Financial Report of U.S. Government
The Treasury Department recently released its annual Financial Report of the U.S. Government, reporting on the budget deficit, net operating costs, debt projections, and all government liabilities on an accrual accounting basis.
While the President's Budget describes how government spent and plans to spend public funds -- comparing receipts with outlays on a cash basis -- the Financial Report describes the net cost of government operations using accrual accounting methods, which show costs are they arise and not just when they come due.
Net operating costs typically exceed the deficit due to the added accrual costs of future government benefits. However, in 2009 the deficit outweighed net operating costs due to a large reduction in the VA's estimates for benefits liabilities and costs and to a $110 billion downward reestimate of TARP's cost. In 2010 the VA plans to switch its methodology (using average historical inflation and interest rates for future projections instead of current rates) for estimating liabilities -- a move that will reduce the yearly swings of VA figures.
The Financial Report also includes a detailed view of future government liabilities, which mainly stem from Social Security and Medicare. Using accrual accounting methods, the reports shows the present value of projected revenues and expenditures of benefits from social insurance programs over the next 75 years. When compared to government assets -- including cash and monetary assets, accounts receivable, loans receivable, taxes receivable, property, etc... -- the picture is quite dire.
|U.S. Government Assets and Liabilities (billions)
|Debt Held by the Public||$3,408.5||$7,582.7|
|Net Liabilities of Social Security^||$3,945||$7,685|
|Net Liabilities of Medicare||$9,093||$38,129|
|Total Social Insurance Liabilities||$13,038||$45,814|
|Total Net Liabilities||$18,884.1||$57,269.9|
*Includes liabilities of federal employee benefits, veterans benefits, and other liabilities.
^Includes liabilities for all Medicare programs, in addition to Railroad Retirement benefits.
Our long-term liabilities have drastically worsened since the 2000. Growth of health care costs combined with an aging of the population (notably, the 78 million baby boomers who are nearing retirement) pose immense fiscal challenges for the country. Updated projections of current law show Social Security, Medicare, and Medicaid costs growing much faster than GDP over the next 75 years, while revenues for these programs are expected to grow only slightly higher than GDP. Over time, excess cost growth of social insurance programs will compound, lifting U.S. debt to levels never before reached.
In the table above, it is clear that our future liabilities exponentially outweigh our ability to pay for them. The $57.3 trillion present value of 75 years of future net liabilities is 7.2 times greater than all of our publicly held debt and 45 times greater than the costs of the ARRA and TARP combined. The facts are clear, we must embrace serious entitlement reform.
CRFB has repeatedly called on policymakers to address the unfunded liabilities of Social Security and Medicare, which currently threaten to break the bank (see here, here, and here). Each new Financial Report is, to quote ourselves, "an indisputable call to reform entitlements."