“No taxation without representation!”
That verbal tinder started the fires of our revolt against British rule more than 200 years ago. Today we are disastrously living with the opposite— representation without taxation.
We ask for something, the politicians promise to provide it. Some of us ask Republicans. Some of us ask Democrats. We never ask for less spending, we always ask for more. We never ask for more taxes, we always ask for less.
Our friends in Washington do their best to give us what we want. If we paid a bit more attention, we would know that they have succeeded beyond our wildest dreams. We have lots more spending than we have taxation.
The best measure of their success is how our elected representatives have promised us basic things like income security and healthcare when we are old— Social Security and Medicare— without securing the tax revenue to support the promises.
How large is the gap between promised benefits and supporting taxes? Humungous. Here is a summary of the unfunded liabilities for these important programs.
- Social Security and Disability. In 2004, according to the Trustees Report, the unfunded liabilities of this indispensable program were $3.98 trillion. The 2009 report sets the liability at $5.66 trillion. The unfunded liability is the difference between expected employment tax collections and expenditures on retirement benefits and disability income. Some people are frightened for the future of Social Security, but as you will soon see, this liability is dwarfed by the liabilities of Medicare.
- Hospital Insurance. Since 2004 the unfunded liabilities of this program have grown from $8.2 trillion to $13.4 trillion, an increase of $5.2 trillion. This increase, alone, is greater than the increase in publicly held federal debt over the same period.
- Medicare Part B. In the last 6 years the unfunded liabilities of this program have grown from about $11.5 trillion to $17.2 trillion, an increase of $5.7 trillion. I say “about” because the 2004 report grouped the cost of the new prescription drug bill, an estimated $8 trillion then, with the cost of part B.
- Medicare Part D. The prescription drug plan has liabilities that have bounced around since its inception in 2004. The pill program added, in a single stroke, unfunded liabilities that were greater than the unfunded liabilities of the entire retirement and disability income program. Estimated at about $8 trillion then, they clocked in at $7.2 trillion for the 2009 report.
- The Whole Ball of Wax. Put it all together and the unfunded liabilities of elderly security— the difference between what is promised and what tax collections will pay for— has grown from $31.68 trillion to $43.46 trillion. That’s an increase of nearly $12 trillion in five years. Note that these figures are massively larger than what the politicians talk about, including the record estimated deficit for this year, $1.8 trillion.
- The Elephant in the Room. Unfunded Medicare liabilities, alone, have grown from $27.7 trillion to $37.8 trillion since 2004. That’s an increase of $10.1 trillion in just 5 years. That’s more than twice the $4.2 trillion increase in publicly held federal debt over the same period.
The bottom line here is that healthcare reform is coming our way, and soon. But the reform won’t be an expansion of healthcare. It will be a reduction.
Should we worry about this?
Maybe not. We have the most expensive healthcare in the world, but few claim it is the best. One indication: We rank 50th in the world for life expectancy and 24th in the world for disability adjusted life expectancy.
That’s what representation without taxation produces.
| The Trillions in Taxes We Don’t Have | ||||||||
| This table shows the growth in unfunded liabilities of four major government programs: Old Age Security and Disability Income, Medicare hospital insurance, part B, and part D. It also shows, for comparison, publicly held federal debt and the net worth of all households and non-profit institutions in America. All numbers are in trillions of dollars. | ||||||||
| Year | OASDI | Hospital Insurance | Part B | Part D | Total | Total Medicare | Public Federal Debt | Consumer Net Worth |
| 2009 | 5.66 | 13.4 | 17.2 | 7.2 | 43.46 | 37.8 | 8.53 | 51.7 |
| 2008 | 4.70 | 12.4 | 15.7 | 7.9 | 40.70 | 36.0 | 5.80 | 62.6 |
| 2007 | 5.08 | 11.6 | 13.9 | 8.4 | 39.07 | 34.0 | 5.03 | 62.2 |
| 2006 | 4.93 | 11.0 | 13.1 | 8.0 | 37.03 | 32.1 | 4.83 | 58.0 |
| 2005 | 4.32 | 8.6 | 12.4 | 8.7 | 34.02 | 29.7 | 4.59 | 51.8 |
| 2004 | 3.98 | 8.2 | ——– 19.5 ——– | 31.68 | 27.7 | 4.29 | 46.4 | |
| Sources: Social Security and Medicare Trustees Reports, Federal Reserve Flow of Funds | ||||||||
On the web:
Background of “Taxation without representation”:
http://en.wikipedia.org/wiki/No_taxation_without_representation
Federal Reserve Consumer Balance Sheet for 12/31/2008 http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf
Sunday, May 14, 2006: This Year, a $3 Trillion Lump under the Rug http://assetbuilder.com/blogs/scott_burns/archive/2006/05/14/This-Year_2C00_-a-_2400_3-Trillion-Lump-under-the-Rug.aspx
2009 Annual Trustees Report for Medicare http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2009.pdf
Economic Indicators: Times series on Federal revenue, spending and debt 1992-2010 http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=economic_indicators&docid=32jn09.txt.pdf
Sunday, November 16, 2007: Government, the Big Magician http://assetbuilder.com/blogs/scott_burns/archive/2007/11/16/magic-in-finance-part-4-government-the-big-magician.aspx
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
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(c) A. M. Universal, 2009