According to a government report that was recently released, Social Security ran a $9 trillion deficit… and no one in Washington bothered to talk about it.
The alarm bell was rung by Boston University economics professor, Laurence Kotlikoff, a former member of President Ronald Reagan’s Council of Economic Advisers.
Kotlikoff also noted that the press ignored the news, too.
The press covers on-the-books “official” federal debt, but it ignores off-the-books unofficial federal debt. The fact that one set of debts is on the books because of Congress’ choice of words and another isn’t, again, because of Congress’ choice of words, matters not. When it comes to economics, the press too often simply believes what it’s told.
Even the Democrats running for president ignored the news.
The unfunded liability is the most important and scariest number in the report. The secretary and his fellow trustees ignored it in their summary statement for the same reason they buried it at the rear end of their report.
But, “It’s political dynamite,” Kotlikoff added.
“It tells old people what they’ve been promised won’t likely get paid in full. And it tells young people that they could be saddled with up to $43 trillion in extra taxes whose payment will provide them absolutely nothing in return,” he wrote.
On the right side of Social Security’s balance sheet are its liabilities, all valued in the present, i.e., in present value. The system’s liabilities are its projected benefit obligations ($176 trillion) to current retirees, current workers and future workers.
On the left side are the system’s assets. These are the value of the system’s peanut-sized trust fund ($3 trillion) and the present value of its projected payroll tax receipts ($130 trillion) from current and future workers.
Balance sheets are meant to balance, hence their name. When they don’t, look out. It means the entity is bankrupt. When Enron’s off-the-book (hidden) liabilities were made public, it instantly went bust because its total (off- plus on-the-books) liabilities exceeded its assets by a mile.
“The system is dead broke and, due to changes in its actuaries’ projections, it’s now a half-year’s GDP more broke than it was at this time last year,” Kotlikoff warned.
Kotlikoff went deeper into why we are past the brink of insolvency, but suffice to say, it is a mess that both parties AND the media are ignoring.
Follow Warner Todd Huston on Twitter @warnerthuston.