USA Today
reports that the total obligations of the federal government, including entitlements, civil service retirement and other costs, total $63.8 trillion in present value. Your share? $546,668. Think about that when people want to add new entitlement programs rather than fixing the ones we already have.
Friday, May 29, 2009
Got $546,668? Neither does the government.
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9 comments:
Andrew,
Although talk of the amount of our "unfunded liabilities" as represented in the USA Today article and elsewhere is useful for raising awareness of the severity of our long-term fiscal imbalance, it is actually an artificial metric reflecting bookkeeping more than our actual fiscal imbalance. To illustrate, if we shifted around our tax rates in a revenue-neutral way such that FICA for Social Security and Medicare were raised high enough to close this "gap", and lowered other taxes accordingly, most of our "unfunded liabilities" would disappear. Would that mean that our fiscal outlook is any better? Of course not. Our projected deficits and level of debt-to-GDP would be unchanged.
Alternatively, what if we had no dedicated taxation for Medicare and Social Security, but instead paid for them out of general fund taxation? Then ALL projected spending for Medicare and Social Security would equal our "unfunded liabilities" for those programs, and our "unfunded liabilities" would be much greater. Would that make our fiscal outlook (the degree of overall long-term fiscal imbalance) any worse? Of course not. Here, too, our projected deficits and level of debt-to-GDP would be unchanged.
ALL future spending is unfunded. As you know, there is no pile of cash or (non-tax) income-producing assets in the "trust funds", nor does the fact that a couple of programs have dedicated taxes carved out of overall taxation affect our overall fiscal balance. And as you know, any "gap" for Social Security and for Medicare can be financed by shifting (more) funds from general fund taxation.
The key metric is projected debt-to-GDP (debt held by the public, that is) over the long term, based on our current debt plus future overall deficits (i.e., overall revenues less overall spending), not any of this internal bookkeeping.
All that said, I'm still happy to see articles such as that one, because it does provide some sense of the scale of the problem, raise awareness and hopefully interest, and hopefully shift the political calculus in the direction of more fiscal responsibility.
But I would like to see a similar metric used to better reflect our fiscal imbalance. Instead of "unfunded liabilities" per household, I'd like to see reported the present value of projected deficits (over several decades or infinite horizon), and that figure plus our current debt held by the public.
As follow up to my comment above, the metric I suggest in the last paragraph, while better than the "unfunded liabilities" metric, does not put the fiscal imbalance in the context of GDP levels. Other metrics are, of course, useful for that.
Brooks, You said:
"To illustrate, if we shifted around our tax rates in a revenue-neutral way such that FICA for Social Security and Medicare were raised high enough to close this "gap", and lowered other taxes accordingly, most of our "unfunded liabilities" would disappear. Would that mean that our fiscal outlook is any better? Of course not. Our projected deficits and level of debt-to-GDP would be unchanged."
I'm not sure that's right. If we raised taxes and/or cut benefits to eliminate these unfunded obligations, then our deficits and debt would be that much smaller.
Andrew,
I think you misread my comment. I said "if we shifted around our tax rates in a revenue-neutral way such that FICA for Social Security and Medicare were raised high enough to close this "gap", and lowered other taxes accordingly". In other words, no change in overall projected revenues. And of course, I said nothing about cutting benefits. So the result would be same revenues, same spending, same deficits and debt.
Andrew,
As follow-up to my reply above, let me add this illustration:
Suppose I set up a booth at a fair and sell bananas and apples, and suppose I promised a few friends that at the end of the day when we meet for dinner, I'll buy 4 rounds of beer -- Heineken, to be precise. Now suppose for some reason, rather than putting all the money I earn in the same pocket, I decide to put all the money from bananas into my right pocket and dedicate that to the beer, and put the money from apples in my left pocket and use it for my own meal and other items tonight. So:
Banana revenue goes into Right pocket "dedicated" to spending on Beer.
Apple revenue goes into Left pocket to spend on my Meal and other items tonight.
Halfway through the day I'm able able to project fairly well how much money I'll end up with in each pocket. I realize that I won't end up with enough money in my right pocket for 4 rounds of Heineken, only enough for 3 rounds of beer. I have an "unfunded liability" equal to the cost of one round of Heineken. Does that measure the size of an imbalance between my projected revenue and spending? No, it just reflects how I've segregated my revenue (by left vs. right pocket). Any projected imbalance would be between how much I plan to spend OVERALL (what I plan to spend on 4 rounds of Heineken plus my meal and other items) and my projected OVERALL revenue.
I could choose to start putting some percentage of the Apple revenue into my Right pocket to eliminate or reduce the "unfunded liability", but that would mean that much less money in my Left pocket for my meal and other items I plan to buy tonight, so my overall projected revenue hasn't changed, nor has my overall projected spending, nor my overall fiscal imbalance. Or I could just stop segregating my money and put it all in one pocket, which would mean, per the "unfunded liability" metric, I would have an "unfunded liability" of 4 rounds of Heineken if I put all my money in left pocket, or no "unfunded liability" (actually, a "surplus"!!) if I put it all in my right pocket. Of course, as the absurdity of the preceding scenarios suggests, none of those shifts, however dramatic they would sound in terms of huge increases or decreases in "unfunded liability", would change my overall fiscal imbalance (if I have one) one bit. It's just internal bookkeeping.
Do I have a fiscal imbalance problem, and if so, how large is the imbalance? The fact that I project a "beer shortfall" of 1 round of Heineken beer doesn't answer this question. Does it mean I have to find a way to earn more Banana revenue, or even that I have to find a way to earn more overall revenue, if I want to have enough money to buy all 4 rounds of Heineken (not 3 rounds or 4 rounds of Bud)? Again, I don't know, because I don't know the size of the projected OVERALL gap (surplus/deficit). Also, if I have a projected overall gap (deficit), one option would be for me to spend less on my meal and other items if buying 4 rounds of Heineken is my priority. I need to know overall projected revenue and overall projected spending. Whatever gap exists there represents the amount I have to either raise overall revenue and/or reduce overall spending. And how much we would need to raise revenue to buy those 4 rounds of Heineken is a function not of the "shortfall" between that cost and the revenue I project will end up my right pocket, but rather is a function of (1) the overall gap (deficit), and (2) the extent to which I'm willing to reduce spending on my meal and other (non-beer) items.
Here are words I never expected to write.
I agree with Brooks here.
He's a uniter, not a divider...
Bruce,
Maybe someday on Angry Bear you'll stop deleting consistently comments with which that you disagree and that dismantle your persistent nonsense and fundamental conceptual confusion. Kinda funny, by the way, that you (at least claim to) get what I'm saying on this thread, yet your mind is absolutely impervious to much the same reasoning when it refutes the foundation of much of your advocacy, and you can do nothing but either censor me (on Angry Bear) or (elsewhere) throw out incessant straw men, non sequiturs, irrelevancies, and personal attacks. Curious.
Andrew,
Do you see my point now?
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