Entitlements Scare Tactics

A friend asked me about last week’s WSJ op-ed by Christopher Cox and Bill Archer claiming that the government’s true liabilities exceed $86 trillion—not the  $16 trillion national debt that people usually talk about. There’s something to it, but there’s also a huge scary story in there that’s purely meant to frighten people.

$16 trillion is the amount of Treasury debt outstanding at the moment. The more relevant figure is the amount of debt the federal government owes to people and institutions other than itself. If, for some reason, I lent money to my wife and she promised to pay it back to me, we wouldn’t count that as part of the debt owed by our household. The debt owed to the public is about $10 trillion these days.

So where do Cox and Archer get $86 trillion? They are counting the present value of future unfunded liabilities. To take one example, if you add up all the money that Medicare Part A is expected to pay out over the next 75 years and figure out how much it would be worth today, you get a total of $21.2 trillion. If you add up all the money that Medicare Part A will bring in from payroll taxes and do the same, you get $15.6 trillion. So to make Medicare Part A balance over seventy-five years, the government would have to have $5.6 trillion that it doesn’t have today. Do the same for all of Medicare and you get a total of $38.6 trillion. This is all from Table V.F2 on page 238 of the latest trustees’ report on the Medicare trust funds. (Cox and Archer, who claim to be citing the same source, have $42.8 trillion in their op-ed; maybe they’re using an infinite time horizon instead of a 75-year timeframe.)

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