On November 2, 2005 Walter E. Williams published an editorial titled "Do We Really Care About Children?". Williams begins the editorial as follows:
I cringe with disgust when I hear politicians say, "We're doing it for the children." What's worse is so many Americans mindlessly fall hook, line and sinker for the hype. Judging by our actions, Americans could not care less for future generations, and future generations will curse us for it. Let's look at it.
According to several respected authorities, including the Concord Coalition (co-chaired by former Sens. Warren Rudman and Robert Kerrey), the Congressional Budget Office, U.S. Treasury Secretary John Snow, and the Social Security Administration, the estimated present value of the unfunded liability of Social Security and Medicare ranges between $61 trillion and $75 trillion dollars.
This $61 trillion to $75 trillion figure appears to be the unfunded liability of Social Security and Medicare through the "infinite horizon". Prior to the 2003, the Trustees reports only calculated the unfunded liability over the next 75 years. Starting in that year, however, they added the calculation for the infinite future as well. In any case, following, are the calculations from the 2005 Trustees reports:
Unfunded Obligations through the Infinite Horizon
Present % of
Value % of taxable
Program ($tril) GDP payroll
-------------------------------------------- ----- ---- -------
Social Security (OASDI) Unfunded obligations 11.1 1.2 3.5
Medicare Part A (HI) Unfunded obligations 24.1 2.5 5.8
Medicare Part B (SMI) General revenues 25.8 2.7
Medicare Part D (drug) General revenues 18.2 1.9
-------------------------------------------- ----- -----
TOTAL 79.2 8.3
Unfunded Obligations from Program Inception through 2079
Present % of
Value % of taxable
Program ($tril) GDP payroll
-------------------------------------------- ----- ---- -------
Social Security (OASDI) Unfunded obligations 4.0 0.6 1.8
Medicare Part A (HI) Unfunded obligations 8.6 1.4 3.0
Medicare Part B (SMI) General revenues 12.4 2.0
Medicare Part D (drug) General revenues 8.7 1.4
-------------------------------------------- ----- -----
TOTAL 33.7 8.2
Source: 2005 OASDI Trustees Report, Table IV.B6.
2005 Medicare Trustees Report, Tables III.B10, III.C15 and III.C21
Many have questioned the usefulness of the infinite horizon calculations. For example, following is an excerpt from an article at FactCheck.org:
Contrary to the technical panel’s endorsement, the American Academy of Actuaries, a nonpartisan organization that sets standards of practice for actuaries in the US , disputes the value of the infinite horizon projection. In fact, they said it probably would mislead anyone lacking technical expertise and that it provides “little if any useful information” about the system’s long-term finances. In a December 2003 letter states: to the Social Security Advisory Board, the Academy wrote:
American Academy of Actuaries: …The new measures of the unfunded obligations included in the 2003 report provide little if any useful information about the program’s long-range finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic, and actuarial aspects of the program’s finances into believing that the program is in far worse financial condition than is actually indicated.
Williams goes on to state:
Congress can't put aside $75 trillion as reserves against future liabilities of Social Security and Medicare. Therefore, according to the Dallas, Texas-based National Center for Policy Analysis (NCPA), the annual rate of Social Security unfunded liabilities is growing at a $667 billion clip and Medicare's at $4 trillion.
Congress doesn't need to put aside the money needed to pay all future Social Security and Medicare liabilities. It makes much more sense to look at the liabilities as a percent of GDP or taxable revenues. As can be seen from the table above, the total liability is about 8.3 percent of GDP. Current federal tax revenues from individual and corporate income taxes is about 9 percent of GDP so this is a serious liability that needs to be addressed. However, it's not the immediately crushing liability suggested by Williams.
In addition, the annual $667 billion increase in Social Security's liabilities mentioned by Williams is highly misleading. It's chiefly due to the simple fact that the dollar is losing its value to inflation. An article from the Center on Budget and Policy Priorities states:
Each year, the size of the Social Security shortfall, when measured in present-value dollar terms, can appear to grow simply because it is being expressed in dollars that are less valuable and not because the size of the shortfall has grown in reality. For instance, a dollar in the 2004 measurement of the Social Security shortfall is worth less than a dollar in the 2003 measurement. As a result, the Social Security gap expressed in 2004 dollars would be a larger number than the same gap expressed in 2003 dollars; the gap, as measured over an “infinite horizon,” would be about $600 billion larger even if the gap had not actually changed in dimension.
This is where the Administration gets its $600 billion figure. The increase that the Administration cites is due to the change in the value of the dollar, not to any deterioration in the program’s finances.
Williams concludes:
In 2030, will young people in the labor force be willing to see themselves taxed at Social Security rates of 20, 30 and 40 percent to take care of some old people? I don't think that will politically fly, and they might begin to get ideas about euthanasia. In addition to economic strife, Social Security and Medicare are laying the groundwork for intergenerational conflict. Unfortunately, the politics of today don't give us room to prevent these twin disasters.
It's hard to figure out where Williams got his "20, 30 and 40 percent" figure for 2030. According to the above table, the unfunded liability for the next 75 years for those programs being funded by the payroll tax (Social Security and Medicare Part A) is 4.8 percent of taxable payroll. Added to the current 15.3 percent for both the employee and employer share of Social Security and Medicare gives about 20 percent. Hence, the Trustees estimate for the next 75 years is about equal to Williams lowest estimate for 2030, just 25 years from now. It seems very likely that Williams is including other taxes, perhaps individual income taxes, in his calculations.
In any case, the question "do we really care about children?" may not be the most pertinent question. The laws of this country should protect children, whether we really care for them or not. A better question might be "what can we do to protect our children and all future generations?".