How Much Do We Owe?
The way we currently measure our country’s indebtedness does not capture the amount of money government has borrowed from itself and the vastly larger amount of money government has promised in future spending through programs such as Social Security and Medicare. Nor does it take into consideration the government’s ability to raise taxes or reduce spending to cover these obligations. The fiscal gap does both.
- It is the present value difference between future projected spending (including servicing the official debt) and future taxes over an infinite time horizon.
- In 2012, the United States’ fiscal gap grew by $11 trillion to a mindboggling $222 trillion ― the largest of any country in the world relative to the economy.
- According to the latest generational accounting published by the International Monetary Fund in 2011, taxes on future generations would have to increase by 21.5 points to close the fiscal gap.
Wow, what a sobering stat. When does the burden become too great?
I like that they started citing the debt in terms of GDP.. It’s almost sickening the way they mislead people.
So, is it safe to say that we have a “spending problem”?
They’ve discussed the revenue increases from taxes. Claiming a dismissal of Laffer style conservative ideas. It’s interesting that they’re increasing revenue by taxing only half of the population, and that they seem to claim benefits without considering economic cycles.
This is simply ridiculous. How could any financial entity operate with deficits such as ours?
Kotlikoff gives a more detailed explanation of the methodology behind the fiscal gap in this NCPA study
— published when the fiscal gap was “only” $211 trillion.
I found a solution! Raise taxes 21.5 percent! That should solve ALL our problems.
Despite economic suggestions — mostly due to the way we have created our monetary system under our current mixed market system — I don’t find this whole debt issue to be all that alarming or meaningful. All it really says is we may be damaging our international reputation, just like Europe has, which is not good but what are we really worried about? We are alluding debt to mere numbers that don’t correlate to anything material that has a direct effect on our lives. Maybe we should think about this things a little deeper instead of following the status quo.
Actually, the debt is an obligation to pay in the future. That seems pretty real to me.
The concept is real, but there is absolutely nothing real in terms of material output and gains. There is nothing real about those numbers that the government chooses to give value to that we end up calling money. I choose to think beyond what we’re told. If actually had a pragmatic exchange system, we’d be practically forced to not get in debt for our own sake.
My first reaction was that we will have to sell our first born child to pay off the debt. Then I realized, all our children and grandchildren will be paying off our debt.
Just reflects the country as a country. Look at the average person’s debt and tell me if they really own their house, car, etc.
Isn’t that the truth, Tim. People tend to have a lot to show others but they go into massive debt acquiring it. I like the old adage,”Don’t laugh…it’s paid for.” I will remember that next time I go purchase a double-wide.
Actual numbers depend on the discount rate used. The higher the discount rate used, the bigger the perceived problems.
The future projections also depend on a number of assumptions made about how relative prices will change, how technologies will change relative costs, the path of real wage changes, etc.
It should not be used as an accurate figure, but more as a sobering bound.
The true lesson comes in the fact that our actions today burden future generations, and quite significantly. Policymakers and individuals act as if what we do has a negligible impact decades (or generations) from now. They don’t.
That $222 trillion number refers only to federal budget, right? If so, what might the number look like if municipal and state obligations were included?
As I understand it, the $222T refers to federal obligations only (SS, Medicare, Medicaid, and pensions owed to federal employees). So, yes, when you factor in things like pensions to state/county/local government employees, it only gets worse.
The debts are alarming indeed, but one point should be made about health care:
– the benefit package of Medicare is not laid out in the Constitution or (as would sometimes seem in debates) is it part of the Ten Commandments.
A future government could cancel Part B and replace it with a voucher or a medical debit card.
A future government could stop paying for non-emergency surgeries in Part A.
A future government could make seniors pay the full cost for all parts of Medicare.
I am not calling for any of these to take place today.
But I am just pointing out that Medicare is not an absolute liability.
(Neither is defense. We could pull back our troops from the 150 countries they now have some presence in or near. We could reduce the number of troops by 200,000.
These might not be good ideas. But they would deflate the liabilities.)