National Debt|Deficit | Unfunded Liability | Does it Matter?
First question is, who cares? We the people should care because “we the people” are going to have to pay the bill, this includes our children, and their children.
In an attempt to understand our national fiscal position I offer the following:
We hear that our national deficit is going down and we’re in good financial shape, and that’s the answer I hear most when the National Debt is discussed, be it on the news, political discussions, or random discussions with people in general. If the national deficit is decreasing that should affect the national debt. Instead it just keeps rising with startling speed. Check the debt clock yourself and see if it is trending down.
There is a difference between debt and deficit. All the creative financial discussions will not improve our national financial picture. The reasons for this are as follows:
The deficit is the difference between what the U.S. Government takes in from taxes and other revenues, and the amount of money it spends, called expense.
Taking this to a personal level it means our total income minus our total expenses “for the year”. At the end of the year we either have a surplus or a deficit. It we have a deficit we’re going to have to take it from savings or borrow money to cover that expense. In the case of the National Deficit the US Treasury has to borrow money, or raise cash to cover that expense. Current the US Treasury has zero saving/surplus.
In our case the amount of money we might spend on our house, car, education, vacation, that is not funded in the year’s budgeting cycle, and any additional expenses not covered by current year income would roll to your total deficit if not paid for out of savings.
When some politicians and news people talk about our deficit decreasing and advise that we’re in good fiscal shape, it’s usually not mentioned that Bush’s tax cuts were not renewed for “we the people”, so just over a Trillion dollars of additional tax revenue went to decrease the deficit. Another $500 Million came from the Medicare funds to help show a decrease in the deficit prior to the increase expected with the Affordable Health Care Act. When looked at closely we really did not decrease our overall debt – We just decreased some of our deficit by moving money from one financial bucket to another.
Example: The $500 Million tax dollars targeted for Medicare when to the deficit that was then moved to pay for some of the Affordable Healthcare expense. This is important because we’re reaching a point where our revenue is exceeding our expenses.
In “addition to our National Debt” we have to add ~$123 Trillion in Unfunded Liabilities, or in easy terms for what that means to us, is that every man, woman, and child in America is on the hook for nearly $400,000 in unfunded liabilities–or, over $1 million for every household.
When this becomes due we can all expect a decrease in our disposable income and our children and their children will be the first generation to be handed the USA in worse shape than when we received it.
In summary, when you hear on the news, or from your favorite politician, about current national fiscal status, listen to see if you can hear all three legs of the national financial stool. 1) Debt, 2) Deficit, and 3) Unfunded Liabilities.
If you’re not hearing a solution that affects all three legs positively it’s probably just more creative financial rhetoric.
Does this article help clarify why “we the people” should care, and the need to take part in monitoring the fiscal responsibility of our political representatives?
Source: for numbers was US Treasury 2014
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