How I Eliminated $15.4 TRILLION in Unfunded Debt: for $1.50 a week

by Bruce Webb

Don’t step in the Voodoo.

Leap in U.S. debt hits taxpayers with 12% more red ink

Yhe latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That’s quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

“We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it’s not backed up by a house,” says David Walker, former U.S. comptroller general, the government’s top auditor.

It is nonsense like this that explains why the Northwest Plan for a Real Social Security Fix is better than my previously preferred plan of ‘Nothing’, it helps to shut Peterson stooges like Walker the hell up.

What Walker is telling us via USA Today (which near as I can see did no ‘analysis’ at all, just parroting the ‘Fiscal Wake-up Tour’ message instead) is that if you add the the current value of all US debt, add to that projected costs of Social Security, Medicare and military pensions you come up with a total of $63.8 trillion which if divided by the number of CURRENT households gives you a total of $546 thousand. This is a meaningless number for any number of reasons. One it implicitly defines ‘household’ as ‘current household and any future households stemming from it’, that is if you have four kids your ultimate per household burden will be a quarter of that. Plus this calculation ignores all future households stemming from future immigration and of course households stemming from them. It is a junk number. But rather than try to demonstrate the absurdity of the logic and the arithmetic lets just make a big chunk of that debt go away.

If the NW Plan was enacted into law tomorrow $15.4 trillion in ‘unfunded liability’ would vanish from the books. Poof! With no money down and easy payments starting in 2010. Which is better than any mattress deal out there.

Social Security and the CBO score future liability on a current law basis, change the law you change the score. Lets take three different households. The first is a household making median household income of $50,000. The second is a household with a single earner making the average income of $40,000. The third is a one person household where the worker is earning $12.50 an hour. Under the NW Plan the first household would pay $1.50 more in taxes per week by the second year, the second household $1.20 cents, the third household 75 cents with no further changes in tax rate until 2026. That is all it would take to wipe almost a quarter of that $63.8 trillion off the books.

Because it is all just word games. Under current law the Federal Government is required to pay Social Security benefits on the established schedule as long as it has money coming in to pay for it. But if the dedicated revenue stream falls short of that Congress is fully empowered to change that current law. Is the Federal Government really on the hook for $15.4 trillion in unfunded liability for Social Security? Well under current law as of June 1, 2009 yes. After passage of the NW Plan not. Or for that matter after passage of some ‘Bi-Partisan’ Commission recommendation not. Trying to equate a current law projected liability into an actual measure of future household debt is just Voodoo Arithmetic. Because at some point Congress will move to add funding to current law or change the current law benefit schedule and in doing so will make that $15.4 trillion dollar ‘unfunded liability’ vanish like smoke.

Don’t fall for the hype. Normal households don’t budget that way. Unless you plan to starve to death you have an unfunded liabiliity for all the food you are going to eat between now and your projected mortality date. If you rent you have an unfunded liability for the cost of keeping a roof over your head. Ditto for your utilities, your clothes, your entertainment. For that matter your real unfunded liability for your car, mortgage and credit cards is far above the face value of the loan balance, absent a Lotto victory you are far more in debt than your current balance sheet shows. But what is important is your carrying costs. Can you make rent and car payments and buy groceries and entertain yourself while paying down your principal balance on your revolving debt? Well then you are fine. That doesn’t mean you don’t need to look down the road at things like future college bills or retirement income, it is that if you do you will probably look at it in terms of your monthly income, can I afford to set aside X hundred dollars a month to pay for Suzie’s education, or maybe to save up for the down payment on that new bass boat? After that it is just a matter of making payments out of current income.

So people have a choice regarding Social Security. Do you want to lay awake at night wondering how you can possibly come up with your share of $15.4 trillion? Or just roll over thinking “Well I think I can find an extra buck and a half a week in the next two years and a buck or so more per week per year in 2026. Why am I even worrying?”.

NW Plan Spreadsheet (PDF version)

Update: Posted in diaries at Daily Kos