Tuesday, December 19, 2006

How much does the government owe?

Would you believe $53 trillion?

And the 2006 deficit alone? $4.6 trillion.

That's based on a GAO analysis (pdf) that looks at the present value of future liabilities the government has racked up over the next 75 years.

Are the numbers real? Yes. Are they meaningful? Sort of.

The figures come in answer to the following question: "If the current budget situation continues, what will be the cumulative difference between federal revenue and federal outlays in the next 75 years?"

Note all the important qualifiers: "If the current situation continues" and "75 years." The estimate ignores things like economic growth and population growth and then projects current conditions out over a very long time frame.

That time frame is important, because the longer the time period, the less accurate the projection becomes. It is extremely unlikely that current conditions will prevail for the next three quarters of a century, and even small changes can have big effects on such long-term guesses. Do the same projection in five years and you'll get a much different answer.

Further, the time frame makes the numbers look more scary than they really are. The $4.6 trillion deficit for 2006, for example, works out to about $61 billion a year -- big, but manageable.

Finally, this is not money actually spent; it's money we've implicitly promised to spend, assuming federal policy doesn't change in the next seven decades. Most of it represents Social Security and Medicare payments that won't come due for years -- but for which we've made no preparation, in part because we're using the Social Security "surplus" to pay for current government operations. So far the government has borrowed nearly $2 trillion from Social Security; if that money were instead held in trust, the multiplier effect of 75 years would go a long way toward reducing that $53 trillion.

So we're not really $53 trillion in the hole. What the figure mostly shows is the difference between our promises and our willingness to pay for them.

But they do serve as a wakeup call. The longer we run deficits and refuse to start saving for our long-term obligations, the greater the pain will be in the end -- either through higher taxes or greatly reduced government services. We need to end deficit spending sooner rather than later, start paying money back into the Social Security reserves and make some decisions about the intent and breadth of entitlement programs.

President Bush's tax cuts, mind-bogglingly expensive invasion of Iraq (with a final price tag estimated to be in the trillions) and ill-considered Medicare drug benefit have certainly worsened the problem, but he's not the only one to blame. We all share the blame to one extent or another, for wanting more government than we're willing to pay for.

I've commented before on how unethical it is to live large now and leave the bill for our grandchildren. What the GAO report demonstrates is how large that bill actually is. It's time to act like grownups and pay our own way. Anything else is simply unconscionable.

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