analyticsbox | Jun 30, 2021
Federal/State Unfunded Liabilities -
What are they and how will we pay for them?
Unfunded liabilities are promises we make to pay sums in the future, for which we do not have at least 70% of the liability covered by assets. The major problems are pensions, social security, and Medicare. While there are trust funds for many of these, but the future benefits greatly exceed the assets available, so there is an ‘unfunded liability’.
For the Federal Government, the estimates vary, it is not a hard number. But the estimates are around $100,000,000,000,000 (that is $100 Trillion dollars!) And this does not count the almost $30 Trillion in actual debt!
This is a time bomb waiting to explode if we do not deal with it, and the longer we wait, the more difficult it will be. Here are the main culprits:
Medicare: 45 Trillion
Social Security: 39 Trillion
Pensions: 11 Trillion
Grand Total: 95 Trillion
In theory, these are not counted as liabilities (as it would be for a Corporation) because in theory Congress can change the laws to reduce or eliminate the obligation. That will not happen voluntarily
This is the 800-pound gorilla that no politician wants to touch, but if they don’t, the problem will continue to get worse. There are solutions, here are a few ideas, but they are tough and politically difficult:
Gradually raise the age for Medicare/Social Security/Pensions to reflect changing demographics/mortality rates.
Increase the contributions to Medicare/Social Security from wages and salaries.
Means test the benefits and reduce for the higher income recipients.
Raise Medicare fees for all, but substantially more for those with higher incomes (currently they are ridiculously low for the benefits received).
The Bottom Line
There are many ways to deal with this problem, but we must face reality, the sooner the better (this is also true for many states, who have a similar problem on a smaller scale). The longer we wait, the harder the solution – until there is no solution!