Exploding the Myth of a $13 Trillion National Debt with Hidden Unfunded Liabilities

Posted by Michael A. Kamperman on June 12, 2010

The federal government of the United States does not owe $13 Trillion.  It owes $8.5 Trillion.  The other $4.5 Trillion is owed primarily to the Social Security and Medicare Trust Funds, along with some smaller Trust Funds.  The Trust Funds are compromised of U.S. Treasury Bonds.  Basically, the U.S. Government has printed an I.O.U. to itself.  The higher than necessary payroll taxes collected all of these years to fund Social Security and Medicare have been spent.  In truth, both of these programs are line items of the federal budget and the taxes collected specifically for these programs have been thrown into the general operating revenues of the federal government since they started collecting them.  We are suffering from the unintended consequences of rhetorically establishing the Social Security and Medicare Trust Funds.  It is time to officially end them.  Those Trust Funds are nothing more than a smoke and mirrors sham and they were established for the express purpose of providing political cover for politicians who voted to establish the programs.  Now that rhetoric is leading to new rhetoric that the U.S. government owes $13 Trillion and the debt burden is the biggest threat the country faces.  This in and of itself is odd considering the U.S. Government owes everyone dollars, which it has the legal power to print.

It is also leading to rhetoric, depending on who does the counting, that the federal government also has unfunded Trust Fund liabilities of anywhere from $45 Trillion to $99 Trillion.  This is based on calculations of assumed growth in Social Security and primarily Medicare spending for the next 75 years over and above the payroll taxes designated to fund the programs.  These calculations are not worth the paper they are printed on.  Either health care expenditures will slow down or we will raise the taxes to fund them.  The world will not stay static for the next 75 years.  The real danger is the concept the U.S. Government should have assets set aside to pay all future expenditures.  We have exactly zero dollars set aside and no Trust Fund established for defense.  The defense budget is more than $200 billion greater than the current Medicare budget.  I don’t here anyone saying we have an unfunded defense liability and the U.S. will be unable to defend itself in the future.  The reason is we have never had a defense Trust Fund.  We simply expect to pay as we go and borrow if necessary.  The same should hold true for Social Security and Medicare.

This anti-debt/anti deficit rhetoric has risen to a fever pitch.  Hence, our already all but lame duck President is unable to get large majorities of Democrats in either chamber of Congress to pass an extension of health subsidies for the unemployed until the end of this election year.  I never have believed this would be true, but it is.  Without increased deficit spending the economy will stay mired in a deflationary depression.  The logic that a nurse working for the VA, a public sector job, is not as valuable to the economy as a nurse working for a private non-profit hospital treating Medicare patients is simply another myth.  Public sector jobs help the economy just as much as private sector jobs.  The key is to have a way to make sure public sector programs are run efficiently and effectively.  The spreading belief in these myths are killing any chance we have of escaping the depression we are in.  The only solution is to end the Trust Funds and end the illusion that Social Security and Medicare have a future funding source other than federal taxes, borrowings, and if necessary money printing.  Sadly, we have met the enemy and he is us.  No wonder Rome fell from within.