Q: What’s wrong with the “unfunded liabilities” stories that conservatives tell about Social Security and Medicare? This is where they make the case that over some very long time horizon, these programs are supposed to pay out tens of trillions more than they’re scheduled to take in.
A: These are mostly scare tactics, designed to mislead. That said, there’s a useful point embedded in there: both programs need to undergo changes to meet their obligations. But at least some of the folks who make the “trillions in unfunded liabilities” argument do so to make it seem like we can’t afford social insurance, which is nonsense.
There are two misleading tactics the UL types make.
First, yelling “trillions” in a crowded theater. That is, failing to scale the liabilities by the size of the economy. The net present value of the Social Security and Medicare shortfalls over the 75-year horizon are in the trillions, but as the share of the economy, which also grows over all these years, they’re around one percent.
Take a look, for example, at the table on page 83 of this doc (itÂ’s the trusteesÂ’ report on Medicare). It refers to the expected 75 year shortfall in the Hospital Insurance trust fund, which is $3.1 trillion! Oh no! But the next line shows that taxable payroll over this horizon is expected to be $400 trillion, so the shortfall is less than one percent.