Medicare & Social Security: $24 Trillion in Unfunded Liabilities

[dolstein]

The following are excerpts from a Concord Coalition fax alert. Sobering news indeed, and proof positive that are political leaders (including, sadly, all the Democratic presidential candidates) simply aren't being honest about the sheer scope of the looming funding crisis for Medicare and Social Security.

IT’S OFFICIAL: $24 TRILLION IN UNFUNDED LIABILITIES

Social Security and Medicare have accumulated unfunded benefit liabilities totaling $24 trillion -- a massive lien on the future seven times greater than the public debt. Yet for decades, you couldn’t find these liabilities officially acknowledged anywhere in a government report.

. . .

In general, the federal budget uses cash-in cash-out accounting, which means that it records outlays when money is disbursed rather than when obligations accrue. This framework makes sense for discretionary programs, whose spending levels are determined each year in the appropriations process. But it is misleading when applied to entitlement programs, whose operation is governed by authorizing legislation that remains in force indefinitely and whose participants accrue claims to benefits payable many decades in the future.

. . . .

The Social Security Trustees have developed their own system of trust-fund accounting to measure the program’s long-term financial status. The official measure of Social Security’s solvency is its seventy-five-year “actuarial balance,” which the Trustees define as the present value of trust-fund revenues over the next seventy-five years, plus accumulated trust-fund assets, minus the present value of trust-fund outlays over the same period. According to the Trustees, Social Security’s actuarial balance is a deficit of $3.8 trillion.

Trust-fund accounting, however, greatly understates Social Security’s true burden on the budget, the economy, and future generations. The actuarial balance measure perpetuates the fiction that past trust-fund surpluses that were never saved can be drawn down to finance future trust-fund deficits. Moreover, it suffers from the same shortcoming as cash accounting -- namely, the failure to record benefit claims as they accrue. Actuarial balance counts all tax contributions payable within its arbitrary seventy-five-year projection horizon as assets, while failing to count the trillions of dollars of future benefits “earned” by those contributions, but payable beyond the projection horizon, as liabilities.

Is there a better way to measure the federal government’s long-term benefit obligations? Yes, it turns out there is. The measure is called an unfunded liability. FASAB requires that the government calculate a standard type of unfunded liability called a “closed-group liability.” The closed-group measure assumes that Social Security and Medicare will be closed to all new entrants. It then determines what today’s workers and retirees are due to receive in future benefits over and above what those same workers and retirees are due to pay in future contributions. Private pension plans calculate something similar called a “termination liability.” Indeed, federal law requires them to do so.

As of 2002, the closed-group liability for Social Security was $11.2 trillion. Add in Medicare, and the combined liability for the two major senior entitlements comes to a staggering $24.1 trillion, a sum more than twice the size of the entire U.S. economy.

http://www.concordcoalition.org/facing_facts/alert_v9_n3.html

[RobertSeattle]

1. Instead of "It's your money", it now "It's your unfunded Liabilities"

Thanks George!

[papau]

2. What Bull-it is saying stolen SS payroll tax surpluses will never be paid

The US Gov bond is a real asset - backed by the promise and ability to raise income taxes - on the rich among others - except where those bonds are held by the SS Trust Fund.

In SS that money is past trust-fund surpluses that were never saved - wow - so when the gov uses payroll taxes for Defense rather than raise the monies from the rich via income taxes, it never plans to pay the Social Security System back the monies stolen.

What a great idea - SS payroll taxes are just part of the general fund - well great - then SS benefits should be paid from the general fund - so let's talk raising the FIT rate on the rich - and cut this bull crap about unfunded SS liabilities.

Let me know when the rich repay the money Bush gave them in his tax cuts - and then we will discuss any need for new funds or benefit cutbacks.

I thought the Concord Coalition was an honest non-partizan group - and now they produce cover for screwing the older folks - a nice neo-con GOP front.

I like the put down of actuaries at the SSA - as if these folks could find an income stream if it hit the rich - much less project it or the benefits to be paid from it. OK fellows - if US Gov Bonds suck - let us have the Social Security System invest in Stocks and Corporate Bonds, and let others buy those Government bonds that Bush needs to sell to cover his God Damn deficit - and we will see how non-aged investor respond when the Concord Coalition tells those investors that those bonds are never to be paid off because we do not want to raise FIT rates on the rich to raise the money needed to redeem those bonds.

[Yupster]

4. I don't know about stocks and corporate bonds papau, but

I'd feel better if the surplus was put into bank cd's and insurance company annuity fixed accounts.

The government bonds mean nothing. Whether congress in the future decides to raise or lower taxes will depend on what congress feels like doing. Whether there are government bonds in the trust fund or not will have nothing to do with it.

[papau]

5. I also prefer private investment - But the GOP screamed Socialism by

the back door back in the 1940/42 Congress, so we have gove bonds.

Then Reagan refused to raise taxes on the rich, and raised the retirement age from 65 to 67, and raised payroll taxes so there was a surplus making up part of the shortfall in FIT (Federal Income Taxes).

There is honor and trust - the stuff in business that allows the sale of corporate bonds - and then there is "Whether congress in the future decides to raise or lower taxes will depend on what congress feels like doing". Well, redeeming bonds is part of the borrowing cycle - or most folks think so - and therefore getting the funds to redeem bonds must be planned for. So one would think we would be dicussing future FIT increases to get those funds.

But that would only be the case if we were into honor and trust.

[papau]

3. sheer scope of the looming funding crisis for Medicare and Social Security

CAN WE SAY SCOPE OF THE CRISIS IN CURRENT FIT TAXATION AND GOVERNMENT DEFICITS AND SPENDING -

and leave Social Security and Medicare out of the conversation.

As the Concord Coalition implies, Payroll taxes are just part of the flow to pay general expense - trust fund bonds mean nothing - so those intellectually honest folks must agree that Social Security and Medicare is just part of the General Expense outflow!

[pretzel4gore]

6. the US national debt is what?

i've seen it at 20 plus trillion, just recently (!)....i recall the (thermo)meter in Times Square which showed the debt growing, that was nearly 5 trillion plus back in reagan/oldbush's day
i think society can afford a few conmen/thieves in its main institutions, but outright deceit re big biz/gov/media is totally RESPECTED in USA! and that must some day fuck everybody(?)

[Brian Sweat]

8. It is about $6 trillion.

[dolstein]

11. and rising

NT

[Brian Sweat]

7. This is bullshit we have discussed before.

The are counting all future Social Security payments as liabilities but not counting all future Social Security tax payments as assets.

[Nederland]

9. Thanks

I was pretty sure this had been discussed and debunked here earlier too...

[dolstein]

10. No, it's NOT bullshit

The $11 trillion figure represents the amount the government would have to come up with if participation in Social Security were "frozen" -- i.e., if participation were limited to current retirees and those presently paying Social Security taxes. Even when you amortize this figure over the anticipated life of the program, it's still huge.

It's true that future workforce participants will pay into the Social Security system too, but each of these workers will themselves be entitled to social security benefits. And the $11 trillion figure is not loaded -- it disregards both the taxes these people pay AND the benefits that will be owed to them.

In any event, I don't see how anyone can defend the $3.8 trillion shortfall figure used by the Social Security Administration. Even if accruate, it's WAY TOO HIGH. And of course it ISN'T accurate, since it conveniently ignores the fact that all the surplus social security tax revenues that are supposed to be accumulating have already been spent.