Does the United States have $128 trillion in unfunded liabilities?


by Glenn Kessler

Source: Washington Post

In making the case that the Affordable Care Act, a.k.a. Obamacare, will put a burden on the nation's finances, Sen. Coburn uttered a breathtaking figure - $128 trillion in unfunded liabilities.

The $17 trillion in debt that Coburn also cited is a common figure for the national debt. It combines both debt held by the public (about $12 trillion) and intragovernmental debt ($5 trillion), which are bonds mostly held by Social Security and Medicare.

But $128 trillion? What does that mean and where does it come from?

The Facts

Coburn's statistic apparently is derived from a Web site, usdebtclock.org, which lists a figure of just over $126 trillion in unfunded liabilities for three programs - Social Security, Medicare and the Medicare prescription drug program. The biggest share of the total - more than $87 trillion - belongs to the Medicare program. The source apparently is the Federal Reserve, though we could not locate those data.

We sent an e-mail to the Web site, asking for more information, but did not receive a reply. We also consulted with a variety of experts about what this figure could mean.

The numbers are big, but are lacking a lot of context. This is what is known as "unfunded obligation through the infinite horizon." According to the Social Security trustees, that amounts to $23.1 trillion for Social Security. And the figure through 2087 - some 75 years from now - is actually just $9.6 trillion.

But a better way to express these numbers is as a percentage of the gross domestic product, the broadest measure of the U.S. economy. That $23 trillion turns out to be 1.4 percent of GDP, or 4 percent of taxable payroll.

Depending on which economist you consult, this is either manageable or a potential problem. There is certainly a gap, and either payroll taxes or federal individual and corporate income taxes would need to be raised, possibly significantly, in order to close it.

The trustees also suggest that the figure for all of Medicare would be about $43 trillion (add up the various infinite horizon tables for Medicare), though other experts have disputed those assumptions and pegged it higher. That would send those tax rates even higher - but the statistic also assumes that no changes are made in the financing or structure of the programs. After all, most of these unfunded liabilities are also unfunded benefits that this generation's children and grandchildren will be receiving, and presumably the generation 100 years from now will be able to figure out the best course for their society at the time.

Indeed, in many ways, these figures illustrate how much of the future spending results from soaring health-care costs. So the solution may not lie so much with a particular program, such as Medicare, but getting some control over health-care spending.

It is also worth noting that the issue of unfunded liabilities can be applied to any deficit spending, such as the military. The National Center for Policy Analysis, whose work is frequently cited by conservatives, last year estimated the total unfunded liabilities at $84 trillion, of which "the public debt plus benefits payable to federal workers and the accrued Social Security and Medicare benefits payable to retirees total $30.3 trillion." The report said that the rest could be affected by future policy changes, such as to Social Security and Medicare, though that still means that over one-third of the total fiscal imbalance is due to liabilities based on prior actions.

Still, $30 trillion, while large, is not nearly as large as $128 trillion.

"This is a case of Congress making commitments to the American people that it can't keep," said Aaron Fobes, a Coburn spokesman, after The Fact Checker raised questions about Coburn's statistic.

The Pinocchio Test

Coburn's general point about potential unfunded liabilities is worth noting, but just because a number is large does not mean it is worth quoting.

In general, we would hope for a little more rigor from lawmakers than simply citing a Web site with fuzzy sourcing. Throwing out figures such as $128 trillion without context (percentage of GDP) or explanation (this is over an infinite horizon) does a disservice to listeners. In any case, there are little data available that give much credence to this particular figure.

Update: In a statement to the Powerline blog, a Coburn spokesman gave this column "Three Pinocchios," citing in part a letter by economists that pegged the gap at $222 trillion.