Thursday, January 12, 2012

What is the Total Unfunded Liability of the US Government?

One of the top political topics of 2009 was the health care reform plan which is still being worked on by Congress. Because of the vociferous debate about the plan, US citizens have probably become much more knowledgeable about the amount of debt that the US government owes. A great deal of that debt is held by countries such as China and that fact too has captured the public's attention.

But, there is another type of debt that isn't talked about as frequently. I am referring to what is called unfunded liabilities. In essence, the US government has made promises to pay monies today and in the future to it's citizens. We are talking about Social Security and Medicare.

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The government raises funds for these expenditures from various taxes and then uses the money to fund the program. These programs are considered unfunded liabilities because, projecting out in the future, the revenues from the taxes will not be able to fund the projected expenditures. The numbers are actually quite staggering. The Social Security unfunded liability is projected to be 17.5 trillion dollars.

The Medicare unfunded liability is actually projected to be much higher. Medicare actually has parts A, B, and D, Part A funds hospital care. Part B funds Medical visits, and part D funds prescription drugs. The part A unfunded liability is estimated at 36 trillion dollars, part B at 37 trillion dollars, and part D at 15 trillion dollars.

The total amount of the unfunded liability comes out to just over 100 trillion dollars, or approximately , 000 for every man, woman, and child in the country. And since the private net worth of all Americans together is estimated at just over trillion dollars by the Federal Reserve, you can see the problem.

The reason that many are concerned is that the only 2 ways to rectify the situation is either to markedly raise taxes or cut the promised benefits. Since, most analysts feel that it is politically very difficult to cut promised benefits, most foresee significant tax raises in the future. There are some analysts who are much more sanguine about the problem arguing that there are so many assumptions built into these analyses that they could be significantly inaccurate.

What is the Total Unfunded Liability of the US Government?

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