ABSTRACT
Many now realize that the US government is rushing headlong towards a major fiscal crisis. Promised future outlays, mainly for Social Security, Medicare (including Obamacare) and Medicaid, far exceed projected future revenue. Although the size of this unfunded government liability is very sensitive to both demographic changes and economic fluctuations, all estimates are sizable. Jagadeesh Gokhale (2014) of the Cato Institute, using techniques that he and Kent A. Smetters of the Wharton School (2006) developed, calculates the fiscal gap’s present value as of 2012 at $54.4 trillion in 2012 dollars. This estimate relies on the Congressional Budget Office’s (CBO’s) baseline scenario in which the national government’s existing tax and spending laws remain unchanged. The CBO also has an alternative scenario in which Congress does not actually implement assorted future tax increases and benefit cuts that are currently scheduled to kick in. This alternative scenario increases Gokhale’s estimate to $91.4 trillion. Laurence J. Kotlikoff, a Boston University economist who helped develop generational accounting to provide a more comprehensive measure of the shortfall, puts its present value at the bone-crushing level of $205 to $210 trillion (Kotlikoff 2013; Kotlikoff and Michel 2015).
