More Than $1 Million per Taxpayer Owed – and Climbing

It seemed tragic back in October 1981 when the federal debt reached $1 trillion. How would we ever pay back $1 trillion?

The real tragedy, though, is what’s happened since then

In early December, the federal debt is expected to exceed $20 trillion. More troubling, though, other unfunded U.S. government debt obligations now total $107 trillion, according to the U.S. Debt Clock.

The cost of unfunded liabilities is difficult to estimate. Unknowns such as future interest rates, inflation, population growth and mortality rates must all be considered, so estimates range from around $80 trillion to more than $200 trillion. These unfunded liabilities come from programs we’re written about in recent weeks – Medicare, Medicaid, Social Security and government pensions.

Economics professor Antony Davies and James R. Harrigan, CEO of Freedom Trust, noted recently in U.S. News & World Report that total U.S. government debt exceeds even the approximately $120 trillion in debt you get by adding the federal debt to the cost of unfunded liabilities. They estimate the total at $135 trillion.

“U.S. state and local governments officially owe $3 trillion and have another $5 trillion in unfunded liabilities themselves,” according to U.S. News & World Report. “Federal agencies and government sponsored enterprises owe another $8 trillion, which is not included in the federal government’s numbers.”

To paraphrase the late Senator Everett Dirksen, a trillion dollars here, a trillion dollars there, and pretty soon you’re talking about real money.

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Social Insecurity: Another Reason We’re Going Broke

Except for recent contributions, all of the money that you’ve contributed to the Social Security system throughout your lifetime has already been spent.

That’s because Social Security is a pay-as-you-go system. Contributions from people working today go to people who are retired today. Your contributions will be long gone by the time you retire.

And, depending on your age and whether the folks in Washington can get their act together, there may not be enough money available for you to cash in when you retire.

Going Broke

While the Social Security system currently is solvent, trustees of the Social Security system’s two funds, which support retired and disabled workers, project in their recently released annual report that the funds will be depleted in 2034. As trustees of the programs noted, the funds “fail the test of long-range close actuarial balance.”

Trustees project that annual benefits paid out will exceed the Social Security taxes workers and employers pay beginning in 2022.

And the trustees may be overly optimistic. The Congressional Budget Office, which tends to make rosy predictions about government programs, estimates that the funds will be depleted by 2030. After that, the amount Social Security pays out every year will exceed what it takes in by more than $400 billion.

“Current benefits for retirees already exceed the system’s payroll-tax receipts,” Martin Feldstein wrote in The Wall Street Journal. “Benefits are therefore payable under current law only by drawing on the so-called trust fund, an accounting record of previous Social Security surpluses.”

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Socialism’s Promise: Medicaid for All

For an example of how government entitlements always expand and never contract, consider what’s been happening to Medicaid.

Designed to provide health coverage for low-income and disabled Americans, Medicaid was signed into law in 1965 during the Johnson Administration.

Today, Medicaid ranks second only to public school education as the largest budget item in most states. Nationally, Medicaid spending now exceeds a half trillion dollars a year ($574.2 billion in FY 2016).

The true cost is higher, though. Both Medicaid and Medicare pay providers significantly less than what they receive from private payers – and Medicaid pays about two thirds of what Medicare pays. That means less access to healthcare, since one in three physicians refuses to see Medicaid patients. It also means non-Medicaid healthcare costs need to be higher to subsidize Medicaid.

Initially, Medicaid covered 4 million Americans. This year, it’s projected to cover 73.5 million Americans. In spite of the more than $20 trillion spent on the War on Poverty over that period, Medicaid enrollment from year to year has almost always increased, regardless of the overall health of the economy. It has also increased even though the poverty level has remained about the same – about 15% of the population.

But the worst is yet to come.

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More Government, Less Manufacturing

As the first country to mass produce everything from automobiles to computers, America has a well-deserved reputation for innovation, thanks to its manufacturing sector. U.S. government employees, conversely, are most adept at producing paperwork, as we’ve previously noted.

So which sector do you think employs more people in the U.S.—those who produce or those who bog down production with new regulations?

The answer—and it’s not even close—is that government employees outnumber employees working in manufacturing. In fact, as of a year ago, there were 21,995,000 government employees and 12,329,000 manufacturing employees.  That’s 1.8 government employees for each manufacturing employee, or one employee to produce and nearly two employees to regulate.manufacturing_and_government_employees-1939-2015

Granted, not all government employees are regulators and many serve valuable roles … but is it healthy for the economy to have nearly twice as many employees working in government as we have working in manufacturing?

It didn’t used to be this way. Until August 1989, manufacturing employees outnumbered government employees. But that month, government employed 17,989,000 and manufacturing employed 17,964,000. The two sectors have been going in opposite directions ever since.

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