How Much Do We Owe?

Worried by reports of escalating federal debt, I sought out an answer the other day to this question: How much do we as taxpayers actually owe because of commitments politicians have made on our behalf? Turns out, the answer is not as simple as you might think.

The place to start is with a report put out annually by the U.S. Treasury. There I learned that the federal government officially recognizes an outstanding debt of $17.5 trillion. This amount consists of $10.2 trillion in government debt held by the public, plus pension and retirement benefits owed to federal employees.

On the one hand, that amount exceeds our country’s entire gross domestic product and that’s pretty bad. On the other hand I was surprised that the number wasn’t even higher because… Hey wait a minute.

What about Social Security? It’s not on the list. What about Medicare? It’s not there either.

On further investigation, I found out why. “Social Security promises are part of current law and can be changed by Congress at any time,” I was told. Ditto for Medicare. And disability insurance. And survivors insurance. Etc. Etc. That’s a bureaucratic way of saying, “We can break those promises any time we want to.”

So let’s see if I’ve got this right. I’ve been paying Social Security taxes for some 45 years or so and the federal government doesn’t officially admit that it owes me a dime. The same is true for 45 years of Medicare taxes. But it does admit that it owes pension benefits and post-retirement medical benefits to federal workers. As a taxpayer, I’m liable for all the promises the government has made to its own employees. But federal workers are not liable (necessarily) for all the promises the government has made to me.

If you are a bond holder or a federal employee the federal government is saying, “We owe you the money.” But if you’re a senior on Medicare or Social Security, the government’s position is, “We can default on our promises to you anytime things get a bit tight.”

What’s wrong with this picture?

Another day older
And deeper in debt.

Still, the government isn’t likely to abolish Social Security and Medicare anytime soon. In fact, it’s unlikely to ever abolish them. So what happens to the “amount we owe” if we throw those promises into the picture along with everything else? The calculations have been made in a study for the National Center for Policy Analysis by former Social Security/Medicare Trustee Thomas R. Saving and economist Andrew J. Rettenmaier. Here’s what they found:

  • If today’s seniors get everything that’s been promised to them, they can expect to receive $12.8 trillion in Social Security and Medicare benefits beyond the estimated taxes and premiums that will be collected to fund those programs.
  • If these promises to the elderly are counted as official obligations, federal liabilities would climb to $30.3 trillion — about twice the size of our entire economy.
  • If we also include promises being made to all the young people who are currently paying (FICA) payroll taxes, the total climbs to nearly $84 trillion.

Bottom line: we taxpayers owe a great deal. In fact, we owe about five-and-a-half times what the government officially admits.

Comments (20)

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  1. Vicki says:

    Nice song pairing.

  2. Ken says:

    Sneaky bunch, aren’t they.

  3. Alex says:

    I would wager that if more people knew this then the public opinion about Social Security and Medicare would shift.

  4. Larry says:

    Back in the 1990s FASB created a requirement that public companies recognize on their books the future liabilities associated with retirement health care. (Even if there was a ‘reservation of rights clause’ in the Plan language such that the Plan sponsor could change or terminate the Plan at anytime.) I believe that was known as FAS-106.

    That created a reporting event for all affected public companies. In some cases it caused them to show a loss in the year that they reported the future liabilities.

    But it looks like the Federal government doesn’t apply the same standard to itself.

  5. Devon Herrick says:

    It’s easy for Americans to point their collective fingers derisively at Banana Republics in Latin America, once-rich South American countries like Argentina, and the European bastions of fiscal recklessness like Greece, Spain and Italy. But we in the United States are not that much better when it comes to government spending beyond its means and using Treasury Bonds to avoid the unpleasantness of raising taxes (or cutting spending). It seems like it is only getting worse as years go by. Programs that both parties would have opposed as fiscally irresponsible in years past are supported because a few constituents might tip the balance and swing an election. I’ve heard an economist say something to the effect of… The 19th Century belonged to Great Britain, the 20th Century was America’s; the next century will be China’s.
    The implications is that America is declining into its twilight years. This may be true. If so, it’s due to the poor fiscal policies that emphasize buying votes today rather than investing in a better tomorrow.

  6. Bill Stuart says:


    It’s funny (but not in an amusing way) how politicians play it both ways:

    No. 1. “No, we can’t balance the budget by making changes in Social Security or Medicare. They’re ‘entitlement programs’ governed by in-force law that we can’t just change on a whim.”

    No. 2: “We don’t have to count future Social Security and Medicare obligations as liabilities. With a quick vote and stroke of a president’s pen, we can amend or wipe out those liabilities any time we want.”


  7. Bruce says:

    John, are you trying to ruin my day?

  8. John Seater says:

    The total federal debt including promised benefits of Social Security, Medicare, and Medicaid is gigantic relative to the economy. In 2011 US GDP was $14.5 trillion. Federal debt in the hands of the public at the beginning of 2011 was $9.6 trillion, about 2/3 of GDP. That’s large but manageable. However, Michael Tanner (2011), in a study published by the Cato Institute, estimates that at the beginning of 2011 the value of the future expenditures promised by the federal retirement (Social Security) and health care (Medicare and Medicaid) programs was at least $45 trillion and perhaps as much as $104 trillion. The ambiguity arises from uncertainties about the path of Medicare expenditures.

    Not only does the debt implicit in entitlement programs dwarf the official debt, it also dwarfs the US economy. Adding the larger number for entitlements to outstanding government bonds gives a total debt of about $110, about 7.5 times the size of the economy.

    It is very unlikely the federal government will be able to meet the obligations of even the lowest estimate, much less those of the higher estimate. That is all the more likely because politicians refuse to address unpleasant issues, preferring to postpone them to the future when someone else will get the job of dealing with them. Unfortunately, the postponement only makes the problem even bigger when it finally is addressed, as it inevitably must be.

    I thus predict some kind of default. My best guess is a default on the social spending rather than outstanding government bonds. Legally, there would be no default because there was a Supreme Court decision at some point that said in effect that social spending promises are not legally binding. What form the default will take is unclear. The retirement age could be raised, benefits to everyone could be cut, and so on. There also will be tax increases, but there is no way to raise taxes enough to cover the expenses without wrecking the economy. Hence the need to default. What I have no idea about is when the crunch will occur.

  9. Bart says:

    If those items can’t be considered debt, then maybe we should start thinking of them as preferred stocks, where dividends are not guaranteed. Except that preferreds are usually nonvoting.

  10. Jeff says:

    Maybe I should buy gold and start thinking of a safe haven to retreat to.

  11. Don Levit says:

    There are 4 levels of federal government debt ranging from the highest to the lowest obligation to fulfill. Federal retirees obligations is the highest level obligation of debt, an explicit liability.
    Future Social Security benefits are the lowest level of debt obligation, an implicit promise.
    John was referring to the $17 trillion as explicit liabilities, which includes debt held by the public, the federal employees’pensions, Veterans benefits payable, environmental and disposal liabilities, and loan guarantees.
    See a paper entitled “Fedral Debt, Answers to Frequently Asked Questions, An Update,” published by the GAO.
    see pages 65 and 66.
    Don Levit

  12. david says:

    This is ALMOST as dumb as people who say the government should be run on a cash-only basis.

    @Larry’s argument of a double standard does not apply: the US government does not have to obey the law; it is the law.

    And @John, you’re really going to cite a study that gave a range of $45 – $104 trillion dollars? That’s only a difference equal to… the ENTIRE income of the world.

    Money owed to government employees is different because it is a transaction under the law, with the government committing itself just as a private company would. Social Security, however, is not a contract. It is not a legally binding agreement.

    This does bring to mind, however, a letter Thomas Jefferson wrote to James Madison shortly before the Constitution was ratified.

  13. Ron Bachman says:

    Remember, if businesses were run this way, the politicians would all be in jail.

    John, have you accounted for the same obligations and unfunded liabilities at the state and local levels? This is additional promises we have made that are not funded.

    I think Uncle Sam needs to take on extra work that the world will pay us for. How about, energy and food?

    Isn’t the bottom line (your the economist), that a family, city, state, or country can only sustain a standard of living comparable to its ability to produce good and services that others are willing to purchase?

  14. John Seater says:

    @David: There’s no inconsistency with a present value being larger than current income. Most new mortgages have that relation to the income of the household taking them out. However, you are absolutely right to be shocked at the size of the number I cited. It is hard to believe that society will accept the increases in taxes and reductions in expenditures required to meet such enormous obligations. That’s why I predict default in some form.

    @Ron: No, my numbers do not include state and local liabilities, only federal. You are right to point out that what matters are the obligations of total government, not just the federal government. State and local obligations make it even more unlikely that the US as a whole can meet the obligations it has imposed on itself. Unfortunately, I don’t have ready access to data on state and local obligations and so can’t tell you how big they are.

  15. david says:

    @John, the size of the numbers doesn’t shock me, it’s the size of the difference between them. Doesn’t sound like a very good study, if it could narrow the expected committments any more than that.

  16. Ralph F. Weber, AEP, CLU, REBC says:

    Meanwhile Canada has been going the other way, and soon we will have worse healthcare than they do

  17. John Seater says:

    @David: Oh, I misunderstood your concern. According to Tanner, the large difference arises from the uncertainty about how Obamacare is going to affect Medicare. Obamacare says it will put various limits on Medicare spending. If all those limits hold, then you get the smaller number. If none of them hold, you get the larger number.

    The problem is that a few of the same kinds of limits have been tried in the past, and every time they started to bite, Congress repealed them or relaxed them. It’s similar to the debt ceiling, which never really stops the debt from rising because Congress always raises it when the debt gets near it. So Tanner simply computed the two extreme values: completely effective limits and completely ineffective limits. The range in the numbers thus arises from uncertainty about how policy will play out.

    In my opinion, the probabilities are not even close to uniform. Judging from Congress’s past behavior, I think it is far more likely that Congress will flinch and relax the limits when they start to bind, which leads me to accept Tanner’s high number as a pretty good estimate of the actual implied future burden of Medicare. That, however, is just an opinion. Tanner does give us the value to use if the opposite extreme is realized.

  18. Paul Nelson says:

    One can only imagine what could have happened if President Johnson had not cashed in the Medicare funds for the Viet Nam War costs: you know, invested funds that actually existed. I suspect that the ultimate cause of our recession doledrums is the cost of our nation’s healthcare and its effect on our participation in the world’s marketplace.

    Anyone out there interested in a Balanced budget with Congressional term limits Constitutional Ammendment?

  19. Charlie Bond says:

    Hi Friends,

    I just spent a few days with Alan Simpson. Uwe Reinhart and Bill Frist were at the same gathering. The correlation between the national debt and our health care obligation cannot and should not be ignored. Anyone with children must recognize the magnitude of the mortgage we are placing on their future—a mortgage that not only means that their standard of living will be lower than ours, but that the burden of their debt will affect their ability to have a secure country and stable economy. The dearth of leadership in addressing this issue bodes very ill for our future and theirs.

    Those of us interested in health policy have a particularly important role to play. Because of our understanding of our complex health care system, we can and must focus national attention on waste, inefficiencies and economic absurdities in our health care delivery and financing systems.

    Per my calculations (which I have run past Eskine Bowles), if America were able to reduce its health care spending from the current level of 18% of GDP to 15%, our problems with the national debt would effectively be solved. For those who pooh-pooh this assertion, just do the numbers, keeping in mind that our health care spending is about equal to the GDP of China. So by dropping health care spending from 18% of GDP 15% we would be liberating and releasing into our economy a stimulus equal to about 1/6 of China’s entire economy every year. Roughly half that saving would flow to the government (state and federal) thereby reducing debt, with the rest going to employers and individuals. American ingenuity and entrepreneurial zeal could put those liberated dollars to pretty good use rebuilding robust growth in our economy, thereby leaving our children a better world.

    Health care is the issue of our generation. As a country we have to tackle it head on. Those very relatively few of us who truly understand the system know that Obamney-care is only the beginning of the discussion. The country needs our input and our leadership. Being a policy wonk and a gadfly is not being a leader. We have to roll up our sleeves and reform health care from the bottom up, not the top down, community by community across this great country. We have to be willing to tell the truth and bar-b-que a slew of sacred cows to effect real change. If we do, we will leave the country a better place. We cannot fail our children in this crucial endeavor.

    Charlie Bond

  20. Ron Bachman says:

    Charlie, glad to hear words of wisdom from involved thought leaders like yourself. Leadershio is certainly key, but ideas for leaders to follow are also critical to the success you envision. If (when?) ObamaCare is repealed, states will need to pass reform legislation to creat a more competitive and effective local market for health insurance. I have not seen any conservative proposal gain the critical mass of support internally within the republican party. I have seen only bumper sticker slogans – some of which will not work. I have put together for the state of Georgia a package of beginning refprms that have the input and support of many in the state (providers, grass roots, legislators, and others). We are awaiting the November elections to spring forward in 2013

    FYI – the potential state reform legislation can be found at

    PS These reforms do not require any federal legislation. That is another list of ideas I can share.