(FORTUNE Magazine) – Americans don't like the budget deficit. Year in and year out they list it as a major worry (82% in a recent Gallup poll said reducing the deficit should be one of Congress's top priorities). It's not that they worry the deficit will poison the economy, bring down the stock market, or explode inflation. No, Americans don't like the deficit because they know in their bones what conservative economists have always asserted -- that the main effect of deficit finance is to saddle future generations with the burdens of our own profligate spending.

So shouldn't we all be cheering now that Washington is finally getting serious about putting the nation's unbalanced accounts in order? Even allowing for the horse-trading, logrolling, and larceny that goes on in the heat of a typical budget bill, the Republican-led Congress is likely this year to make some deep reductions in government outlays. The parameters of debate have in fact become quite narrow: The Republicans want to balance the budget in seven years; President Clinton is holding out for ten.

Well, don't cheer. Polite applause will do. The bad news is that even if the Republicans' most stringent budget plans were enacted in full, they still wouldn't move the nation's finances very far toward generational balance -- defined as a state in which the voters and taxpayers of today will actually pay for the government goods and services they receive over their lifetimes. To get an honest measure of these burdens, you need to turn to a new, sophisticated technique known as "generational accounting."

Generational accounting is the brainchild of Laurence Kotlikoff -- a professor at Boston University -- Alan Auerbach of the University of California at Berkeley, and Jagadeesh Gokhale of the Federal Reserve Bank of Cleveland. What it does is measure, in present-value terms, how much money people born in any given year can expect to pay the government over their lifetimes and how much they can expect to get back -- if present tax and spending policies continue. Unlike budget accounting, generational accounting also measures precisely the financial impact of federal promises to make future payments, such as those for Social Security and Medicare.

The bottom-line number that this bookkeeping method produces is a percentage: net lifetime payments to the government less net lifetime receipts, as a percent of lifetime income. This single number, when you run it for current and future generations, sends alarming signals. Americans born in 1930, for instance, will make net payments as a percent of income of 30%. For boomers born in 1950, the comparable burden is 33%. But for future generations, watch out! If we continue current policies and leave the path of future spending unchanged, the net payment for future generations will rise to an unfathomable 84% of lifetime earnings. "What that's telling you," says Kotlikoff, "is that current fiscal policy is unsustainable and generationally unconscionable. We need to pay more and spend less today so our kids won't be taxed to death."

Viewed through the lens of generational accounting, the current budget proposals look a lot less impressive. Take one of the most ambitious Republican plans, that of Senate Budget Committee Chairman Pete Domenici. On paper it balances the budget by 2002. Under generational accounting, it would reduce the lifetime net payments of future generations merely from 84% of income to 73%. The biggest culprit, it turns out, is spending for Medicare and Medicaid, which is projected to grow at extraordinary rates over the next 15 years. If we stabilized Medicare and Medicaid spending at their current levels -- something no one is proposing -- the lifetime tab for future generations would fall to a still high but not-so-scary 51% of earnings.

Washington's all-too-typical response has been to ignore the messenger. Since 1992 the Office of Management and Budget has included in federal budget documents a chapter showing a generational-accounting analysis of fiscal policy. This year the Clinton OMB mysteriously excised the chapter, days before the budget was printed.

The budget cutting under way in Washington is worthwhile and overdue. But we need to admit that we're in the middle of this painful journey, not at the end. Generational accounting helps us see just how far we still have to go.