NCPA - National Center for Policy Analysis

Measuring the Federal Government's Unfunded Liability

October 30, 2003

Social Security and Medicare have made future promises far in excess of tax revenues that will be collected at current tax rates. The difference between what has been promised to current and future generations and what will be collected from taxes dedicated to fund these programs is an "unfunded liability."

How large are the federal government's unfunded obligations? According to a new NCPA study, that depends on how we measure them.

  • If we confine our horizon to the next 75 years, as government actuaries have traditionally done, the unfunded liability is about $18 trillion in today's dollars -- more than six times as much as the federal government's outstanding bonds.
  • If we focus only on people who are already participating in the system (either as beneficiaries or as taxpayers), the government's net debt is more than $24 trillion -- more than twice our current gross domestic product (GDP).
  • If we consider only benefits that have been accrued so far (i.e., if we ended the program tomorrow and only paid benefits people have already earned), the debt is about $30 trillion -- about three times the size of our GDP.
  • If we look indefinitely into the future -- and include not only people who are participating today, but all future generations -- the U.S. government's Social Security and Medicare unfunded obligations are equal to almost $50 trillion in today's dollars.

This means that in order to ensure the government will keep its promises, we need to have $50 trillion on hand right now, invested at a rate of return of about 6 percent. Since we don't, the overall obligation will grow through time.

Source: Liqun Liu, Andrew J. Rettenmaier and Thomas R. Saving, "How Large Is the Federal Government's Debt?" NCPA Policy Report No. 263, October 2003, National Center for Policy Analysis.

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