Posted on 08/08/2011 11:36:18 AM PDT by SeekAndFind
The national debt is at $14.5 trillion, but the real debt is the $211 trillion in unfunded liabilities.
The national debt is the United States' current outstanding debt obligations. Though the current debt is quite high, discussion of the current debt avoids the real issue that Standard & Poor's attempted to raise with its downgrade of the nation's credit rating.
The current level of debt is large, but manageable. The levels of future debt are where the real problem lies and where policy solutions need to be addressed.
The U.S. government has made promises that it will be unable to keep under current policies. The two biggest drivers of the nation's unfunded liabilities are Social Security and Medicare. The retirements of Baby Boomers, increased life spans and increasing costs of health care are rapidly driving up the costs of these programs. The revenue for these programs, from payroll taxes, do not cover the costs of these programs. They must be paid for, therefore, through other taxes or by borrowing money.
Current unfunded liabilities for Social Security, the amount the program is projected to cost minus the projected amount that will be raised through the Social Security payroll tax at current levels, is about $15 trillion.
Current unfunded liabilities for Medicare are much higher. The amount the program is projected to cost minus the projected amount that will be raised through the Medicare payroll tax at current levels is about $80 trillion. Medicare's prescription drug benefit adds another $20 trillion in unfunded liabilities.
The unfunded liabilities do not, however, stop there. The U.S. government also has unfunded liabilities in retirement benefits for federal workers, health and retirement benefits for active-duty military personnel, and state and local government obligations.
So what is the real debt? What is the amount that the U.S. government has promised to pay minus the amount it is expected to collect in taxes? Laurence J. Kotlikoff, professor of economics at Boston University, estimates that number at $211 trillion.
“That's the fiscal gap. That's our true indebtedness,” Kotlikoff told NPR.
To deal with the true debt, therefore, Congress must deal with the two biggest drivers of the true debt: Medicare and Social Security.
Reforming these programs has proven difficult because the beneficiaries of these programs, the elderly, represent a large voting bloc, and they vote in high numbers. On the other hand, those who have the most to lose because of unfunded liabilities, the young, do not vote in high numbers.
Reforming Social Security and Medicare is also complicated by the pervasive misinformation regarding these programs. Many of these programs beneficiaries believe, for instance, that they are only getting out of the program what they put into it, in the form of payroll taxes while they were working. This is not true. Most beneficiaries will get much more out of Social Security and Medicare than they ever put into them in their lifetimes.
One popular reform idea is to reduce the rate of growth of these programs. Opponents of this reform idea complicate matters what they accuse reformers of “cutting” the programs. Beneficiaries wrongly assume that they will see a reduction in benefits when, actually, their benefits will continue to grow, even faster than inflation under some reform proposals.
So, what will it take to cover the nation's unfunded liabilities? “What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever,” Kotlikoff said.
I am glad my accountant doesn’t figure my debt from the future. I would probably pass out.
The reform needed is very simple: let the age of eligibility drift upward starting now.
I propose pushing the age of eligibility up by two months for each year under the age of 60 a person is now. So, the program would not change for those 60 and over (keeping faith with those who have paid taxes into the Ponzi scheme their whole working life), but for me, for instance, at 54, I’d have to wait an extra year for each Social Security benefit level (63 to get anything, 67.5 for ‘standard’ benefits, 71 for maximum and to be required to collect) and an extra year to be eligible for Medicare, someone who is now 48 have to wait an extra two years, and so forth.
(Last year I advocated one month per year, but I’m thinking that’s too little, and I could be persuaded to accelerate it to three months per year and to use 61 or 62 as the cut point.)
At very least the age for standard Social Security benefits should be 3.6 years older than the average life expectancy as it was when FDR started the program, but I’d let the drift continue beyond that until the program basically abolishes itself. (Under my scheme a newborn would have to reach 72 to collect any SS, 76.5 for “standard benefits” and 80 to max out and have to collect.)
“The current level of debt is large, but manageable.”
No, it is not. It is out of control. “If” is for children. To say, “If we stop more spending...”, is childish as it is the policies of the federal government that got us into this mess and it will be those same policies that get us deeper into trouble.
Myabe my math is a litle fuzzy, but wouldn’t that be over a millon dollars per every person in the U.S.?
The printing press option is inevitable. This will be followed by a collapse of the dollar as the world dumps them. If we raise interest rates to prevent that from happening, the economy will collapse further. If we do, not, we will have hyperinflation. Either way, it looks like an economic Dark Age. I take no glee in predicting this. If only they had listened to conservatives 2 years ago, or ten years ago, or, well, at any time...
re: wouldn’t that be over a millon dollars per every person in the U.S.?
A little less than a million, but you’re close.
Assuming a US population of 310m., it would be $680K per person. Not to worry: the “rich” people will surely pick up the tab...
RE: Not to worry: the “rich” people will surely pick up the tab...
From Economist Walter Williams of George Mason University (who sometimes subs for Rush Limbaugh )
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This year, Congress will spend $3.7 trillion dollars. That turns out to be about $10 billion per day. Can we prey upon the rich to cough up the money? According to IRS statistics, roughly 2 percent of U.S. households have an income of $250,000 and above. By the way, $250,000 per year hardly qualifies one as being rich. It’s not even yacht and Learjet money. All told, households earning $250,000 and above account for 25 percent, or $1.97 trillion, of the nearly $8 trillion of total household income. If Congress imposed a 100 percent tax, taking all earnings above $250,000 per year, it would yield the princely sum of $1.4 trillion. That would keep the government running for 141 days, but there’s a problem because there are 224 more days left in the year.
How about corporate profits to fill the gap? Fortune 500 companies earn nearly $400 billion in profits. Since leftists think profits are little less than theft and greed, Congress might confiscate these ill-gotten gains so that they can be returned to their rightful owners. Taking corporate profits would keep the government running for another 40 days, but that along with confiscating all income above $250,000 would only get us to the end of June. Congress must search elsewhere.
According to Forbes 400, America has 400 billionaires with a combined net worth of $1.3 trillion. Congress could confiscate their stocks and bonds, and force them to sell their businesses, yachts, airplanes, mansions and jewelry.
The problem is that after fleecing the rich of their income and net worth, and the Fortune 500 corporations of their profits, it would only get us to mid-August. The fact of the matter is there are not enough rich people to come anywhere close to satisfying Congress’ voracious spending appetite. They’re going to have to go after the non-rich.
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