by Fergus Hodgson
Director of Fiscal Policy Studies
As the Washington Times reported this morning, the Treasury Department’s figure for federal debt has now surpassed $15 trillion. That equates to an increase of $4.4 trillion during Obama’s term.
A few simple calculations put these numbers into painful perspective. Per capita, for example, $15 trillion breaks down to $48,000. And for each individual who pays income taxes, that comes to $109,000. Hmm, yeah that’s going to be paid.
However, even these numbers are gross misrepresentations of the liabilities—so much so that they are almost irrelevant. As Larry Kotlikoff of Boston University notes in his latest Fiscal Times column, the official debt leaves out most of the federal government’s liabilities.
These unofficial debts [unfunded liabilities] refer to our future mandatory and non-mandatory spending obligations. Mandatory spending references Social Security, Medicare, Medicaid and other entitlement benefits.
I remember when someone first introduced me to the concept of unfunded liabilities, I had a difficult time getting my head around it. So permit me to have a go here. Put most simply, these are debts—money owed to creditors—but they have been labelled in such a way that they are not recorded. (They may also not be legally enforceable.)
Social Security is a clear example. When you pay these taxes (or “contributions,” as they’re euphemistically known), one assumes that the federal government owes you this money back when you retire. Even if not legally enforceable, the political pressure is such that the debt is enforced, and the payments have only expanded since initiation of the program.
Instead, the federal government has spent these taxes and labelled them as revenue, even though these collections have generated obligations at the same time. If we were to call your Social Security taxes “loans” to the federal government, along with other entitlements such as Medicare, we would have a completely different official picture of the debt situation. Also from Kotlikoff in Bloomberg:
Based on Congressional Budget Office projections, this year’s U.S. fiscal gap is $211 trillion, or about 14 times gross domestic product. By comparison, Greece’s is 12 times GDP. Germany’s is three times GDP. What’s more, our budget shortfall is growing rapidly. Last year’s value was $205 trillion. So the true measure of our nation’s insolvency grew in one year by $6 trillion, while the supercommittee is charged with saving a trivial $1.2 trillion over 10 years [emphasis mine].
No wonder the Federal Reserve is now the nation’s largest creditor, surpassing China. The printing press looks set to continue rolling for a long-time, along with the inflation tax that comes with it.