Treasury Report: Federal Fiscal Shortfall is $603,000 per Household

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APA
Agresti, J. D. (2015, April 13). Treasury Report: Federal Fiscal Shortfall is $603,000 per Household. Retrieved from https://www.justfactsdaily.com/treasury-report-federal-fiscal-shortfall-is-603000-per-household/
MLA
Agresti, James D. “Treasury Report: Federal Fiscal Shortfall is $603,000 per Household.” Just Facts. 13 April 2015. Web. 25 June 2019.<https://www.justfactsdaily.com/treasury-report-federal-fiscal-shortfall-is-603000-per-household/>.
Chicago (for footnotes)
James D. Agresti, “Treasury Report: Federal Fiscal Shortfall is $603,000 per Household.” Just Facts. April 13, 2015. https://www.justfactsdaily.com/treasury-report-federal-fiscal-shortfall-is-603000-per-household/.
Chicago (for bibliographies)
Agresti, James D. “Treasury Report: Federal Fiscal Shortfall is $603,000 per Household.” Just Facts. April 13, 2015. https://www.justfactsdaily.com/treasury-report-federal-fiscal-shortfall-is-603000-per-household/.

By James D. Agresti
April 13, 2015

New data from the U.S. Treasury shows that the federal government has amassed $74 trillion in debts, liabilities and unfunded Social Security/Medicare obligations. This amounts to $603,000 for every household in the U.S., a fiscal burden that exceeds 90% of all the private wealth accumulated in the history of America.

Each year, the Treasury and White House are required by law to report on the “overall financial position” of the federal government. The law also requires the Government Accountability Office to audit the data, which is then published in the “Financial Report of the United States Government.”

Unlike the federal budget, which primarily uses “cash accounting,” this report uses “accrual accounting.” The Government Accountability Office explains that this method of accounting “is intended to provide a complete picture of the federal government’s financial operations and financial position.”

Cash accounting is the simple process of counting money as it flows in or out. In contrast, accrual accounting measures financial commitments regardless of when cash is received or paid. For instance, as federal workers earn pension benefits, accrual accounting measures these obligations even though the money may not be paid out until years later. Cash accounting does not measure such liabilities until they are paid.

The federal government requires large corporations to use accrual accounting for their pension plans, because this is the “most relevant and reliable” way to measure their financial health. The same general standard applies to other retirement benefits like healthcare. The official statement of this rule explains that “a failure to accrue” implies “that no obligation exists prior to the payment of benefits.” Since an obligation does exist, failing to account for it “impairs the usefulness and integrity” of financial statements.

Nevertheless, the media and politicians constantly cite the federal budget, which primarily uses cash accounting. Yet, they are virtually silent about the Financial Report of the U.S. Government, which uses the accounting standard that government imposes on large corporations.

According to this year’s report, the federal government now owes $6.7 trillion in pensions and other benefits to federal employees and veterans. Although these liabilities don’t appear in the 2014 budget or national debt, paying them will require an average of $54,000 from every household in the U.S.

A similar situation exists with Social Security and Medicare, because government funds these programs with taxes on workers who often don’t receive benefits until years later when they are senior citizens. These programs differ from pensions because taxpayers don’t have a contractual right to receive benefits. As held in a 1960 Supreme Court ruling, the government can change the deal at will. Nevertheless, paying these benefits is an implied commitment of the federal government, and the law requires that these programs be included in this report.

Government quantifies the unfunded obligations of Social Security and Medicare in several different ways, but only one of them approximates the concept of accrual accounting. This is called the “closed group” obligation, which is the money needed to cover the shortfalls for all current taxpayers and beneficiaries in these programs. In the words of Harvard Law School professor and federal budget specialist Howell E. Jackson, this “measure reflects the financial burden or liability being passed on to future generations.”

These burdens amount to $25.4 trillion for Social Security and $28.2 trillion for Medicare. Other obligations of the federal government are included in the report, like debt, environmental liabilities, and accounts payable.

The report also accounts for federal assets, such as cash, real estate, and corporate stocks. This excludes federal stewardship land 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.”

Tallying the Treasury’s data on assets and obligations, the federal government has amassed $74.3 trillion in debts, liabilities, and unfunded Social Security/Medicare obligations. Spread over all U.S. households, this amounts to an average of $603,000 per household. The actual burden may be even worse, because this estimate is based on certain assumptions that are shaky and optimistic. For example:

  • The Congressional Budget Office (CBO) has criticized federal budget rules for understating the costs to taxpayers of federal credit programs like student loans and home mortgage guarantees.
  • A paper in the journal Demography found that the Social Security Administration is using an antiquated method to project life expectancies, and as a result, the program “may be in a considerably more precarious position than officially thought.”
  • Medicare’s 2014 Trustees Report states that the program’s long-term costs may be “substantially higher” than projected under current law. This is because the Affordable Care Act will cut Medicare prices for “many” healthcare services to “less than half of their level” under prior law. Per the report, this could cause “withdrawal of providers from the Medicare market” and “severe problems with beneficiary access to care.” This will force lawmakers to raise prices, thereby increasing the costs of Medicare.

The current national debt is $18.2 trillion, which is 103% of the nation’s gross domestic product. This is higher than at any point in U.S. history except for three years near the end of World War II. The national debt, however, is measured on a cash basis, and as such, it does not include most of the obligations detailed above.

These obligations are coming due, and this can be seen in CBO’s projections of publicly held debt (a partial measure of national debt). Under current federal policies and their economic effects, CBO projects that the next generation of Americans will inherit a debt like never before seen in the history of the U.S.:

publicly_held_debt_1790-2039

Such levels of debt threaten far-reaching negative consequences, such as lower wages, poor economic growth, increased inflation, higher taxes, reduced government benefits, or combinations of such results. In the words of the Government Accountability Office, “the costs of federal borrowing will be borne by tomorrow’s workers and taxpayers,” and this “may reduce or slow the growth of the living standards of future generations.”

Further reading:
Do large national debts harm economies?

9 thoughts on “Treasury Report: Federal Fiscal Shortfall is $603,000 per Household

  1. Yes $79 trillion is close to the real number with the exception of the Defense budget the largest in the world–never audited . Now report the growing Private Debt near$90 trillion.Some data shows over 49% of Americans receive some form of government payments and the solution one party says -CUT TAXES , Reduce Services and go to WAR. Please report the amount of revenue from
    being the worlds largest ARMS dealer .

      • “Roughly 61% of federal spending is for social programs, as compared to 21% for national defense: http://www.justfacts.com/nationaldebt.asp#causes-spending.”

        Should you not update your stats when referencing links on your site? The data in your chart showing the 21% stat for national defence spending stops at 2012!

        Also, are you talking about ALL government spending or just discretionary spending. You do not make it clear and many people are unware of or confuse the two!

        Also, as you mention the difference between cash and accrual (I’m an Accountant so I know all about that) data, are the charts in your referenced link based on cash or accrual expenditures?

        I’m sure you’ve referenced this somewhere in the copious numbered links you provide on your site but a simple labeling on the chart would save people from haivng to jump all over your site to check this.

        • The latest data only extends until 2013, and the results are quite similar, except that tax collections have grown to $4.4 trillion or $36,000 per household, and military spending has fallen to 20% of the federal budget.

          Just Facts has published a lot of research, and it is a herculean task to keep it all updated. We recently hired another full-time employee who is working on this.

          I made this point clear. I used the phrase “federal spending,” and that’s exactly what it is. Discretionary spending is less than half of federal spending, and those who refer to discretionary spending as “federal spending” are typically misleading people: https://www.justfactsdaily.com/what-portion-of-the-federal-budget-is-spent-on-the-military/

          The data in the link is primarily from the U.S. Bureau of Economic Analysis, and this data is mainly based on accrual expenditures: http://www.bea.gov/faq/index.cfm?faq_id=1029

  2. ‘”The report also accounts for federal assets, such as cash, real estate, and corporate stocks. This excludes federal stewardship land 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.”’

    Then why are some Republican Congressmen calling for the sale of Government parks and lands?

    • I would personally object to the sale of protected lands. However, the principle driver of debt is social spending. It is not defense. It is not national parks. It is not the Department of Education. It is not the NIH, EPA, DOE, FBI, NSF, or any of any of the other agencies (though I personally would like to reform some and close some of these agencies). In fact, if every other government program was cut but medicaid, medicare, and social security, there would still be a problem.

      But the much bigger problem is that these programs enjoy broad public support, which means that they will be impossible to cut. Healthcare can only be a right because the economy is large enough to support those expenditures. However, as soon as those expenditures grow to a substantial portion of the economy, healthcare cannot be a right. It is somewhat similar to the drought situation in California: the UN has declared water to be a “human right,” so everyone feels that they are entitled to it. That system works until there is not enough water to serve everyone’s desires. People will need to change their thinking to consider it to be a market commodity.

  3. “Tallying the Treasury’s data on assets and obligations, the federal government has amassed $74.3 trillion in debts, liabilities, and unfunded Social Security/Medicare obligations.”

    Please explain for my enlightenment how Social Security is unfunded when it is funded by taxes totalling 12.4% on employers and workers and CBO projections show it has suffcient funds to cover benefits until 2033 without any change to Social Security. And with a raising of the earnings cap it can be funded through to 2075.

    • They don’t have a separate fund for SS receipts. It’s all rolled into the General Fund. That is why the administration always uses retirement checks as a scare tactic when they want to raise the debt limit and the opposition fights them on it. There is no money in a lock box for the SS fund just a bunch of pretty much worthless government IOU’s….. and they want to do the same thing with personal retirement accounts like personal 401K plans.

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