Decline of America Through Debt: $109 Trillion Unfunded Liabilities and Debt (Medicare, Social Security, Medicaid, Etc)

In thinking about the economic condition of the United States I sometimes worry that maybe our best days are behind us as a nation. History has shown that empires can last hundreds of years before they collapse. When examining the data of the unfunded liabilities of the United States it is hard to see how the United States will continue to have a high standard of living.

In August 5^th, 2011 the United States lost its AAA credit rating. A credit rating measures how likely a country or company is able to pay back their debts. Although, the current credit rating is AA+ it is clear unless the government gets it act together we will be heading down the wrong path.

Currently the national debt for the United States is over $16 trillion dollars. This doesn't include the annual deficits we have been having which in 2012 was $1.1 trillion (I like how people are excited if the deficit is less than predicted even though it is a trillion dollars). The deficit was $1.3 trillion in 2011. The United States also currently has a very low interest rate on the debt at around 3%. However if interest rates increase to a more normal rate of 6%-7% than the interest payments required would increase from about $432 billion to $864 billion. However, our GDP (or how much we produce) is only $15 trillion. One might look at this and say “Gee we could pay back the debt in one year if we really wanted to”. However there are some problems with this. According to the 2012 U.S. federal budget the United States spent $3 trillion in just one year. What isn’t included in this estimation are unfunded liabilities for government programs.

The 2013 Social Security Trustees report shows that by 2033 Social Security won’t be able to pay out full benefits and will only be able to pay out 77% of benefits. Social Security has an unfunded liability of about $9.6 trillion. Medicare has an unfunded liability of about $39 trillion. Medicaid has an unfunded liability of $20 trillion.  Let’s not forget the newly created Obamacare which will is estimated to create a $17 trillion unfunded liability.

This is all at the federal level we haven’t even gotten down to the state level, city, or county level. Joshua Rauh in this EconTalk podcast estimates the unfunded liability from state pensions is $4 trillion. Actually believe it or not New York city has the highest unfunded liability with $122 billion. Then you have cities like Chicago have an unfunded liability of $42 billion. 

So let's add it all up: 

Current U.S. debt: $16 trillion

States unfunded liability $4 trillion

Medicare unfunded liabilities: $39 trillion

Medicaid unfunded liabilities: $20 trillion

Obamacare unfunded liabilities: $17 trillion

Social Security unfunded liabilities: $9.6 trillion

Student loan debt: $1.1 trillion

Increase in interest rates: $864 billion

2013 projected deficit: $642 billion (will see if this comes true)

$109 trillion (or roughly 7 times our current GDP)

As Dr. Walter E. Williams points out the government spends $3.7 trillion per year. Now if you wanted to "soak the rich" and make them pay for the spending you could tax everyone making over $250,000 at a 100% tax rate and you could only run the government for 190 days. Taking the profits of all the Fortune 500 companies would run the government another 40 days and confiscating the wealth of the billionaires in the United States will allow the government run into the fall season. Clearly, we have a spending problem and not a revenue problem.