NCPA - National Center for Policy Analysis


September 8, 2004

A new report from the Congressional Budget Office explains that the deficit is a virtually meaningless measure of the government's indebtedness, says Bruce Bartlett.

The main reason is that the federal government uses cash accounting rather than accrual accounting. What this means is that the government can acquire massive debts far into the future with virtual impunity.

  • By the CBO's reckoning, the federal government's true debt last year was $8.5 trillion - more than twice the debt held by the public, which we generally think of as the national debt.
  • The publicly held debt came to $4 trillion, only slightly more than the $3.9 trillion in future benefits owed to government employees and veterans.
  • But even the $8.5 trillion figure is much too low because it excludes the really big debts that are owed for Social Security and Medicare.

Since these obligations extend far into the future, the only way they can realistically be quantified is by using a statistical method called present value. This takes account of the fact that a dollar 50 years from now is worth much less than $1 today. Future debts need to be discounted to put them into today's dollars, says Bartlett.

Even with discounting, however, the figures are massive.

  • CBO estimates the unfunded liability for Social Security at $7.2 trillion.
  • But this is virtually nothing next to the $37.6 trillion cost of Medicare.

In short, we would need to have about $45 trillion in the bank today earning interest in order to pay all the promises that have been made for future Social Security and Medicare benefits, over and above the future taxes and premiums that will be collected to fund these programs, says Bartlett.

Source: Bruce Bartlett, "The Truth About the National Debt," National Center for Policy Analysis, September 8, 2004; based upon: "Measures of the U.S. Government's Fiscal Position Under Current Law," Congressional Budget Office, August 2004.

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