The budget situation is worse than we thought

A recent article in The Wall Street Journal gave me a start. I know the federal government budget situation is a mess, but I had no idea how huge the problem is. Check these numbers out.

First, we aren’t given the true statistics on our debt problem. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury "balance sheet" does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.

Because of this, we get to hear fiscal policy discussions that focus on current-year budget deficits, the accumulated national debt, and the relationships between these two items and gross domestic product. We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government's true liabilities.

OK, here goes—get ready for some disturbing statistics. The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.

We are told we can solve this problem if we tax the rich and tighten a few loopholes in our tax code. When the accrued expenses of the government's entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.

Can we do this by a tax on the rich and closing loopholes? Nope. If the government confiscated the entire adjusted gross income of American taxpayers earning $66,000 or more per year, plus all of the corporate taxable income in the year before the recession, it wouldn't be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities.

So, what’s the answer? Only by addressing these unsustainable spending commitments can the nation's debt and deficit problems be solved.