The Corner

We Are More in Debt Than We Think

In my article today over at The American, I explain why our debt or our tax burden will soon be much worse than government numbers acknowledge.

As you may recall, in May 2009, the Social Security Trustees’ annual report projected that revenue from payroll taxes for Social Security would reach $848 billion, including $120 billion in interests collected on its $2.5 trillion holdings of Treasury bonds (remember Al Gore’s lock-box?).

In reality, these assets are pure accounting fiction. For years, the federal government has been raiding Social Security Trust Fund assets for its daily spending, replacing the cash with federal government IOUs. Even the interest is paid in IOUs.

Hence, the only way for Social Security to avoid going into the red this year and in future years is if the federal government pays back Social Security. But since the money has long ago been consumed, it must borrow money from the public or raise taxes to pay its Social Security debts.

The chart below shows what federal deficits look like if the government borrows that money. In 2010, the shortfall is $29 billion — and it will get worse fast.  Each dollar that the government borrows increases the deficit, which adds up to current deficit numbers, represented here as a percentage of the GDP.

http://www.american.com/graphics/2010/deRugy 5.11.10.gif

To these numbers, we must add another $1.5 trillion from other trust funds, such as the Medicare one. Hold on to your wallet.

The article is here.

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