act nor an Official Secrets Act. Two reasons typically given to deny an affirmative right to information are: Judiciary lacks easily ascertainable standards for specifying the content of any access guarantee Alternative methods are available for the public to access the information 5 7 States Fraud Violates Right to Financial Information SCOTUS and SEC should apply the right to financial information to the States by interpreting 14th Amendment as incorporating the Statement and Account Clause Right to financial information is like other texturally enumerated rights

contained in the Bill of Rights If SCOTUS incorporated this right, all States, cities and local governments would have to comply and include all public Money in a single Statement and Account The off-balance sheet vehicles that are extensively used by state, city and local governments to mislead their respective electorates would need to be consolidated into one set of financial statements at each level of government 5 8 FREEDOM OF SPEECH Freedom of Speech Restrictions Subject to Strict Scrutiny SCOTUS in FEC v. Citizens United indicated that Political speech must prevail against laws that would suppress itLaws burdening political speech are subject to strict scrutiny which requires the Government to prove the restriction furthers a compelling interest and is narrowly tailored to achieve that interest. The Statement and Account is clearly political speech that is equal or greater in importance than the

requirement that the President deliver to Congress information regarding the State of the Union. 6 0 1st Amendment Premised on Mistrust Of Governmental Power The Constitution confers upon voters, not Congress, the power to choose Members of the House of Representatives and it is a very dangerous business for Congress to use election laws to influence voters choices. - Justice Kennedy in Opinion of the Court in FEC v. Citizens United The fact that Congress is using laws governing federal financial reporting to influence voters choices doesnt make it any less dangerous. Laws that have led to the publication of a false Statement and Account must be viewed in the same manner as FEC rules that SCOTUS struck down in Citizens United 6 1 RIGHT TO VOTE Deprivation of Information Can Affect Voting Rights

IN FEC c. Akins (1998) SCOTUS found that the plaintiffs had shown that a decision to regulate would produce information valuable to their roles as informed citizens and voters The Court explained that the plaintiffs had suffered injury because they were deprived of information and, without the sought information, they were less able to evaluate candidates for public office and to evaluate the role that the financial assistance to candidates might play in a specific election. The lack of a complete and accurate Statement and Account is an informational injury directly affecting voting rights 6 3 RIGHT TO POLITICAL ACCOUNTABILITY Political Accountability Has Disappeared When you couple enormous off balance sheet entities funded with public money and massive mandatory spending with inadequate financial reporting accountability disappears altogether Federal and State governments fraudulent financial reporting is substantially worse than the facts SCOTUS faced in New York v. United States as spending responsibility cannot be pinned on ANY federal or state politician 6 5 EQUAL PROTECTION

Financial Reporting Violates the Equal Protection Clause Financial reporting by federal government effectively forces states to participate in action that violates the equal protection clause Financial reporting disguises a very substantial wealth transfer from future generations to pay for current generations healthcare The wealth transfer is an equal protection violation as it is unlikely that funds will exist to cover future generations healthcare costs 6 7 DUE PROCESS Financial Reporting Legislation Violates Due Process Rights SCOTUS in Caperton v. A.T. Massey Coal Co. found that campaign expenditures made to support a W. Va. Supreme Court Justice violated the Due Process Clause of the 14th Amendment Court cited Tumey v. Ohio a judge must recuse himself when he has a direct, substantial, pecuniary interest in a case This rule reflects the maxim no man is allowed to be a judge in his own cause; because his interest would certainly bias his judgment, and not improbably, corrupt his integrity. If $3 million in campaign contributions is critical to SCOTUS due process analysis then how should the Court feel about $73.6 trillion of entitlement obligations that are fully funded with appropriations and numerous multi-trillion enterprises that are kept off the books by Congress while its members seek re-election

6 9 SCOTUS Opinion Extended Concept of Bias Further If the Court were to determine that a judge did not have a direct, personal, substantial, pecuniary interest then it would proceed to the more general concepts of bias There are circumstances in which experience teaches that the probability of actual bias on the part of the judge or decisionmaker is too high to be constitutionally tolerable SCOTUS does not have to conclude that Congress intentionally published misleading or fraudulent financial statements The Court merely has to conclude that there would be a possible temptation for the average Congress to not hold the balance nice, clear and true 7 0 SCOTUS SHOULD NOT SHOW DEFERENCE TO CONGRESS SCOTUS Should NOT Show ANY Deference to Congress Congress has abdicated its financial reporting responsibility The Executive branch dominates reporting and this reporting is politically motivated Dissent in Citizens United careful legislative adjustment of federal election lawswarrants considerable deference.

However, this is not to say that deference would be appropriate if there was a solid basis for believing that a legislative action was motivated by the desire to protect incumbents or that it will degrade the competitiveness of the electoral process. 7 2 US SUPREME COURT IS OUR ONLY HOPE No Congress, Administration or State is Going to Change Willingly Given the failures of Legislative and Executive branches and the States we need U. S. Supreme Court to restore the rule of law Since our nations founding the Supreme Court has not determined the meaning of the Statement and Account Clause The Federal Government has used dicta in U.S. v. Richardson to justify its unconstitutional and fraudulent accounting practices The author is optimistic about the SEC taking action with respect to financial reporting by the States SEC is an independent agency 7 4 PERPETUAL FRAUD ON THE JUDICIARY Fraudulent Reporting Has Created Perpetual Fraud on Judiciaries The nation needs SCOTUS most when the two other branches have

clearly failed to fulfill their Constitutional duties The impact of the fraudulent reporting can be most easily seen by reviewing an Obamacare decision: NFIB v. Sebelius The House of Rep. v. Burwell case that has been appealed to the DC Circuit Court of Appeals as well as cases in various federal courts involving Fannie Mae/Freddie Mac and the Treasury Department are all potentially affected by the concepts contained herein 7 6 SEC Determined Outcome of Two Recent Obamacare Cases Arguably, the SEC determined the outcome of NFIB v. Sebelius and King v. Burwell due to its decision not to go after improper state accounting for Medicaid SCOTUS decisions were effectively based on fraudulent federal and state financial information SEC decision stands in stark contrast to its prosecutions of the states of New Jersey, Illinois and Kansas for pension accounting State reporting for Medicaid violates the antifraud provisions as a matter of law SEC prosecution of pension accounting came at Congress behest 7 7 NFIB v. Sebelius In 2012 SCOTUS resolved constitutional challenges to two provisions of the Affordable Care Act (ACA)

Seven members of SCOTUS agreed that the Medicaid expansion is unconstitutional Each of the opinions issued contains economic and political accountability analysis that are seriously flawed and incomplete All of the justices ignored important facts associated with entitlement spending and the FEDS financial results The Courts remedy is clearly in error 7 8 Decision Based on Fraudulent Information Relevant material financial information that was published after ACA was passed but before submission of merit briefs and oral argument was not raised or discussed FEDS published a $24 trillion estimate of the net present value cost of Medicaid for the first time in the 2010 Financial Report Figure based on saving assumptions associated with the ACA similar to those used to generate $22.8 trillion Medicare figure Assumptions so unrealistic that Administration published alternate scenario showing NPV cost of $35.2 trillion for Medicare. No alternate figure was published for Medicaid Since state portion averaged 43% of total expenditures this means states aggregate net present value obligation for Medicaid was $18.3 trillion 7 9 No Meeting of the Minds

to Take the Money Legislation enacted pursuant to the spending power is much in the nature of a contract: in return for federal funds the States agree to comply with federally imposed conditions The States cannot knowingly accept the full terms of the contract if a fundamental assumption or condition on which they rely is materially in error The federal governments ability to continue to provide financing for a state is a key determinant whether a state wants to start or continue taking the money The lack of a truthful and accurate Statement & Account renders state acceptance of the Money null and void 8 0 STANDING/POLITICAL QUESTION DOCTRINE Standing Professor Brian Fitzpatrick of Vanderbilt Law addressed this issue at the Representation Without Accountability conference I think that there are a bunch of people thankfully for whom there arent any lower court cases or Supreme Court dicta out there that threaten their standing.Number one, those of us who have purchased or are considering purchasing government debt 8 2 Violation of the Right to Financial

Information Should Create Standing If violation of the right does not create standing there is no check on Congress obligation to publish a truthful and complete Statement and Account Justice Rehnquist has famously characterized the implied private right of action under Rule 10b-5 as a judicial oak which has grown from little more than a legislative acorn. The nation would receive similar benefits if SCOTUS adopted the same posture with respect to citizens ability to challenge the federal governments financial reporting. 8

3 Political Question Doctrine Professor Brian Fitzpatrick of Vanderbilt Law addressed this issue at the Representation Without Accountability conference there is another doctrinewhich I think its more likely a court would toss out one of these lawsuits, even if you had standingand this is called the political question doctrine. its especially important for courts to get involved on questions where we cant trust the political branches to enforce the Constitution themselvesAnd I think there is a good argument that this is one of those cases, where both the President and the Congress have the incentive to keep people in the dark about the true liabilities of the country. 8 4 UNITED STATES V. RICHARDSON United States v. Richardson In 1967 William Richardson made an effort to discover the size of the CIAs black budget but was rebuffed by the Treasury and started a court action arguing that the CIA Act was repugnant to the Constitution since it operates to falsify a regular Statement and Account After three years the case

was dismissed by a federal judge in Pittsburgh who decided that Richardson did not have standing 8 6 Richardson Granted Standing By Court of Appeals Richardson appealed and in 1971 succeeded in having the case heard before a full bench of the Court of Appeals in Philadelphia All parties conceded that there was no prior decision that directly controlled the outcome The judges ruled 6-3 that Richardson had standing 8 7 The Supreme Court Reversed in a 5-4 Decision In July 1974 the Supreme Court ruled that Richardson did not have standing The Court held that the suit was nothing more than a generalized grievance that needed to be dealt with through the political process The Court concluded that it did not need to examine the merits of the case 8 8

Who is Sovereign? The sovereign in this Nation is the people, not the bureaucracy. The statement of accounts of public expenditures goes to the heart of the problem of sovereignty. If taxpayers may not ask that rudimentary question, their sovereignty becomes an empty symbol and a secret bureaucracy is allowed to run our affairs. - Justice Douglas - Dissenting Opinion in Richardson Case 8 9 Circuit Court Believed Citizens Have a Right to Financial Information The right of the taxpayer to receive reasonably complete reports of governmental expenditures is within the zone of interest(s) protectedby the statute in question and one for which he may suffer a cognizable injury. Max Rosenn, Circuit Judge, Opinion of the Court in Richardson Case 9 0 Fiscal Information is Critical to Voting Rights

The Framers of the Constitution deemed fiscal information essential if the electorate was to exercise any control over its representatives and meet their new responsibilities as citizens of the Republic - Max Rosenn, Circuit Judge, Opinion of the Court and Supreme Court Justice Douglas including this quote in his dissenting opinion in Richardson Case 9 1 Accounting More Important Than State of the Union Article II, section 3 requires the President from time to time to give the Congress Information on the State of the Union, and presumably the Framers could have utilized the same informal procedure with regard to the accounting if they had so wished. Instead, they chose to have the statement published, indicating that they wanted it to be more permanent and widely-circulated than the Presidents message. The connotation must be that the statement was for the benefit and education of the public as well as coordinate branches of government. - Max Rosenn, Circuit Judge, Opinion of the Court in Richardson Case 9 2 Secrecy was the Evil at which Art. I, Sec. 9, Cl. 7 was aimed Secrecy has, of course, some constitutional sanction. Article I, Sec 5

Cl 3 provides that Each House shall keep a Journal of its Proceedings and from time to time publish the same, excepting such Parts as may in their Judgment require SecrecyBut the difference was great when it came to an accounting of public Money. - Justice Douglas in Richardson Case 9 3 Congress has the Duty to Publish the Statement and Account The mandate runs to the Congress and to the agencies it creates to make a regular Statement and Account of the Receipts and Expenditures of all public Money. The beneficiary as is abundantly clear from the constitutional history-is the public. Justice Douglas - Dissenting Opinion in U.S. v. Richardson 9 4 A Footnote in Chief Justice Burgers Opinion in Richardson Not controlling, but surely not unimportant, are nearly two centuries of acceptance of a reading of cl 7 as vesting in Congress plenary power to spell out the details of precisely when and with what specificity Executive agencies must report the expenditure of appropriated funds and to exempt certain secret activities from

comprehensive public reporting. The above comment is correct However, this plenary power just goes to the form of the presentation and the amount of detail that Congress provides. It does not otherwise impact the right to financial information 9 5 THE PRESIDENTS BUDGET AND THE FINANCIAL REPORT OF THE US GOVERNMENT Federal Government Publishes Two Annual Financial Reports Plus Feds Keep a Third Set of Books to Track Appropriations Presidents Budget Financial Report of the United States Government provides a plan for future initiatives and the resources needed to support them, as well as prior year fiscal and performance results provides the President, Congress and the

American people a broad, comprehensive overview of the cost on an accrual basis of the Governments operations, the sources used to finance them, its balance sheet and the overall financial outlook 9 7 The Presidents Budget Under Budget Accounting the Federal Government has Spent $1.30 for every $1.00 of Revenue (Trillions of Dollars) Fiscal Year Ended 9/30 GDP (Quarterly-Current Dollars per BEA) 2006 2007 2008 2009 2010

2011 2012 2013 2014 2015 $13.9 $14.6 $14.8 $14.4 $15.1 $15.6 $16.2 $16.7 $17.5 $18.1

Presidents Budget Revenues $2.4 $2.6 $2.5 $2.1 $2.2 $2.3 $2.5 $2.8 $3.0 $3.3 Outlays 2.7 2.7 3.0

3.5 3.5 3.6 3.5 3.5 3.5 3.7 ($0.2) ($0.2) ($0.5) ($1.4) ($1.3) ($1.3) ($1.1) ($0.7)

($0.5) ($0.4) Budget Deficit 9 8 The Financial Report of the United States Government Statements of Net Cost Under Accrual Accounting the Federal Government has Spent $1.38 for every $1.00 of Revenue (Trillions of Dollars) Fiscal Year Ended 9/30 GDP (Quarterly-Current Dollars per BEA) 2006 2007 2008 2009

2010 2011 2012 2013 2014 2015 $13.9 $14.6 $14.8 $14.4 $15.1 $15.6 $16.2 $16.7 $17.5

$18.1 Presidents Budget Revenues $2.4 $2.6 $2.5 $2.1 $2.2 $2.3 $2.5 $2.8 $3.0 $3.3 Outlays 2.7

2.7 3.0 3.5 3.5 3.6 3.5 3.5 3.5 3.7 (0.2) (0.2) (0.5) (1.4) (1.3) (1.3)

(1.1) (0.7) (0.5) (0.4) 0.2 0.1 0.6 (0.2) 0.8 0.0 0.2 0.1 0.3 0.1 ($0.4)

($0.3) ($1.0) ($1.3) ($2.1) ($1.3) ($1.3) ($0.8) ($0.8) ($0.5) Budget Deficit Additional Accrued Expenses Recorded in Financial Report Net Operating Cost 9 9

Reported Net Liability is about the Size of the Nations GDP Balance Sheet as of September 30, 2015 (Trillions of Dollars) Assets Cash Liabilities $0.3 Federal debt securities held by the public and accrued interest ($13.2) Receivables 1.3 Inventories 0.3 Federal employee and veteran benefits payable (6.7)

Property, plant & equipment 0.9 Other (1.6) Other 0.4 Total Liabilities Total Assets $3.2 Net Liability (Net Position) (21.5) ($18.2) 100 Social Security, Medicare and Medicaid Amounts that are Fully Funded with Appropriations Social Security Appropriations Limited to Amounts in the Trust Fund Medicare Amounts Based on the Infinite Horizon Assumption

Medicaid Amount Based on the Figures Appearing in the Statement of Long-Term Fiscal Projections and Required Supplementary Information 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $1.9 $2.0 $2.2 $2.4

$2.5 $2.6 $2.7 $2.7 $2.8 $2.8 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

0.3 SMI -Part B 26.2 26.8 34.0 37.2 31.6 22.4 23.7 25.1 31.5 28.3 SMI - Part D 16.0 17.1

17.2 15.6 21.0 16.2 14.3 14.4 14.2 14.9 Total Medicare 42.5 44.2 51.5 53.1 52.9 38.9

38.3 39.8 46.0 43.5 Net SOSI Obligation with Appropriations 44.3 46.2 53.7 55.5 55.4 41.5 41.0 42.5 48.7 46.3

24.2 24.0 26.1 25.2 26.0 27.3 Social Security Medicare Part A Medicaid Total SOSI & Medicaid Obligations with Appropriations $44.3 $46.2 $53.7 $55.5

$79.6 $65.5 $67.1 $67.7 $74.7 $73.6 Increase (Decrease) in Net Obligations ($1.7) $1.9 $7.5 $1.8 $24.1 ($14.1) $1.6 $0.7

$7.0 ($1.2) 101 The Financial Report of the United States Government Adjusted Statements of Net Cost Includes the Increase or Decrease in the Net Present Value Cost Of Social Security, Medicare and Medicaid to the Extent that they are Fully Funded with Appropriations (Trillions of Dollars) Fiscal Year Ended 9/30 2006 2007 2008 2009 2010 2011 2012

2013 2014 2015 $13.9 $14.6 $14.8 $14.4 $15.1 $15.6 $16.2 $16.7 $17. 5 $18.1 Revenues $2.4

$2.6 $2.5 $2.1 $2.2 $2.3 $2.4 $2.8 $3.0 $3.2 Outlays 2.7 2.7 3.0 3.5 3.5

3.6 3.5 3.5 3.5 3.7 ($0.2) ($0.2) ($0.5) ($1.4) ($1.3) ($1.3) ($1.1) ($0.7) ($0.5) ($0.4)

0.2 0.1 0.6 (0.2) 0.8 0.0 0.2 0.1 0.3 0.1 (0.4) (0.3) (1.0) (1.2) (2.1)

(1.3) (1.3) (0.8) (0.8) (0.5) 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.0 0.0

(1.9) 1.7 7.3 1.6 (0.2) (14.0) (0.6) 1.5 6.2 (2.5) 24.2 (0.2) 2.1 (0.9) 0.8

1.3 GDP (Quarterly-Current Dollars per BEA) Presidents Budget Budget Surplus (Deficit) Plus: Expenses Recorded in Financial Report Financial Report Net Operating Cost Increase (Decrease) in NPV Cost Social Security Medicare Medicaid Net Change Adjusted Net Operating Cost (1.7) 1.9 7.5 1.8 24.1

(14.1) 1.6 0.7 7.0 (1.2) $1.3 ($2.2) ($8.5) ($3.0) ($26.2) $12.8 ($2.9) ($1.5) ($7.8) $0.7

102 The Financial Report of the United States Government Adjusted Balance Sheet Reported Net Liability is about 5.1x the Size of the Nations GDP as of September 30, 2015 (Trillions of Dollars) Assets Liabilities $0.3 Federal debt securities held by the public and accrued interest Receivables 1.3 Inventories 0.3 Federal employee and veteran benefits payable (6.7)

Property, plant & equipment 0.9 Other (1.6) Other 0.4 Cash Total Assets $3.2 Total Liabilities Net Liability (Net Position) ($13.2) (21.5) ($18.2) Net Present Value Cost of Social Insurance and Medicaid obligations funded with Appropriations

(73.6) Total Net Obligations $91.8 103 REVISED Ballpark Estimate of Each States Net Present Value Cost Obligation for Medicaid Based on the 2015 State Expenditure Report Examining Fiscal 2013 -2015 State Spending Published by National Association of State Budget Officers Table 28 Medicaid Expenditures 2015 State Expenditure Report Estimated Published Figures for Fiscal 2015 Calculation of Each States Estimated Obligation Total Col. 1 + Col. 3 Adjusted Total State Spending % of Total State Spending

Aggregate State Net Present Value Cost State Net Present Value Cost Obligation for Medicaid Col. 3 Col. 4 Col. 5 Col. 6 Col. 7 Col. 8 $52,658 $5,699 $74,956 $22,298

11.43% $34,110,158 $3,900,193 14,861 7,541 1,925 24,327 16,786 8.61% 34,110,158 2,936,077 New York 11,161 29,393 5,114

45,668 16,275 8.35% 34,110,158 2,846,697 Texas 11,381 22,197 3,983 37,561 15,364 7.88% 34,110,158 2,687,351 Pennsylvania

8,298 12,996 2,849 24,143 11,147 5.72% 34,110,158 1,949,747 Florida 5,294 13,799 4,487 23,580 9,781 5.02%

34,110,158 1,710,817 Illinois 4,445 9,921 3,235 17,601 7,680 3.94% 34,110,158 1,343,326 Massachusetts 7,120 6,704 171

13,995 7,291 3.74% 34,110,158 1,275,285 General Fund Federal Funds Other State Funds Col. 1 Col. 2 California $16,599 Ohio

($ in millions) 104 2015 State Expenditure Report Estimated Published Figures for Fiscal 2015 Calculation of Each States Estimated Obligation Total Col. 1 + Col. 3 Adjusted Total State Spending % of Total State Spending Aggregate State Net Present Value Cost State Net Present Value Cost Obligation for Medicaid Col. 3

Col. 4 Col. 5 Col. 6 Col. 7 Col. 8 $8,752 $1,435 $13,781 $5,029 2.58% $34,110,158 $879,634 3,869 8,912 1,068

13,849 4,937 2.53% 34,110,158 863,542 Michigan (3) 2,797 12,494 2,029 17,320 4,826 2.47% 34,110,158 844,126 Minnesota

4,533 6,187 164 10,884 4,697 2.41% 34,110,158 821,563 Missouri 1,778 4,511 2,419 8,708 4,197 2.15%

34,110,158 734,107 Virginia 4,114 4,123 0 8,237 4,114 2.11% 34,110,158 719,589 Wisconsin 2,650 4,969 1,259

8,878 3,909 2.00% 34,110,158 683,732 Maryland 2,922 5,688 951 9,561 3,873 1.99% 34,110,158 677,435 Tennessee

3,316 6,673 370 10,359 3,686 1.89% 34,110,158 644,726 Connecticut 3,496 3,483 0 6,979 3,496 1.79%

34,110,158 611,493 Georgia 3,052 5,943 329 9,324 3,381 1.73% 34,110,158 591,378 Colorado 2,312 4,557 735

7,604 3,047 1.56% 34,110,158 532,958 Arizona 2,279 8,040 602 10,921 2,881 1.48% 34,110,158 503,922 Louisiana

1,610 4,588 1,216 7,414 2,826 1.45% 34,110,158 494,302 Indiana 2,009 6,476 677 9,162 2,686 1.38%

34,110,158 469,814 Washington 2,008 5,285 180 7,473 2,188 1.12% 34,110,158 382,708 General Fund Federal Funds Other

State Funds Col. 1 Col. 2 North Carolina $3,594 New Jersey ($ in millions) 105 2015 State Expenditure Report Estimated Published Figures for Fiscal 2015 Calculation of Each States Estimated Obligation Total Col. 1 + Col. 3 Adjusted Total State Spending % of Total

State Spending Aggregate State Net Present Value Cost State Net Present Value Cost Obligation for Medicaid Col. 3 Col. 4 Col. 5 Col. 6 Col. 7 Col. 8 $2,930 $717 $5,064

$2,134 1.09% $34,110,158 $373,263 1,501 7,517 504 9,522 2,005 1.03% 34,110,158 350,699 728 6,683 1,260

8,671 1,988 1.02% 34,110,158 347,726 1,268 2,846 691 4,805 1,959 1.00% 34,110,158 342,653 685 4,155

1,192 6,032 1,877 0.96% 34,110,158 328,310 Kansas 1,281 1,689 578 3,548 1,859 0.95% 34,110,158 325,162

South Carolina 1,023 4,359 640 6,022 1,663 0.85% 34,110,158 290,879 Arkansas 898 4,568 593 6,059 1,491

0.76% 34,110,158 260,794 Mississippi 640 3,633 635 4,908 1,275 0.65% 34,110,158 223,013 New Mexico 862 4,036

238 5,136 1,100 0.56% 34,110,158 192,403 1,067 1,482 30 2,579 1,097 0.56% 34,110,158 191,879 Maine

753 1,510 270 2,533 1,023 0.52% 34,110,158 178,935 West Virginia 520 2,610 400 3,530 920 0.47%

34,110,158 160,919 Hawaii 888 1,160 0 2,048 888 0.46% 34,110,158 155,322 Nebraska 850 968 37

1,855 887 0.45% 34,110,158 155,147 Utah 400 1,614 467 2,481 867 0.44% 34,110,158 151,649 General Fund

Federal Funds Other State Funds Col. 1 Col. 2 Oklahoma $1,417 Kentucky ($ in millions) Oregon Iowa Alabama Rhode Island 106 2015 State Expenditure Report Estimated Published Figures for

Fiscal 2015 Calculation of Each States Estimated Obligation Total Col. 1 + Col. 3 Adjusted Total State Spending % of Total State Spending Aggregate State Net Present Value Cost State Net Present Value Cost Obligation for Medicaid Col. 3 Col. 4 Col. 5 Col. 6

Col. 7 Col .8 $1,304 $250 $2,029 $725 0.37% $34,110,158 $126,811 548 917 166 1,631 714 0.37%

34,110,158 124,887 Alaska 694 951 5 1,650 699 0.36% 34,110,158 122,264 Delaware 668 1,193 14

1,875 682 0.35% 34,110,158 119,290 Nevada 564 2,225 114 2,903 678 0.35% 34,110,158 118,590 Vermont

283 824 335 1,442 618 0.32% 34,110,158 108,096 North Dakota 441 697 7 1,145 448 0.23%

34,110,158 78,361 South Dakota 364 484 0 848 364 0.19% 34,110,158 63,668 Montana 271 748 91

1,110 362 0.19% 34,110,158 63,318 Wyoming 272 309 23 604 295 0.15% 34,110,158 51,599 $144,859

$317,302 $50,154 $512,315 $195,013 100.00% General Fund Federal Funds Other State Funds Col. 1 Col. 2 Idaho $475 New Hampshire

($ in millions) $34,110,158 108 THE COMBINDED STATEMENT OF RECEIPTS, OUTLAYS AND BALANCES Combined Statement of Receipts, Outlays and Balances The Combined Statement is recognized as the official publication required by Constitutions Article I, Section 9, clause 7 31 U.S.C. 3513(a) provides in part, The Secretary of the Treasury shall prepare reports that will inform the President, Congress, and the public on the financial operations of the U.S. Government. Combined Statement is unknown by the general public, not referred to by any recent Congress or Administration Commissioner of the Treasurys Bureau of Fiscal Service Transmittal letter dated December 15, 2015 states In accordance with(31 U.S.C. 3513(a)) I am transmitting herewith the Combined Statement for the fiscal year ended September 30, 2015 The Combined Statement presents budget results and the cash-related assets and liabilities of the Federal 110 Statement Presents Budget Results & Cash-Related Assets & Liabilities

Congress has absolutely no control over the Combined Statement as the accounting principles for budget accounting are set by the Office of Management and Budget (OMB) Starting with the Budget and Accounting Act of 1921 Congress designated the Comptroller General to set accounting principles and standards for the federal government So the official Statement and Account that Congress is responsible for publishing is completely controlled by the Executive Branch FASABs Memorandum of Understanding among the Government Accountability Office, the Treasury and the OMB which was most recently revised in October 1990 makes the following point explicitly in the memorandum: The Board will not set or propose budget concepts, standards, and principles. 111 Control Over the Official S & A Has Not Been Delegated by Congress Treasury and OMB have determined for a very long time what the official Statement and Account will contain There is no legislation delegating authority to Treasury or OMB to determine the accounting principles or standards used to publish the official Statement and Account required by the Constitution Treasury referencing U.S.C. 3513(a) as the basis for their authority to publish the official Statement and Account that Congress is required to publish wishful thinking on their part The fact that FASABs Memorandum of Understanding specifically excludes Congress representative (the Comptroller General) from having any input as it relates to budget accounting is indicative of the control that the Executive branch wants to have over reporting

The Board will not set or propose budget concepts, standards, and principles. 112 THE PRESIDENTIAL DEBATE MODERATED BY CHRIS WALLACE Chris Wallaces Question Regarding the National Debt Our national debt as a share of the economy, our GDP is now 77%. That's the highest since just after World War II, but the nonpartisan Committee for a Responsible Federal Budget says, Secretary Clinton, under your plan, debt would rise to 86% of GDP for the next ten years. Mr. Trump, under your plan, they say it would rise to 105% of GDP over the next ten years. The question is why are both of you ignoring this problem? 114 Mr. Trumps Answer Well I say they're wrong because Im going to create tremendous jobs. And we're bringing GDP from really 1%, which is what it is now, and if she got in, it would be less than zero, but were bringing it from 1% up to 4%, and I actually think we can go higher than 4%. I think you can go to 5% or 6%. And if we do, you dont have to bother asking your question. 115 Mrs. Clintons Answer

But if you look at the debt, which is the issue you asked about, Chris, I pay for everything I'm proposing. I do not add a penny to the national debt. I take that very seriously because I do think it's one of the issues we've got to come to grips with. So when I talk about how we're going to pay for education, how we're going to invest in infrastructure, how we're going to get the cost of prescription drugs down, and a lot of the other issues that people talk to me about all the time, I've made it very clear, we are going where the money is. We are going to ask the wealthy and corporations to pay their fair share. And there is no evidence whatsoever that that will slow down or diminish our growth. 116 Chris Wallaces Question Regarding Entitlements The one last area I want to get into with you in the debate is the fact that the biggest driver of our debt is entitlements, which is 60% of all federal spending. Now the committee for a Responsible Federal Budget has looked at both of your plans and they say neither of you has a serious plan that is going to solve the fact that Medicare is going to run out of money in the 2020s, Social Security is going to run out of money in the 2030s, and at that time, recipients are going to take huge cuts in their benefits. In fact, the final question I want to ask you in this regard is -- and let me start with you, Mr. Trump. Would President Trump make a deal to save Medicare and Social Security that included both tax increases and benefit cuts, in effect a grand bargain on entitlements? 117

Mr. Trumps Answer I'm cutting taxes. We're going to grow the economy. It's going to grow in a record rate. Wallace: That's not going to help with entitlements. Trump: It is going to totally help you. And one thing we have to do is repeal and replace the disaster known as Obamacare. It's destroying our country. It's destroying our businesses, our small business and our big businesses. We have to repeal and replace Obamacare. 118 Mrs. Clintons Answer Well, Chris, I am record as saying we need to put more money into Social Security Trust fund. That's part of my commitment to raise taxes on the wealthy. My Social Security payroll contribution will go up as will Donald's assuming he can't figure out how to get out of it, but what we want to do is Trump: Such a nasty woman. Clinton: Replenish the trust fund by making sure that we have sufficient resources, and that will come from either raising the cap and/or finding other ways to get more money into it. I will not cut benefits.. 119 Selected Directors of the Committee for a Responsible Federal Budget Mitch Daniels

Leon Panetta Erskine Bowles Chuck Bowsher Dan Crippen James T. McIntyre, Jr. June ONeill Paul ONeill Robert Packwood Rudolph Penner Peter Peterson Robert Reischauer Director of OMB Director of OMB Natl Com on Fiscal Resp/Ref. Comptroller General Director of CBO Director of OMB Director of CBO Treasury Secretary Senate Finance Committee Director of CBO Secretary of Commerce Director of CBO 120 Selected Directors of the Committee for a Responsible Federal Budget Alice Rivlin Charles Robb

Alan Simpson David Stockman Paul Volker David Walker Joseph Wright Director of CBO & OMB Senate Finance/Budget Com. Natl Comm Fiscal Resp/Ref. Director of OMB Chairman Federal Reserve Comptroller General Director of OMB There are 19 other directors 121 Why Do Federal/State Governments Think That They Can Get Away With Their Deficient Reporting SCOTUS will NEVER hear the case Congress has plenary power to determine meaning of S&A clause FEDS already publishing required statement and account Information already available FEDS have already adequately warned the public Obligations cannot be paid so shouldnt recognize them 12 2

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