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The American National Debt---The Unfunded Liability---

Updated on June 10, 2013

Do You Know What Your Representative Is Doing?

I recently wrote a hub titled "The American National Debt--How Big is it Really?. While doing the research for that hub I realized that the information I gathered would require either an extraordinarily long hub or at least two hubs to "tell the story". The is the second in the series dealing with the national debt. I am not sure, yet, if there will be a third.

The US national debt is actually made up of many parts. It is just not the money "borrowed" to fund programs and keep the wheels of government turning. There is also the long term and future commitments made by the government to it's population, business and other nations. In the first hub I dealt with the "Public Debt" which most people are familiar with or have heard about. This public debt , which we all owe, has reached a staggering 14 trillion dollars and it is continuing to climb rapidly. In this hub I will deal with the "Gross Debt" with includes all the "unfunded liabilities" of the US government which is estimated , at this point in time, to be 110 trillion dollars--a number that , in reality, defies comprehension.

What are "unfunded liabilities" and why would they cost so much? The answer is, actually, a simple one. These liabilities are the Social Security costs, namely your government pension and your medicare costs, that the government is obligated to pay, to you and all your fellow citizens upon your retirement. These "obligations" are projected to cost more than 110 trillion dollars over the next 30-50 years. Unfortunately, for us, there is no money to cover these obligations and the consequences will be catastrophic if we don't find a way to solve this calamity.

Your retirement pension is funded by a payroll tax that is deducted from your pay check each week. Your employer matches your contribution and this amount go into a general fund that is used to finance the pensions that our seniors receive each month. Because the payroll tax was sufficiently high and the unemployment rate was sufficiently low surpluses began to accumulate each year. In order to deal with this "windfall" the congress created the Social Security Trust Fund in 1935. The plan was to take the surplus tax dollars accumulating and invest that money to strengthen and protect the Social Security system. I sure we would all agree that it was certainly a good idea......but unfortunately ....we are dealing with politicians and bureaucrats and sometimes the political class should never be left unattended. The thought of such a large amount of money just sitting there proved too great a temptation. The Congress passed laws that allowed them to "borrow" from the trust fund as long as they payed the amount back with interest...sounds good doesn't it? So that is exactly what they did. For the record several administrations of both political parties did this.They all bear guilt in this crime against the American people.

When the politicians borrowed from the trust fund they didn't pay the fund back with cash they had a "better" idea. They decided to pay the fund back with government bonds. After all what could be safer?...right? Very quickly the cash surplus from the fund disappeared and was replace with government bonds or what some have come to call them... I.O.U's. Now depending who you want to believe the current condition of the Trust Fund is at best shocking and at worst grand theft on an unimaginable scale.

According to the governments own sources the Social Security Trust Fund will become insolvent somewhere between 2017-2029. Even they can't agree. .An independent study of the fund in 2009 came to the conclusion that with an "unfunded" shortfall of 15.1 trillion effectively the fund was already insolvent. Who is right? Well actually both positions are telling the truth at least in part. The fund is short trillions of dollars, in value, and with that revelation the fund will not, by itself, be able to meet its' obligations in the near future. If the politicians continue arguing, amongst themselves, about who's to blame and do nothing insolvency by 2017 is probably more likely than anyone would like to admit.

So, how does this affect you and what does this have to do with the "unfunded liabilities"? The generation know as the "baby boomers" are now retiring and will continue to do so over the next 15 years. They will swell the ranks of the retired and quickly overwhelm the pension and healthcare systems. These new retiree's can expect to live well into there 80's. This was never envisioned by anyone when the pension system was set up. The average baby boomer can expect to live into their mid 80's which means they will draw a government pension for 15-20 years and will, increasingly, need the use of the health care services as well putting demands on a Social Security system that was never designed to handle such senarios. Financially it will be a disaster for the US and all the western nations as they will all be in the same situation.

As second "disaster" is also looming which will show itself very soon. All these programs have to be paid from the taxes of the working people of this country. The ratio of workers to retirees is changing quickly and causing another unforeseen consequence. As of 2009 there were 3.2 workers for every retiree. Twenty years ago the ratio was 5 workers for every retiree.These workers pay the taxes that support our retirees pensions and health care. This ratio is dangerously low. It is estimated that this ratio will be reduced to 2.5 workers to 1 retiree by 2016. When that happens the pendulum will swing the other way and we will fall below the level of sustainability where the number of workers cannot support our retired population. Some economist believe the ratio will continue to fall and by 2020 it will be down to 2 workers-1 retiree. There are many who argue that because of the recession and the high unemployment of the last 2 years that the ratio is already below the "break even"point. Only time will tell if they are right.

The fact is that when we do reach that tipping point the taxation rates will not be high enough to overcome a ratio this low. This, unfortunately, means that taxes will have to increase dramatically or benefits and pensions to retirees will have to absorb huge cuts. In all likelihood both of these frightening scenarios will have to be done.. There is no easy choice here. As the years go on the ratio becomes progressively worse and the situation gets critical until around the year 2030 , some say by 2020, the Trust fund will officially be drained of all resources. This is the "Unfunded Liability" that is in our future. The generally accepted amount is that110 trillion dollars will be needed to meet the requirements of our senior citizens over the next 50 years. Whether the total is more or less is essentially irrelevant because we don't have the money to meet this future obligation regardless of the amount.

The numbers tell a simple story. If we do not find a way out of this mess and do it soon--every American BELOW the age of 55 stands to lose their government pension payments along with their medicare coverage. And because of the much higher tax rates ,that are in our future .saving or investing in a private retirement fund will be almost impossible for most. Retirement could be a luxury most of us never experience. One of the signs to watch out for is a move to raise the retirement age to 70 or even 75. This situation is much more serious that most Americans are aware of. It is time for everyone to wake up and get involved in this looming disaster.

To simplify the concept of "unfunded liabilities" think of them as money, the government does not have, needed to pay for 100 million+ Americans who believed they were going to be able to retire someday. Not only is there no source of funds for these "unfunded liabilities" in truth there never was. Succesive governments have spent the future wealth of generations to come. That wealth is gone and those people are not even born yet. And yet it gets worse!

There are some that believe all we have to do is cut spending a little and raise taxes on the evil rich and that will take care of everything! There is a quote that seems totally appropriate for those who share that goes something like this.... "thinking themselves wise they became as fools"!!!! Let me demonstrate why massive tax increases will not work.

In 2009 the IRS collected 2.1 trillion dollars in taxes. This total represents all the personal income tax from ordinary Americans and also includes all the corporate taxes and business taxes as well. If we accept the total of 110 trillion dollars as our unfunded liabilities then I think we can all agree we have a problem. Let's triple the tax rate for everyone which would leave most of us with little more than money to buy food and nothing else which, of course, would destroy the economy and the tax base. If we do this we would only raise 6 trillion dollars.

Some would have us seize the assets of the wealthy and use this money for the common good. In 2009 the IRS estimated the total assets of the richest among us at just over 11 trillion dollars. A lot of money for sure but compared to what we require.....little more that a drop in the bucket

We could also sell all the national assets---everything in the country of any value. The estimate for all the assets of the United States is 73 trillion dollars however we owe 54 trillion against those assets, that would have to be paid, leaving us with a profit of 19 trillion. So let's take a look at where we are. We have tripled everyone's taxes and, in doing so,destroyed the economy. We have seized all the assets of the rich and we have sold every thing of value the citizens of the United States ever owned and we have raised........36 trillion dollars....unfortunately we are a little short... we still need another 74 trillion dollars!!!

So what is the answer to this looming disaster to the United States? The truth one knows!. There have been many suggestions but all fall short and do not provide the answers we need. There is agreement on one course---the government must stop spending and borrowing. The tax system must be simplified and made more efficient. All spending, including military, must be reviewed. Budget cuts must be made but the politicians cannot be allowed to control the agenda. We the people must become involved or we stand to lose it all. The politicians in Washington and in all the state capitols, regardless of which political party they belong to must be held accountable for their actions. We can no longer afford to leave these people, who have helped bring this nation to the brink of disaster, unsupervised. If the American people do not get involved in this then we will find ourselves in a place no free nation should ever go. We will lose our freedom to our Creditors and our future to "Their" vision of this country.........The world will lose its' "light" and we will lose ourselves.

Is it too late? I say no it is not!. The solution can and must be found. The American people must get involved. They can no longer stand of the sidelines while, at best our's and at worse our creditors, politicians decide the fate of this country.

"Unfunded Liabilities" Where does your Representative stand? People before Politics......Country before Party!


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    • William Young profile image

      William Young 

      7 years ago from Eaglle Grove, Iowa

      Excellent article, point2make! It's hard to imagine that our debt is now 16 trillion. What a national disgrace!

    • point2make profile imageAUTHOR


      7 years ago

      Thank- you for your comments Brett..they are appreciated. The pension system problems in the UK are very similar to most of the other western nations including the US. There is not enough money going in and the "fixes" that have been, and will be, proposed for the future viability of these funds are in many ways frightening.

    • Brett.Tesol profile image

      Brett C 

      7 years ago from Asia

      This sounds very similar to the UK. The people retiring are being paid for by the children. There is no money in the system and with increasing lifespans, the UK pension plan is predicted to collapse/be cancelled.

      As for the US debt, I looked at an online clock for the debt and it's different sections ... shocking just does not cover it, it is a system (the monetary system) that is failing :-s

    • point2make profile imageAUTHOR


      8 years ago

      Thank-you for your comments WBA I appreciate your opinion. Privatizing the Social Security system, at least as an option, will almost certainly be necessary in the future. We need to look at our options now instead of waiting until we are leaning over the edge of the cliff.

    • profile image 

      8 years ago from upstate, NY


      Great and important points made in this article! IOU's are not assets because they can only be redeemed though further taxing or borrowing.

      The Social Security system is a bad deal for everyone because in the future high payroll taxes will gain meager benifits.

      The only solution is to privatize the system, which would lesson the governments burden and allow much higher returns on individual investments.

      Thanks for writing this terrific Hub!-WBA

    • point2make profile imageAUTHOR


      8 years ago

      Thank-you Stanwshura for your kind comments they are appreciated. I do a lot of research and the length of my hubs tend to reflect that but without passion, for me, the words would have no "life". I love to write and I am so grateful for those who read my work and offer comments. Thank-you once again.

    • stanwshura profile image


      8 years ago

      What a solid hub! I won't editorialize on the state of our economy and our recent "demotion" wrt America's credit rating - as I could and would go onnn and onnnnnn.

      I admire the leg work you obviously put into this, and yet your willingness to express your passion.

      Definitely a fan. :)

    • point2make profile imageAUTHOR


      8 years ago

      Thank you for your comments Texasbeta they are appreciated and thought provoking. I especially found your suggestion on regulating "derivatives" very interesting. I think that is an excellent idea.

      I read your comments and I see you are certainly well versed and very knowledgeable on this issue. There is, however, one area where we disagree. Social Security is not full funded and never could be. I have read several dissertations on this subject including a couple posted on and they all come to the same conclusion as you, essentially, that the Social Security Fund is fully funded until 2036. The flaw in their argument, and yours, is the claim of full funding can only be made if one accepts that the Treasury Bonds that "back" the fund are solid,safe, and acceptable to our creditors.

      I believe fiscally we are in a very dangerous time. The nation has a 14 trillion dollar debt. By 2020 the "average" forecast put the potential national debt at 20+Trillion. If this occurs the bonds that are backing our Social Security Fund will be, essentially, worthless. No nation, even China, would or could take such a risk on these bonds.I believe there will be very little interest in bonds of a nation with 20+trillion in debt it can never repay.

      Because we will have no choice we will print massive amounts of currency and everyone will get a check but the damage will already have been done. The value of the dollar will be severely eroded in the coming years and high inflation at best or hyper-inflation at worst is in our future unless we find a way to turn this around.

      I do agree with you that the Corporations have not been paying their share and that needs to be addressed. For far too long Corporations have been given tax breaks and incentives in order to create a fair business climate and create jobs for Americans. What ends up happening, too often, is these same Corporations quickly move their manufacturing jobs overseas and American jobs are lost. There needs to be a cost for such behavior. Perhaps we could recover all the taxes and incentives that were paid to these companies, as a penalty, if they move jobs out of the US. Another suggestion I heard was maybe we could close the US market by way of high tariffs placed on any US Corporation that moves it's manufacturing plants out of the country thereby treating them like foreign companies. Maybe that would cut the incentives they now enjoy to move their operations in search of "cheap" labor.

    • profile image


      8 years ago

      Actually, Social Security is fully funded until 2036, so that is incorrect.

      In the last 30 years, we have decreased taxes over and over again, to the point that half of the country doesn't actually have to pay, getting their money back at the end of the year. We allow corporations to avoid their corporate liability by funneling money through Ireland, The Netherlands, and then Bermuda, all under the guise that lower taxes increase revenue, which any economist not working for the CATO Institute, across the world, will tell you is ridiculous. The spending gets crazy and is crazy. Hiding two wars from the budget like our former President did was ridiculous. Simply cutting spending won't fix the problem either though. Increasing revenue is needed as well. To avoid situations like this, how about regulating financial instruments like CDOs, credit default swaps, and derivatives...all of which directly led to the global recession, along with the bribing of rating agencies to mark those toxic assets Triple A, so states bought them (as they are legally bound to only buy triple A rated commodities) with the money they had in their retirement/pension funds, thus leading to state deficits like we currently see. The issue is far more complicated than "we spend too much." The entire infrastructure is ill.

    • point2make profile imageAUTHOR


      8 years ago

      Thanks for the comments Tom I certainly appreciate them. The unfunded liability, like the sword of Damocles, is hanging above the economy and we can never be sure when it will fall. All politicians, Democrats and Republicans alike, are silent on this issue because they themselves are unsure of the potential consequences that are looming out there. We need a politician, with integrity,to be honest and forthright with the American people. A national dialogue on this issue needs to begin and right now!

    • Tom T profile image

      Tom T 

      8 years ago from Orange County, CA

      Well done. I can't think of a bigger gorilla in the room. Nobody wants to talk about all the unfunded entitlements created by our government. Every year they keep saying it is getting closer and closer. Funny thing is the housing crisis was not really on the radar and look what happened there. (I know there were a few who said something but it was never really a big issue.) Wait till something that is on the radar finally happens.

      Keep up the good work.

    • point2make profile imageAUTHOR


      9 years ago

      Thank you James. I really enjoy your insights. There is the very real possibility of serious trouble ahead and I do not think that the people are aware of the danger or are ready to deal with the situation if it occurs . If the midterms results mirror the latest polls there are going to be a lot of unhappy people on the left. If ,in two years, the Obama regime is relegated to a single term I think there is a real possibility that the left will not give up power graciously. They have come so close to their dream of nirvana and the prospects of failure when it was, in their minds, so close will for some be unacceptable. The danger is real and we all must be very careful not to be caught unaware.

    • James A Watkins profile image

      James A Watkins 

      9 years ago from Chicago

      There is serious trouble looming ahead. There are those who want a population that is totally dependent on the government. Their motives are sinister. Thank you for this outstanding article. Well done!

    • point2make profile imageAUTHOR


      9 years ago

      Thank you for your comments Peggy I appreciate them.

      It is a scary scenario and I hope we wake up and realize what is happening to the country before we reach the tipping point.

      The responsibility lies with the citizens. We must reign the politicians in and take back the power from the professional bureaucrats and the special interest crowd that are turning us against each other for their own selfish and greedy purposes. It is not too late but , if we continue to do nothing, it soon will be!

    • Peggy W profile image

      Peggy Woods 

      9 years ago from Houston, Texas

      This is a scary scenario for sure! Thanks for pointing out the looming problem in simple English. More people need to take their voting responsibilities seriously.

    • point2make profile imageAUTHOR


      9 years ago

      Thank you for your comments PK they are appreciated and welcomed.

      Unfortunately for all of us the powers of a divided State, both real, claimed, or imagined, are fluid and will always be challenged for legitimacy in the minds of its citizens.

    • PrometheusKid profile image


      9 years ago from Heaven

      The concept of money as a creature of Law and the state is clearly untenable. Is is not justified by a single phenomenon of the market.

      To ascribe to the State the power of dictating the laws of exchange, is to ignore the fundamental principles of money-using society.

    • point2make profile imageAUTHOR


      9 years ago

      Thanks LRC I'm glad you liked the hub. You have an excellent grounding and understanding of this important issue. I wish more people would understand the seriousness of what is happening to their country and their future. Your rep sounds like he is also in tune. Please encourage him to work on this issue and find a way to extend a hand across the aisle for the good of the country. People before Politics....Country before Party!

    • point2make profile imageAUTHOR


      9 years ago

      Thanks for the comments Harvey. Your input is always welcomed and appreciated.

    • LRCBlogger profile image


      9 years ago

      Terrific job. I think you did an outstanding job of explaining an issue that alludes most people. As you pointed out, we can't tax our way out and we can't cut our way out. We're going to have to make tough and painful choices which includes some form of a possible tax increase or tax reform, spending cuts, and entitlement changes.

      Both the 2 major parties in congress need to start talking rationally with their constituents about these issues.

      FYI... My congressional House Rep hosted a town hall in August that I attended in which he specifically addressed these 2 issues. He invited in David Walker, former US govt comptroller to give an overview simliar to what you did. His point was that rather than demonizing each side, we need the people to understand the problem and encourage their lawmakers to work together for the best possible combination of cuts/reforms/taxes.

      He was pretty well received except for a couple of TEA party advocates that kept accusing him of "robbing" the social security fund. They kept blaming the problem on him "you robbed the fund, you should have to pay to fix it!" The funny thing is that he was elected to his first term 2 years ago, their attacks would have made more sense directed at some of the career politicians.

    • Harvey Stelman profile image

      Harvey Stelman 

      9 years ago from Illinois

      Point, Good Hub! We have become like the avatar you use. H


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