Sometimes I see people referring to the US debt as being a number around 10trillion while other people say it is 50trillion. So who is right? If the answer is “well its 10 trillion, but if you include XXX then its 50 trillion”, then should we be including XXX in the calculation or not? Which figure most meaningfully represents how much trouble the US is in?
The $10 trillion figure includes current debt obligations.
The $50 trillion figure includes projected future obligations such as medicare and social security.
With the right legislation, the gov’t could get out of paying $40 trillion of “future” debt. No matter what, though, they will still owe that other $10 trillion+.
Would you care to go in to any more detail?
I’m not sure I get the concept of “future debt”… its sounds rather like “expected bills”, like “our roads are decaying and we’ll have to repair them at some point in the future”. But that doesn’t sound at all like it has any of the characteristics of a “debt”. So why do the two things so often get lumped together?
Future debt is the the full face value of a note. Think, if you pay off a 30 year mortgage in five years, you cancel 25 years of interest. By paying off in five years you still pay pay the principle plus five years of interest, but you cancel the “future debt” by paying early.
Actually the National Association of Mathematicians just floated a formal request to officially recognize the national debt as qualifying for the label “a shitload,” The Department of Weights and Measures has to weigh in though, no pun intended.
Pretend your parents have $10,000 in credit card debt but have promised to pay for your college education ($40,000+).
The current national debt is closer to $12 trillion. The $50 trillion number includes “unfunded liabilities,” e.g. future Medicare and Social Security payments which the government will have to make.
The two often get lumped together because people can’t dream of being separated from their old-age pensions or medical care. The fact of the matter is that Medicare and Social Security will most likely either be completely abolished or scaled down to such a size that we will be able to pay for them without adding trillions on top of our already very large national debt.
What’s so special about Medicare and Social Security payments as opposed to other things the US is going to have to pay for in the future? Why not include future militarily spending or future road maintenance? Surely they’re equally “unfunded”.
Those are not promised. Although I am sure the American government would like to promise a few more wars over the next 30 years.
We haven’t “promised” to pay more for military spending and road maintenance. Military spending and road maintenance also come out of the general treasury, whereas Medicare and Social Security are supposed to be funded by payroll taxes which are supposed to go into a trust fund. The problem is that the trust fund was raided under Clinton to create a “budget surplus,” and all of the money in the trust fund was replaced with IOUs from the US Treasury. By 2012 both Medicare and Social Security will probably be paying out more in benefits than they receive in revenues from FICA (payroll) taxes. When no trust fund exists, the two programs will essentially be screwed.
The other major difference is that military spending and road maintenance aren’t the two most popular welfare state programs in the world. I honestly think that it is harder to get rid of Social Security in the US currently than it is to convince Kim Jong Il to become an anarchist and abolish the North Korean state.
There is a difference between general taxation to pay for “social services”, e.g., military and road maintenance (which are discretionary, comparatively,) and the Social Security and Medicare programs. These programs specifically promise and guarantee future compensation in exchange for FICA (payroll) taxation, hence there is a future obligation to compensate the taxed laborer.
If all variables remain the same, Social Security and Medicare are projected to generate huge amounts of debt over time. The “unfunded liabilities” term is a fancy way of saying the programs are currently unsustainable, i.e., the expected future liabilities will continuously exceed the ability to cover them unless something changes.
Note that Social Security and Medicare tend to operate on a simple “money-in” and “money-out” system. To put this more simply, today’s laborers pay for today’s retirees. Tomorrow’s laborers pay for tomorrow’s retirees. In other words, there are no savings set aside when the American laborer “contributes”, just an unsecured promise to pay in the future. Think of how many generations have paid into these programs.
Remembering the note above, with $10 trillion in debt and $40 trillion in “unfunded liabilities” (using your numbers), it is probably safe to assume that either one or more of the following will happen; fewer beneficiaries, less benefits, or more taxes.
Liken it to saying the US currently has X debt and is projected to have Y debt in Z years (assuming no changes and the US simply takes on more debt). Which figure is the most meaningful depends on the context and application. It’s also not so cut and dry.
Yes - this is exactly what I suspected.The idea that the “money is being invested for the future” is just a charade.
Don’t forget to add “raised retirement age”.
Overall it seems we are in agreement (which is I think a first for me on this forum!).