The U.S. Treasury has just released its annual "Financial Report of the United States Government," which provides an account of the federal government's finances using accounting standards like those that the government requires of large corporations. Because the federal budget is not bound by these standards, it does not have to account for all of its fiscal obligations.
For example, the Treasury report reveals that the federal government owes $6.5 trillion in retirement and health benefits to federal employees and veterans. This legal responsibility amounts to $53,000 for every household in the United States, but none of these liabilities are reflected in the 2013 budget deficit or national debt.
The report also accounts for fiscal obligations that are not legal liabilities but are still considered to be commitments of the federal government. These primarily consist of benefits due to current Social Security and Medicare participants that exceed the dedicated revenues they pay into these programs.
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Likewise, the report accounts for federal government assets, such as cash, real estate, and stocks in certain corporations. It does not, however, include federal stewardship land and heritage assets, such as national parks and the original copy of the Declaration of Independence. While these items have tangible value, the report explains that the government "does not expect to use these assets to meet its obligations."
By tallying this newly published data, Just Facts calculates that the federal government has accumulated $71.0 trillion in debts, liabilities, and unfinanced Social Security/Medicare obligations. Spread equally over all U.S. households, this shortfall amounts to an average of $580,000 per household.
During the federal government's 2013 fiscal year, the official federal deficit was $680 billion, but this comprehensive accounting reveals that the federal government's fiscal position deteriorated by $3.3 trillion or an average of $27,000 for every household in the U.S.
In reality, all of these figures may be higher, because some of the federal agency projections on which they are based are decidedly optimistic. Most notably, Medicare's 2013 annual report states that the program's financial projections "do not represent a reasonable expectation for actual program operations" because:
• "Current law would require a physician fee reduction of an estimated 24.7 percent on Jan. 1, 2014—an implausible expectation."
• The Affordable Care Act [Obamacare] eventually reduces "Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services" to "less than half of their level [under the prior law]. …. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. … [This] would lead to substantially higher costs for Medicare in the long range than those projected under current law."
The implications of the facts above can be seen in the Congressional Budget Office's (CBO) "current policy" projections of publicly held debt (a partial measure of the national debt). When CBO includes the economic effects of taxes, government spending, and debt, these projections show that the next generation of Americans is inheriting a fiscal situation like never before seen in the history of the nation:
Courtesy of Author.
Such levels of government debt portend far-reaching negative consequences, such as lower wages, weak economic growth, inflation, higher taxes, reduced government benefits, or combinations of such results. In the words of the U.S. Government Accountability Office, "the costs of federal borrowing will be borne by tomorrow’s workers and taxpayers" and "ultimately may reduce or slow the growth of the living standards of future generations."
Further reading: Do large national debts harm economies?
James D. Agresti is the president of Just Facts, a nonprofit institute dedicated to researching and publishing verifiable facts about public policy.
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