Fox News reporter Jim Angle claimed Social Security and Medicare have "$46 trillion in unfunded liabilities," even though more recent data shows a significantly lower figure. Experts have said that the term “unfunded liabilities” is a “scare tactic” used by detractors of Social Security and Medicare, and that it's “misleading” to report future obligation costs without putting them into context by describing what share of the economy they represent.
Fox Reporter Attempts To Pin "$46 Trillion In Unfunded Liabilities" To Nation's Debt
Fox Reporter Angle: “Social Security And Medicare Alone Have $46 Trillion In Unfunded Liabilities.” During a report on a Joint Economic Committee hearing on the impact of the national debt on the U.S. economy, Fox News' chief Washington correspondent Jim Angle emphasized that “just Social Security and Medicare alone have $46 trillion in unfunded liabilities, future debts that economists obviously worry about.” [Fox News, Happening Now, 9/20/11]
Fox's “Outdated” $46 Trillion Figure Comes From 2009 Government Data
GAO Highlighted $46 Trillion Figure In Audit Of 2009 Report. From the Government Accountability Office's audit of the federal government's 2009 Financial Report:
The federal government faces even larger fiscal challenges in the long term. As discussed in this 2009 Financial Report of the United States Government (Financial Report), the federal government is on an unsustainable long-term fiscal path driven primarily by rising health care costs and known demographic trends. The Statement of Social Insurance, for example, shows that the present value of projected scheduled benefits exceeds earmarked revenues for social insurance programs (e.g., Social Security and Medicare) by about $46 trillion over the next 75-year period. [Government Accountability Office, 2/26/10]
PolitiFact Also Reported $46 Trillion Figure Came From 2009 Data. In an article on Republican Congressman Frank Wolf's claims about “unfunded liabilities,” PolitiFact reported:
We know the national debt is more than $14 trillion; in fact, we recently reached the debt limit of $14.3 trillion. It's also true that future deficit projections -- under the current budget plan -- exceed $1 trillion annually. But is it true that the U.S. has more than $62 trillion in unfunded liabilities?
We thought it was worth a look.
For a source, Wolf's office pointed to a 2010 report from the Peter G. Peterson Foundation, an organization devoted to public awareness of fiscal issues. The study contains a table entitled “Major Fiscal Exposure.” A sum of $61.9 trillion is calculated for 2009, adding “explicit liabilities” (public debt, pensions, etc.) “commitments and contingencies” and “social insurance promises” (future social security benefits and future Medicare benefits).
Predictably, the biggest driver of the staggering total is social insurance promises, which accounts for $45.8 trillion -- $38.2 trillion of which is future Medicare benefits. Social Security benefits account for the rest.
As noted in fine print, the projections come from the Social Security and Medicare Trustees reports dated Jan. 1, 2009, and estimate benefits over the next 75 years. The rest of the data comes from the U.S. Treasury's 2009 report. [PolitiFact, 5/23/11]
PolitiFact: Latest Estimate Shows Future Social Security And Medicare Obligations Cost $12 Trillion Less Than “Outdated” 2009 Estimate. From PolitiFact's article on Republican Congressman Frank Wolf's claim about “unfunded liabilities”:
The next problem is less debatable: the information is outdated.
According to the latest Medicare and Social Security trustees reports, the numbers have changed significantly since 2009. Promised Medicare benefits for the next 75 years now total $24.6 trillion, according to 2011 numbers, and Social Security benefits have increased to $9.2 trillion.
So Medicare obligations are now $13.6 trillion less than the data upon which Wolf based his claim , largely due to the health care reform act passed last year. Social Security obligations are $1.5 trillion trillion more. The net effect of those changes is that projections for future obligations are $12 trillion less than the 2009 data Wolf uses.
Other numbers have changed, too, but you get the point: The 2009 estimate was not a safe number in April 2011. [PolitiFact, 5/23/11]
Experts Argue The Term “Unfunded Liabilities” Is A Misleading “Scare Tactic”
CBO: No Such Thing As An “Unfunded Liability.” In a 2004 paper, the Congressional Budget Office said of “unfunded liabilities”:
The term “unfunded liability” has been used to refer to a gap between the government's projected financial commitment under a particular program and the revenues that are expected to be available to fund that commitment. But no government obligation can be truly considered “unfunded” because of the U.S. government's sovereign power to tax--which is the ultimate resource to meet its obligations. [Congressional Budget Office, September 2004]
Bernstein: “Unfunded Liabilities” Stories Are “Scare Tactics, Designed To Mislead.” From a blog post about “the real cost” of Social Security and Medicare on The Christian Science Monitor's website, by Center on Budget and Policy Priorities senior fellow Jared Bernstein:
Q: What's wrong with the “unfunded liabilities” stories that conservatives tell about Social Security and Medicare? This is where they make the case that over some very long time horizon, these programs are supposed to pay out tens of trillions more than they're scheduled to take in.
A: These are mostly scare tactics, designed to mislead. That said, there's a useful point embedded in there: both programs need to undergo changes to meet their obligations. But at least some of the folks who make the “trillions in unfunded liabilities” argument do so to make it seem like we can't afford social insurance, which is nonsense. [The Christian Science Monitor, 7/7/11]
Social Insurance Expert: Terms Like “Unfunded Liabilities” Are A “Scare Tactic” By Social Security's Detractors. From a Columbia Journalism Review interview of Yale professor emeritus and social insurance expert Ted Marmor by Trudy Lieberman:
TL: Is Social Security broke, or are the terms “broke” and “bankrupt” meant to scare people?
TM: Social Security in 2010 reduces the deficit from what it otherwise would be; more FICA taxes are taken in than pension benefits paid out. But then revenues will be less than taxes paid until 2016. But that doesn't mean people won't get their benefits. The suggestion that it's insolvent is an absurd way of talking about the program. This is not a private household. The U.S. government is not a person, so analogies to individuals and their own budget problems are not appropriate. Governments can tax. People can't. Governments can reduce the level of benefits, or adjust who receives them. Private citizens have no such capacity. The analogy to personal finances, when addressing Social Security (or government altogether) is a mother lode of nonsense.
Another element of the insolvency claim is the notion of unfunded liabilities. That's an expression appropriate for private pension plans, where the promise to pay a future benefit must be balanced by holding adequate financial reserves now. That's not the case with Social Security. The government has the authority to raise taxes and adjust benefits. Private trust funds do not. Failing to understand that is the cause of much confusion and mischief.
TL: Are such words part of a scare tactic on the part of the program's detractors?
TM: The short answer is yes. As I said, the popularity of Social Security means critics turn to affordability rather than attack the program's desirability. And that has been especially the case since the economic stagflation of the 1970s. [Columbia Journalism Review, 7/20/10]
New America Foundation's Lind: “The 'Unfunded Liabilities' Argument Is Misleading.” Michael Lind, the policy director of the New America Foundation's Economic Growth program, wrote:
The “unfunded liabilities” argument is misleading for another reason. It is only applied to programs that, like Social Security and Medicare, are paid for by a dedicated tax like a payroll tax. The projected gap between future revenues and future outlays from this special-purpose tax is the “unfunded liability.” Why do we never hear of the “unfunded liabilities” of Pentagon spending -- the third of the big three spending programs (Social Security, Medicare, defense) that take up most of the federal budget? Defense spending comes out of general revenues, not a dedicated tax.
Suppose that in an alternate Rod Serling universe our other-dimensional twins paid for Pentagon spending on the basis of a dedicated national consumption tax, while they paid for Social Security and Medicare out of general taxation. In that case, opponents of Pentagon spending might have a field day denouncing the gap between the estimated federal consumption tax revenues in, oh, let's say, 2050 and the military threats they estimate that the U.S. will face in half a century. But in this “Twilight Zone” America, neither Social Security nor Medicare, lacking dedicated taxes, would have “unfunded liabilities” any more than the Pentagon does in our world. [Salon, 5/19/09]
Heritage Foundation Economist: Using “Unfunded Liabilities” To Describe Medicare And Social Security Shortfalls “Is In Error.” In its article on Republican Congressman Frank Wolf's claim about “unfunded liabilities,” PolitiFact quoted Heritage Foundation economist J.D. Foster:
“Technically, Mr. Wolf is in error because he calls the shortfalls in Social Security and Medicare 'unfunded liabilities'” said J.D. Foster, an economist with the right-leaning Heritage Foundation. “Legally, they are not liabilities. They can be referred to accurately as promises or obligations.”
Foster said the benefits do not qualify as liabilities because “Congress can at any time reduce or alter them. In contrast, state pension plans are contractual labor arrangements that are liabilities because they are legally enforceable.” [PolitiFact, 5/23/11]
Baker And Weisbrot Dismissed Large “Unfunded Liabilities” Numbers As “Meaningless.” From the book Social Security: The Phony Crisis by economists Dean Baker and Mark Weisbrot:
Social Security's detractors have a few other tricks they like to throw into the mix in order to create the impression that the whole system is some kind of a scam. One of these is the concept of “unfunded liabilities.” The argument is based on a view of Social Security that likens it to a private pension system. With this model in hand, Peter Peterson warns us that “the federal government has already promised to today's adults $8 trillion in future Social Security benefits beyond the value of the taxes they have paid to date.” On this basis he concludes that the system has $8 trillion in “unfunded liabilities” (Peterson, 1996, 44). This is a big number, and it is quite meaningless. Social Security is not a private pension system. Private pension systems do not have the power to collect a payroll tax from 144 million employees and their employers. [Social Security: The Phony Crisis, 9/15/01]
Experts Also Consider It Deceptive To Report Future Obligations Without Noting Their Size Relative To The Economy ...
Bernstein: “Failing To Scale Liabilities By The Size Of The Economy” Is A “Misleading Tactic.” From Bernstein's Christian Science Monitor post:
There are two misleading tactics the UL types make.
First, yelling “trillions” in a crowded theater. That is, failing to scale the liabilities by the size of the economy. The net present value of the Social Security and Medicare shortfalls over the 75-year horizon are in the trillions, but as the share of the economy, which also grows over all these years, they're around one percent.
Take a look, for example, at the table on page 83 of this doc (it's the trustees' report on Medicare). It refers to the expected 75 year shortfall in the Hospital Insurance trust fund, which is $3.1 trillion! Oh no! But the next line shows that taxable payroll over this horizon is expected to be $400 trillion, so the shortfall is less than one percent. [The Christian Science Monitor, 7/7/11]
Banking Expert Staines: Not Including Future GDP In Future Program Cost Estimates Is “Useless And Probably Dangerously Misleading.” Banking and wealth management expert Stuart Staines wrote:
For the sake of providing the information, here are the numbers taken from the “2009 Annual Report Of The Boards Of Trustees Of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds” published May 12th 2009 and “The 2009 Annual Report Of The Board Of Trustees Of The Federal Old-Age And Survivors Insurance And Federal Disability Insurance Trust Funds” published May 2009:
(In trillions of US dollars) 75 years Infinite
Social Security Unfunded Obligations: 5.3 15.1
Medicare Unfunded Obligations: 45.8 88.9
One other reason these numbers are misleading is that the size of the numbers create a comparative fallacy. To put that in perspective what if I told you that these same 45.8 trillion of present value of additional resources that are estimated to be needed to meet projected Medicare expenditures over the next 75 years represent “only” 5.8% of the present value of projected GDP over the same period. Yes, the present value of GDP projected over that period is 791 trillion. Putting side by side the 75 year unfunded obligations estimate with the current GDP size is like determining your salary based on the cost of living in 1935, in other words, informational but useless and probably dangerously misleading. At best it provides a roadmap for the social reforms necessary that must be addressed in the medium term, but most often this comparison simply creates confusion and is used to sensationalize the headline. [Seeking Alpha, 5/27/10]
Baker: Putting Projected Social Security Shortfall In Context Relative To Size Of Economy Is “The Best Way” To Make It “Understandable.” From economist Dean Baker's reaction to the 2011 Social Security trustees report:
The best way to make the size of the projected Social Security shortfall understandable is to put it in context. Relative to the size of the economy, the projected Social Security shortfall is equal to 0.7 percent of GDP. By comparison, annual spending on the military increased by more than 1.6 percentage points of GDP between 2000 and 2011. So the burden imposed by the wars in Iraq and Afghanistan are almost 2.5 times larger than the money that would be needed to eliminate the Social Security shortfall.
To take another point of reference, the Congressional Budget Office's analysis of the Ryan Medicare privatization plan implied that it would increase the cost of buying Medicare-equivalent policies by more than $34 trillion, a sum that is almost five times as large as the projected Social Security shortfall. If the Social Security shortfall is a really big deal, then the additional costs attributable to the Ryan plan are five times a really big deal. Interestingly, almost no one in the media seems to be talking about that burden. [The Huffington Post, 5/16/11]
... And That Focusing On 75-Year And Infinite Projections For Social Security And Medicare Is “Bad Policy Analysis”
American Academy Of Actuaries: Infinite Obligations Estimates “Are Likely To Mislead Anyone Lacking Technical Expertise” In Social Security. The American Academy of Actuaries' Social Insurance Committee wrote the following in a letter to the Social Security Trustees after the trustees began including infinite estimates of Social Security costs in 2003:
Before 2003, the annual Trustees Reports showed OASDI's actuarial deficit and, more recently, its unfunded obligations only on an open-group basis over the statutory 75-year valuation period. For the first time, in their 2003 Annual Report, the Trustees included OASDI's unfunded obligations on a closed-group basis and its actuarial deficit and unfunded obligations on an open-group basis for an infinite time period. In Recommendation M-6, the Technical Panel commends these additions to the report as improvements in the presentation of the financial status of the OASDI program and, further, recommends that the infinite-horizon actuarial deficit be presented more prominently in future reports.
The Social Insurance Committee disagrees with Recommendation M-6. Rather, the Committee believes that the new measures of OASDI's unfunded obligations included in the 2003 report provide little if any useful information about the program's long-range finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic and actuarial aspects of the program's finances into believing that the program is in far worse financial condition than is actually indicated. Thus, we believe that including these values in the Trustees Report is unnecessary and is, on balance, a detriment to the Trustees' charge to provide a meaningful and balanced presentation of the financial status of the program.
With regard to the infinite-time-period estimates, the Committee begins its analysis by noting that the results of the 75-year statutory valuation are themselves subject to extreme uncertainty. Consider the situation of actuaries or economists in the year 1928 attempting to project demographic and economic parameters 75 years into the future - to 2003. They likely would have missed the Great Depression, World War II, the baby boom, the influx of women into the labor force, etc. Nobody, no matter how intelligent or educated, could have anticipated these very significant events. [American Academy of Actuaries, 12/19/03]
Bernstein: Calculating Social Insurance Programs “Over An Infinite Time Horizon” Is “Bad Policy Analysis.” From Bernstein's Christian Science Monitor post:
The other thing the UL'ers do is calculate the shortfall over an infinite time horizon. That's just bad policy analysis. Again, if you do the math relative to GDP or payrolls as you should, the shortfall amount is fractional, much like the 75-year results (see the tables a few page later in the trustees' report). But a moment's reflection should lead you to wholly discount forecasts out to infinity. Who knows what growth, productivity, and population trends will be that far out in the future? [The Christian Science Monitor, 7/7/11]
Baker Ridiculed “Infinite Horizon” Estimates. Economist Dean Baker wrote of the 2011 Social Security trustees report:
It is also important to keep the Social Security numbers in context. Proponents of cuts to Social Security have spent fortunes on pollsters and focus groups trying to put the program's finances in the most dire possible light. They are fond of reporting things like the program's $17.9 trillion shortfall over the infinite horizon.
The focus groups show that this one is really good for scaring people. After all, “trillion” is a really huge number and $17.9 trillion must be really really huge. Of course no one has any clue what “infinite horizon” means. So no one knows that this is a projection of what the program looks like in the 23rd, 24th, and 25th century and beyond, if we never change it in any way.
The vast majority of this $17.9 trillion shortfall comes in years after 2200. Social Security does have a long planning period, but if anyone thinks that we are actually making policy for the 24th century then we should keep this person far removed from the levers of power. [The Huffington Post, 5/16/11]
Brookings Economist: Estimates Of “The 'Unfunded Liability' Of The Federal Government's Programs” Is “Essentially Meaningless” Because Of Long-Term Predictions' Inaccuracy. PolitiFact's report included the following comments by Brookings Institute economist Gary Burtless:
Others argue that estimating unfunded obligations 75 years into the future is never safe.
“One can certainly come up with all kinds of scary -- but essentially meaningless -- estimates of the 'unfunded liability' of the federal government's programs,” Burtless, the Brookings economist, said. “As a general rule of thumb, the bigger the estimate, the more meaningless it is.”
Burtless noted that the numbers change wildly based on annual policy decisions and a 75-year measure was is arbitrary because obligation don't end then.
“It is impossible to predict 25 years into the future with much accuracy, let alone 75 years or all of eternity,” he said. [PolitiFact, 5/23/11]
Lind Criticized “Big, Scary Number” Of “Infinite Time Horizon” Projection Of Social Security Costs. Responding to a blog post from the Cato Institute's Michael Tanner on the 2009 Social Security Trustees report, New America Foundation policy director Michael Lind wrote:
Is the government really going to have to come up with $17.5 trillion in the next year or two to pay for Social Security, as more baby boomers retire? Undoubtedly that is what some opponents of Social Security want to frighten their fellow Americans into thinking. What Tanner neglects to tell his readers is that this big, scary number purports to measure Social Security's unfunded liabilities over an infinite time horizon and assumes there are no changes made between now and eternity. Any number of relatively minor changes, from lifting the cap on the Social Security payroll tax to infusing general revenues, could preserve the program in its present form into the 22nd century without insolvency or harm to the U.S. economy. [Salon, 5/19/09]