Federal Fiscal Burden Consumes 93 Percent of America’s Wealth

Based on data from a U.S. Treasury report, the federal government has amassed $142 trillion in debts, liabilities, and unfunded obligations. This staggering figure equals 93 percent of all the wealth Americans have accumulated since the nation’s founding, estimated by the Federal Reserve to be $152 trillion.

Unlike other measures of federal red ink that cover an arbitrary period, extend into the infinite future, or ignore government resources, the figure of $142 trillion applies strictly to Americans who are alive right now and includes the government’s commercial assets. Thus, it quantifies the financial burden that today’s Americans are leaving to their children and future generations.

Federal law requires the U.S. Treasury to publish an annual report that details the government’s “overall financial position.” In addition to the national debt, the “Financial Report of the United States Government” also includes the government’s explicit and implicit financial commitments, such as:

Such “fiscal exposures,” as explained by the U.S. Government Accountability Office (GAO), “represent significant commitments that ultimately have to be addressed.” Thus, GAO stresses that ignoring them can “make it difficult for policymakers and the public to adequately understand the government’s overall performance and true financial condition.”

Yet, that is precisely what the media does. Although the Treasury published the report in February, Google News indicates that no major media outlet has mentioned it. Meanwhile, the same outlets have frequently reported on the national debt and federal budget, which are incomplete measures of the federal government’s fiscal situation.

The commonly cited national debt and federal budget are mainly based on cash accounting, which is the simplistic process of counting money as it flows in or out. Thus, liabilities like pension benefits for federal workers aren’t measured until they are actually paid, which is often decades after they are promised.

In contrast, the Treasury report mainly uses accrual accounting, which measures financial commitments as they are made. This is how the federal government requires large corporations to report their finances. In the words of the Financial Accounting Standards Board, which is tasked by the U.S. Securities and Exchange Commission to create private-sector accounting rules, accrual accounting is the “most relevant and reliable” way to measure the financial health of pension plans.

The same applies to other retirement benefits like healthcare. The accounting rule that governs such benefits explains that “a failure to accrue” implies “that no obligation exists prior to the payment of benefits.” Since an obligation does exist, failing to account for it “impairs the usefulness and integrity” of financial statements.

A methodical tally of accrual accounting data in the Treasury report shows that the federal government has amassed $142 trillion in debts, liabilities, and unfunded obligations beyond the value of its commercial assets. This reflects the government’s finances at the close of its 2023 fiscal year on Sept. 30, 2023.

• $16.6 trillion in liabilities that are not accounted for in the publicly held debt.

These figures tally to $147.1 trillion in debts, liabilities, and unfunded obligations. Offsetting this is $5.4 trillion in commercial assets owned by the federal government, leaving a grand total shortfall of $141.7 trillion.

Numbers in the trillions are hard to conceive, so it’s revealing to place them in context. The figure of $142 trillion amounts to 93 percent of the net wealth Americans have accumulated since the nation’s founding, estimated by the Federal Reserve to be $152 trillion. This includes all of their assets in savings, real estate, corporate stocks, private businesses, and consumer durable goods like automobiles and furniture.

The simplest major item quantified by the Treasury report is the publicly held debt, which is $26.3 trillion. This is the money the federal government owes to non-federal entities like individuals, corporations, state governments, and foreign governments.

Publicly held debt is a partial measure of the national debt that excludes $6.9 trillion the federal government owes to federal programs like Social Security and Medicare. The Treasury report also details these intergovernmental debts and consolidates them with the items below.

Pension and other retirement benefits are a large part of compensation packages for government employees. With these generous benefits included, civilian non-postal federal employees receive an average of 17 percent more total compensation than private-sector workers with comparable education and work experience. Postal workers receive even greater premiums ranging from 25 percent to 43 percent.

In 2022, federal, state, and local governments spent $2.3 trillion on employee compensation, costing each household in the nation an average of $17,299.

The Treasury report shows that the federal government currently owes $14.3 trillion in pensions and other benefits to federal employees and veterans that are not accounted for in the publicly held national debt. To pay the present value of these benefits will require an average of $109,005 from every household in the United States.

Altogether, the Treasury records $16.6 trillion in liabilities that are not accounted for in the publicly held debt.

A similar but far more expensive situation exists with social insurance programs like Social Security and Medicare. This is because—contrary to popular belief—these programs don’t save workers’ taxes for their retirements. Instead, they immediately spend the vast majority of those taxes to pay benefits to current recipients. Thus, they are called “pay-as-you-go” programs.

In stark contrast, the U.S. Bureau of Economic Analysis explains that “federal law requires private pension plans to operate as funded plans, not as pay-as-you-go plans.” The reasons for this, as explained by the American Academy of Actuaries, are to increase “benefit security” and ensure “intergenerational equity.”

Social Security and Medicare, on the other hand, have levied dramatically increased tax burdens on succeeding generations of Americans, thus creating severe generational inequality. And unless retirement ages are raised or benefits are reduced in some other way, taxes will need to be increased again to keep the programs solvent.

Federal actuaries measure the unfunded obligations of Social Security and Medicare in several different ways, but only one of them approximates accrual accounting. This is called the “closed-group” unfunded obligation, which is the money needed to cover the shortfalls for all current taxpayers and beneficiaries in these programs.

In the words of Harvard Law School professor and federal budget specialist Howell E. Jackson, the closed-group measure “reflects the financial burden or liability being passed on to future generations.” These burdens are $49.8 trillion for Social Security and $53.9 trillion for Medicare. Placing these figures in context:

• Social Security’s unfunded obligations amount to an additional $272,237 from every person who currently pays Social Security payroll taxes.

• Medicare’s unfunded obligations amount to an additional $201,932 from every U.S. resident aged 16 or older.

Those shortfalls are what remain after the federal government has paid back with interest all of the money it has borrowed from Social Security and Medicare.

Social Security and Medicare differ from true pensions because taxpayers don’t have a contractual right to receive these benefits. Nevertheless, paying these benefits is an implied commitment of the federal government, and federal law requires that these programs be included in the Treasury report.

The Treasury report estimates that the combined closed group unfunded obligations of Social Security, Medicare, and some smaller social insurance programs are $104.2 trillion. This figure doesn’t include intergovernmental debt, which is consolidated with other data in the report.

The Treasury also records the federal government’s commercial assets, such as:

However, the report doesn’t account for federal stewardship land and heritage assets, such as national parks and the original copy of the Declaration of Independence. While these items have tangible value, the report explains that they “are intended to be preserved as national treasures,” not sold to the highest bidder to cover debts.

In total, the government owned $5.4 trillion in commercial assets at the close of its 2023 fiscal year.

Adding up the federal government’s debts, liabilities, and unfunded obligations and then subtracting the value of its commercial assets yields a fiscal shortfall of $142 trillion.

The first critical step in solving a problem is to understand its root causes. However, scientific surveys show that many voters are misinformed about the root causes of government debt.

A scientific, nationally representative survey commissioned in 2020 by Just Facts found that 25 percent of voters believe the main driver of the rising national debt is military spending. This accords with the reporting of media outlets that frequently blame the debt on military spending.

In reality, military spending has plummeted from 53 percent of all federal expenses in 1960 to 17 percent in 2022:

The same survey found that another 25 percent of voters believe tax cuts were the main driver of debt, in accord with news stories that blame the debt on tax cuts.

In reality, federal revenues have stayed at a roughly level portion of the U.S. economy for the past 80 years:

the primary driver of the national debt is increased spending, particularly on social programs. These programs—which provide healthcare, income security, education, nutrition, housing, and cultural services—have grown from 21 percent of all federal spending in 1960 to 64 percent in 2022.

Yet, only 39 percent of voters correctly identify social spending as the primary cause of rising debt.

Moreover, the vast bulk of the government’s unfunded obligations are due to Social Security and Medicare. Thus, the Congressional Budget Office projects that the main drivers of future debt will be Social Security, Medicare, Medicaid, the Children’s Health Insurance Program, Obamacare, and interest on the national debt. Under the weight of these, the publicly held debt is due to soar to unprecedented levels over coming decades.

A broad range of academic publications explain that excessive government debt can cause far-reaching negative outcomes, such as lower wages, increased inflation, weak economic growth, higher taxes, reduced government benefits, or combinations of such results.

Likewise, GAO warns that “the costs of federal borrowing will be borne by tomorrow’s workers and taxpayers,” which “may reduce or slow the growth of the living standards of future generations.”

Such effects may have already begun. Although association does not prove causation, the national debt has skyrocketed over recent decades, and with this, the United States has experienced episodes of historically poor growth in gross domestic product (GDP), productivity, and household income. Along with this, rapid inflation has set in, another common consequence of excessive government debt.

While some believe the U.S. government can spend and borrow with abandon because it can print money, one of the most established laws of economics is that there is no such thing as a free lunch. The prolific economist William A. McEachern explains why this is so:

“There is no free lunch because all goods and services involve a cost to someone. The lunch may seem free to you, but it draws scarce resources away from the production of other goods and services, and whoever provides a free lunch often expects something in return. A Russian proverb makes a similar point but with a bit more bite: ‘The only place you find free cheese is in a mousetrap.’”

> They want my retirement money. I can feel it. <

Awhile back some lefty politicians proposed seizing all retirement fund money (IRAs, etc.) and replacing them with long-term government bonds paying 2%.

That wouldn’t be theft, dontcha know? It would just be a mandatory cash swap. The idea went nowhere. But I can see it resurfacing when push comes to shove.

I personally believe that’s it more likely that the Feds will simply print their way out. We owe you $100,000? Here’s a stack of fresh $100 bills to cover it.

Then hyperinflation, here we come.

the federal government has amassed $142 trillion in debts, liabilities, and unfunded obligations. This staggering figure equals 93 percent of all the wealth Americans have accumulated since the nation’s founding, estimated by the Federal Reserve to be $152 trillion.

Liabilities and unfunded obligations? To Americans?

That doesn't consume the wealth of Americans. It's a wash.

This staggering figure equals 93 percent of all the wealth Americans have accumulated since the nation’s founding, estimated by the Federal Reserve to be $152 trillion.

But Kamala Harris wants to give Medicare and SS to all illegal aliens here! So the figure won’t be 93 percent, it will surpass 100 percent!

“That doesn’t consume the wealth of Americans. It’s a wash.”

That is the static way of looking at it.

The problem with government taxation and expenditures are that the folks who are supposed to pay the taxes will want to minimize them.

There are radical ways—like the wealthy leaving the country—or somewhat less radical ways—like the wealthy finding tax loopholes with the help of tax accountants and tax attorneys—but at the end of the day collecting the money can be very difficult.

Spending it is very easy.

It is very difficult to quantify this issue—which makes it easy to ignore.

When you have an entity that can create money from nothingness, on a whim, DO NOT THINK ANY CALCULATIONS ANYONE DOES MATTERS.

Any substance from nothingness cannot possibly be required to adhere to any sort of rules.

And so . . . suppose the Fed returned to QE and created $2T per year to cover he deficit.

The room will shake as everyone jumps to their feet and screams THIS WILL CAUSE INFLATION.

This is because these folks think that something that comes from nothingness has to conform to any rules at all.

How can you be sure of this? The Fed created TRILLIONs from 2009 onward. For well over a decade. And guess what, folks, there was no inflation. We didn’t see inflation until about 2021/2022.

That’s 2009 through 2021 of creating money from nothingness, in big amounts, and nope, not a tick from the CPI.

Forget all this stuff about ideology and how if only conservatism had control it would all be fixed. That’s all crap. Every debt ceiling vote passes, and it ain’t passing because conservatism doesn’t want it to. THERE IS NO CHOICE. You can run for the microphones and scream how this is a conservative thing to do because you got $5 reduced off something, but that debt ceiling bill is going to pass.

So forget ideology. It will change nothing.

Buy farmland.

“They want my retirement money. I can feel it.”
*******************************************

Well, crusty, they’re gonna need that. How else are they going to continue to be able to pay all of Ukraine’s pensioners’ monthly payments?

Don’t be selfish! ;)

Static is never the correct way to look at economics.

Every economist of every ideological stripe agrees on that point.

Humans react to incentives, good and bad.

Ignoring that leads to major policy errors.

When the article claims that paying benefits to "Americans" will drain the wealth of "Americans", a static view is perfectly fine.

It's like saying, if I take $120.8 trillion out of my left pocket and put it into my right pocket, I'll hardly have any money left.

It's a stupid claim. Looking now at who the author was, I see I was correct to mock his article.

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