Does the United States really owe 114 trillion dollars? Please explain "unfunded liability"?

Question

I would like to refer to the site USdebt.Kleptocracy.us (A visualization of United States debt)

I'm just a little bit curious as to what these figures mean. I understand the 1 trillion dollar deficit - that's the difference this year between the amount the government made (in tax revenue etc.) and how much it spent right?

I also understand the 15 trillion dollars. That's the total amount of money that the US government owes. In other words, there is 15 trillion dollars worth of government bonds out there (right?)

What I don't understand is the 114 trillion dollars? The explanation is this:

The 114.5 Trillion dollar super-skyscraper is the amount of money the U.S. Government knows it does not have to fully fund the Medicare, Medicare Prescription Drug Program, Social Security, Military and civil servant pensions. It is the money USA knows it will not have to pay all its bills.

If you live in USA this is also your personal credit card bill; you are responsible along with everyone else to pay this back. The citizens of USA created the U.S. Government to serve them, this is what the U.S. Government has done while serving The People.

The unfunded liability is calculated on current tax and funding inputs, and future demographic shifts in US Population.

What does it mean by "money it knows it does not have"? Can someone explain in layman terms what an "unfunded liability" is?

Answer 1

What this means is this:

The authors of the website claim they have calculated the cost that it will take to "fully fund the Medicare, Medicare Prescription Drug Program, Social Security, Military and civil servant pensions." They claim that the government will have to spend $114T to do the things it is currently promising to do, and it hasn't set aside the money to do it. That's what is meant by an 'unfunded mandate'.

Firstly I would take with a grain of salt the calculations of any website which claims the US is a kleptocracy in its title. You know they are coming to this with an agenda.

Secondly this is money that the government has not actually spent. The government doesn't owe this money to anyone, and it is absolutely untrue that "you are responsible along with everyone else to pay this back". The worst they can claim is that the government will, one day, have to spend it - assuming that nothing else changes in that time. A government could pass a law that reduced Medicare, or raised taxes, and the 'unfunded mandate' would simply go away.

Thirdly the calculation must assume a time period over which the money is spent. But the site carefully doesn't specify it. They can make the amount bigger or smaller as they choose, just by changing the time period over which it is calculated.

To give an example, an unfunded mandate is a bit like enrolling in a four year college course without knowing how you are going to pay for it. You've said you are going to spend money on tuition - you may even have promised your mother you will finish the course - but you can in fact drop out if you choose and you don't owe anything for courses you haven't taken yet.

Some unfunded mandates can be legal obligations, but this isn't one. And in neither case are they money you actually owe.

That's not to say that unfunded mandates are not a cause for concern - they represent a discrepancy between what a government says it will do, and what it can currently afford to do.

As an illustration of how this works, you can look at either Russia ten years ago or Greece right now. All the expenditures in these ares are being cut. People are certainly angry, but there is nothing they can do to force the government to make those payments.

Answer 2

The US government requires corporations to follow certain accounting standards, while exempting itself. For example, companies financial reports must reflect the future costs of things like employee pensions, healthcare and other liabilities. So if you own a company and have an obligation to pay someone $100 in ten years, that obligation must be reflected on your current financial statements.

Most US governments operate under a cash accounting scheme that don't necessarily recognize the current costs of big future promises. At the State and Local levels, politicians actively and openly flaunt this -- Governors, mayors, etc routinely do things like give employees enhanced benefits (whose costs kick in the down line) or unlimited sick/vacation time accruals with payouts to employees to avoid impacting the short-term fiscal picture.

As an example, a New York City tabloid ran a big story a few years ago about certain transit authorities -- the standards for disability pensions were so low that 95% of employees were categorized as "disabled" and were receiving pensions that were in many cases greater than the employees salary while working. This is because in 1980 (during the height of stagflation), employees demanded a 10% raise. Politicians didn't want to raise taxes or have a strike. Solution? 4% raise, and lower the standards for disability determination. As a politician, you solve a short-term problem with a long-term one that will come to a head after you retire.