Laurence Kotlikoff, author of the recent book The Coming Generational Storm, is featured in an article Speeches ignore impending U.S. debt disaster: No mention of fiscal gap estimated as high as $72 trillion. Kotlikoff's primary message is that the on-budget debt is only a small part of the total liabilities of the US government. The largest share is in unfunded promises to pay benefits for three programs: social security, medicare, and medicaid.
"The country's absolutely broke, and both Bush and Kerry are being irresponsible in not addressing this problem," Kotlikoff said. "This administration and previous administrations have set us up for a major financial crisis on the order of what Argentina experienced a couple of years ago."
A study by government economists Ghokale and Smetters produced an accounting measure of the total liabilities (called "net present value" which a way of adding together liabilities that occur at different points in time) of $51 trillion.
In a radio interview, Kotlikoff said that the study used somewhat optimistic assumptions, and the problem has gotten worse since the study was completed. He offered a more pessimistic figure of around $71 trillion. To get some idea of the magnitude of this sum, the following comparisons are offered:
— More than double the payroll tax, immediately and forever, from 15.3 percent of wages to nearly 32 percent; — raise income taxes by two-thirds, immediately and forever; — Cut Social Security and Medicare benefits by 45 percent, immediately and forever; — Or eliminate forever all discretionary spending, which includes the military, homeland security, highways, courts, national parks and most of what the federal government does outside of the transfer of payments to the elderly.
In reality, none of these "solutions" would or could ever be adopted and the promises will result in some form of default, either through outright reduction in benefits, increased taxation of benefits, means-testing, or inflation to reduce the nominal value of the benefits.
