The Moral Argument against Unfunded Liabilities

September 13, 2011: By James W. Schneider

According to the National Debt Clock as of September 9, 2011, the U.S. National debt was $14.7 trillion and rising at a rate of over $1.3 trillion per year. The national debt represents money our federal government has borrowed and still owes to others.

Our $14.7 trillion national debt does not include our nations’ unfunded liabilities. Unfunded liabilities represent promises to make future payments for which there will not be enough money to pay those benefits under current law. The obligation to pay those benefits will fall upon the labors of our children. The two programs with the largest amount of unfunded liabilities are Social Security and Medicare. Depending on which future assumptions are used in the various projection models, the dollar value of our nation’s total unfunded liabilities range from $54 to $115 trillion. The National Debt Clock computes our unfunded liabilities at $115 trillion or over seven times our national debt. In August 2011, the USA Today reported that our unfunded liabilities were $61.6 trillion or over $528,000 for every American household. Regardless of which projections are right, if America survives her rapidly approaching fiscal crises, then, unless we make significant changes to our unfunded programs, you will pass your portion of the debt to your heirs.

The financial site www.finweb.com defines an insolvent estate as follows.

Insolvent estates are those where the decedent’s assets are not sufficient to cover debts after death. As a result, there will be no inheritance left to the beneficiaries of the estate, and those beneficiaries may further have a legal obligation to help resolve the debts. Thankfully, less than 10 percent of all estates are insolvent, so it is not likely you will have to face the problem.

In our personal lives, most Americans would be thoroughly disgusted and completely embarrassed at the thought of leaving huge debts to their children. However, in our public lives, we the people of the United States have mandated that 100 percent of our beneficiaries have a legal obligation to resolve our debts. Why is it unacceptable in our personal lives but perfectly acceptable in our public lives? It is not!

The economic history and political conditions surrounding the decisions that led to the inadequate funding of these social programs may have made their enactment understandable; however, with the clarity of 20/20 hindsight, we can now safely argue that the entire category of unfunded future obligations should forevermore be banned as not only fiscally irresponsible but morally reprehensible.

It is time that all Americans stand up and acknowledge that it is wholly immoral to saddle future generations with the greed and poor fiscal management decisions of current generations. If we do not rectify our fiscal malfeasance, our progeny may justifiably cut us off at the knees and leave us without recourse. Considering the profligate mess we have left them, who could blame them? The Baby-Boom generation and the representatives we have elected to do our bidding in Washington have shown our true colors as self-serving, over spenders unconcerned with the condition of the legacy we bequeath to our heirs. Shame on us for destroying the inheritance the Greatest Generation left us. If we wish to restore our honor then we must restore the legacy bequeathed to us and restore the American tradition of leaving the next generation better off then the previous one – not chain them to an unsustainable anchor of debt. It is sad when we recognize that with a little forethought, common sense and moral leadership we could have completely avoided this fiscal problem. The good news is that with a concerted effort we may still have time to correct our profligate mistake without reducing the benefits promised to our seniors.

We the people can have any safety net program or benefit plan we want. All we have to do is pay for it during our time and never expect or allow any future generation to pay for it on our behalf. Just as it will become our children’s job in their time, it is our job in ours to take care of ourselves - and our children. We have no right to borrow against our children’s future. How did we ever let such a notion take hold in America?

Unless the majority of Americans have the courage and moral fortitude to rise up and say “enough”, this generation will be responsible for the greatest undesirable transformation of the American experiment in history and may in fact lead to America’s destruction. What a legacy! We may already be too late, but if we wait any longer, we surely will be.

We need two strategies to deal with the staggering level of our unfunded liabilities. First, the short-term strategy is to enact those remedies necessary to minimize and then reverse the damage caused by our unfunded programs by funding those obligations as quickly as practical. Second, the longer-term strategy is to pass a Constitutional amendment that forever forbids Congress from enacting new or modifying existing laws that would permit unfunded social safety net programs that would once again mortgage our nation’s future.

Van Hollen Super Committee Appointment

The Americans United Party responds to Maryland Congressman Chris Van Hollen's statement on his appointment to the Joint Select Committee (Super Committee).

Our comments are highlighted in Red

Van Hollen Statement on Joint Select Committee Appointment

FOR IMMEDIATE RELEASE
August 11, 2011

Washington, DC – Today Maryland Congressman Chris Van Hollen, Ranking Member on the House Budget Committee, issued the following statement on his appointment to the Joint Select Committee on Deficit Reduction:

“I am honored to have been asked by Democratic Leader Pelosi to serve on the Joint Committee. I look forward to working with my Democratic and Republican colleagues to address the huge challenge before us.

“Putting America back to work [in the private sector] is the best and most immediate way to reduce our deficit as we also develop and implement a balanced [budget amendment that matches tax revenues and expenditures to 18% of our Gross Domestic Product. These actions will allow us to] establish long-term fiscal discipline and sustained economic growth. Our plan should put [private sector] jobs first, sharpen America's competitive edge [by eliminating the Job Burden], ensure health and retirement security [by replacing the fiscally irresponsible pay-as-you-go funding of Social Security and Medicare with fiscally responsible pre-funding at birth] , and require shared responsibility [ by replacing our economy killing income tax system with a new consumption based tax system that allows our private sector to compete in a global economy.] Together, we can build a prosperous and secure future for all Americans.”

If the Congressman accepts these clarifying changes, then we welcome Congressman Von Hollen's endoresment of the AUP's Economic Roadmap and look forward to working with him to implement these initiatives.

Learn More: http://americansunitedparty.blogspot.com/2011/07/executive-summary.html

Penny Plan Analysis

August 6, 2011 – by James W. Schneider:

The Penny Plan, officially known as House bill H.R. 1848, has received a lot of attention lately. Proponents of the plan claim that it will balance the federal budget in six years by cutting federal spending by 1% per year.

Here is an excerpt from the bill:

H.R.1848 -- One Percent Spending Reduction Act of 2011 (Introduced in House - IH)

To prevent a fiscal crisis by enacting legislation to balance the Federal budget through reductions of discretionary and mandatory spending.

When I first heard about the Penny Plan, it sounded a little too good to be true. I wanted to understand how reducing current spending by 1% per year would allow us to whittle-away at a $1.65[1] trillion deficit projected for 2011 and balance the Federal budget in six years. After all, we spend $3.8[2] trillion per year. One percent of $3.8 trillion is a measly $38 billion and six years of that totals only $228 billion. How can a $228 billion reduction in spending eliminate a $1.65 trillion annual deficit and balance the budget in six years? I was unable to find a satisfactory explanation so I went to the actual bill[3] and conducted my own analysis.

Findings:

The Penny Plan is designed to reduce spending to 18% of GDP[4] in seven years. It accomplishes its goal in two phases. Phase 1 begins in fiscal year 2012, lasts for six years and cuts 1% off the previous years’ budget[5]. Phase 2 begins in the seventh year and forces federal spending to 18% of GDP[6] regardless of the amount that may need to be cut from the federal budget that year. Let’s explain what that may mean.

If the economy (GDP) grows by 2.7% per year over the six-years of phase 1, then spending, because of GDP growth, would have been reduced to 18% of GDP by the end of year six and further cuts to spending would not be required. In this case, Phase 2 cuts would be zero. The plan would have been a remarkable success that we should all celebrate. (See Table 1):

If, on the other hand, GDP grows at 3.45% per year, then it only takes 5 years to lower the federal spending to 18%. However, the plan would still require a 1% cut in spending in the sixth year. This cut may cause spending to fall below 18% of GDP. We should all still celebrate, but some may question whether the 1% reduction in year six is worth the fight. (See Table 2):

However, if GDP grows at only 1% per year during phase 1, all else being equal, the bill forces a spending cut during 2018 of $274 billion or 8.6% of the previous years’ spending. A $274 billion cut in federal spending in one year may be difficult to sell to a nation equally split between those who want to stimulate the economy with more government spending and those who want to do so with less. (See Table 3):

If GDP grows even slower than 1% or goes negative, the forced reduction in federal spending in 2018 would be even larger than $274 billion. It may be economically unwise and politically unlikely to cut federal spending by that much in one year if growth remains that anemic.

Conclusion:

Despite the Penny Plan’s stated objective, it does not specifically address revenues and does not therefore provide a mechanism to balance the budget. It does however address federal government spending which represents at least half of the balance budget equation.

From a federal government spending and private sector economic planning perspective, the amount of cuts during phase 1 of the Penny Plan are predictable and as such should help stimulate economic growth by eliminating some degree of business uncertainty so prevalent in our present economy. The size of the spending cuts needed in phase 2 is contingent upon economic growth during phase 1 and as such are inherently unpredictable. The attempt by this Congress to tie the hands of a future Congress with such a large unknown may meet with considerable resistance and raise private sector uncertainty predicated by the mandates in phase 2.

The Penny Plan is an excellent concept that may benefit from one minor adjustment. Instead of two phases, it may be wiser, safer and an easier sell simply allowing Phase 1 to continue its 1% reduction per year until spending reaches 18% of GDP.

Table 1: Penny Plan with 2.7% GDP Growth Rate.

Fiscal Year	GDP (Billions)	18% of GDP	Penny Plan Outlay Cap	Penny Plan Cap as % of GDP	GDP Growth Rate
2011	$15,080	$2,714	$3,382	22.43%	2.7%
2012	$15,487	$2,788	$3,348	21.62%
2013	$15,905	$2,863	$3,315	20.84%
2014	$16,334	$2,940	$3,282	20.09%
2015	$16,775	$3,020	$3,249	19.37%
2016	$17,228	$3,101	$3,216	18.67%
2017	$17,693	$3,185	$3,184	18.00%
2018	$18,171	$3,271	$3,152	17.35%
2019	$18,662	$3,359	$3,121	16.72%
2020	$19,166	$3,450	$3,090	16.12%
2021	$19,683	$3,543	$3,059	15.54%
2022	$20,215	$3,639	$3,028	14.98%

In 2011 Spending Excess = $3,382 - $2.714=$668

From 2011 – 2017 GDP increases $2,613 X 18%=$470

From 2011 – 2017 Spending drops $3,382-$3,184=$198

GDP increases + Spending Cuts = $470+$198 = $668

Table 2: Penny Plan with 3.45% GDP Growth Rate.

Fiscal Year	GDP (Billions)	18% of GDP	Penny Plan Outlay Cap	Penny Plan Cap as % of GDP	GDP Growth Rate
2011	$15,080	$2,714	$3,382	22.43%	3.45%
2012	$15,600	$2,808	$3,348	21.46%
2013	$16,138	$2,905	$3,315	20.54%
2014	$16,695	$3,005	$3,282	19.66%
2015	$17,271	$3,109	$3,249	18.81%
2016	$17,867	$3,216	$3,216	18.00%
2017	$18,483	$3,327	$3,184	17.23%
2018	$19,121	$3,442	$3,152	16.49%
2019	$19,780	$3,560	$3,121	15.78%
2020	$20,463	$3,683	$3,090	15.10%
2021	$21,169	$3,810	$3,059	14.45%
2022	$21,899	$3,942	$3,028	13.83%

Table 3: Penny Plan with 1% GDP Growth Rate.

Fiscal Year	GDP (Billions)	18% of GDP	Penny Plan Outlay Cap	Penny Plan Cap as % of GDP	GDP Growth Rate
2011	$15,080	$2,714	$3,382	22.43%	1%
2012	$15,230	$2,741	$3,348	21.98%
2013	$15,383	$2,769	$3,315	21.55%
2014	$15,537	$2,797	$3,282	21.12%
2015	$15,692	$2,825	$3,249	20.70%
2016	$15,849	$2,853	$3,216	20.29%
2017	$16,007	$2,881	$3,184	19.89%
2018	$16,167	$2,910	$3,152	19.50%
2019	$16,329	$2,939	$3,121	19.11%
2020	$16,492	$2,969	$3,090	18.73%
2021	$16,657	$2,998	$3,059	18.36%
2022	$16,824	$3,028	$3,028	18.00%

Column Definitions:

GDP:

The estimated GDP for the fiscal year 2011 is provided by BEA.gov. The remaining years are increased by the percentage found in the GDP Growth Rate column.

18% of GDP:

The GDP column is multiplied by 18%.

Penny Plan Outlay Cap:

The amount for year 2011-2012 is given in the bill H.R. 1848 http://thomas.loc./cgi-bin/query/z?c112:H.R.1848: ((1) FISCAL YEAR 2012- For fiscal year 2012, the aggregate projected outlays (less net interest payments) for fiscal year 2012 shall be $3,382,000,000,000, less one percent.) [Which computes to $3,348,000,000,000 in 2012]

The remaining years apply the Penny Plan formula as provided in H.R. 1848 Sec 253A

Penny Plan Cap as a % of GDP:

Penny Plan Outlay Cap divided by GDP as a percentage. The percent is less than actual total spending because as mentioned above, the Outlay Cap does not include interest payments made to U.S. Treasury bond holders.

GDP Growth Rate Column:

The assumed annual growth in the GDP.

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[1] http://en.wikipedia.org/wiki/2011_United_States_federal_budget

[2] http://en.wikipedia.org/wiki/2011_United_States_federal_budget

[3] http://thomas.loc./cgi-bin/query/z?c112:H.R.1848:

[4] Excluding interest on the debt.

[5] Excluding interest on the debt.

[6] Excluding interest on the debt.

Executive Summary

Faced with an unsustainable national debt and an enduringly weak job market, Americans fear for the future of their nation. Concerned that our government is either unwilling or unable to solve our nation’s fiscal problems, concerned voters are learning that we have been chipping away at our economic foundation for decades.

We need a plan. Unfortunately, neither the Democrats nor the Republicans have offered anything substantively new from their anemic economic playbooks. While the Democrats advocate increasing taxes and government spending, the Republicans propose cuts in spending and taxes. Neither has articulated a cohesive plan that reverses the decades old policies responsible for our protracted economic erosion.

We have a plan. The Americans United Party has developed a comprehensive economic roadmap that addresses the root causes of our economic decline and prescribes a remedy that places America back on the path to prosperity. Our slogan - “More Jobs: Less Debt” highlights that our solutions will create private sector jobs and reduce our national debt to sustainable levels. As we achieve these praiseworthy objectives, we also strengthen, simplify and expand our Social Safety-Net.

We need you. Our divided government will not solve our nation’s fiscal problems until our economy falls off a cliff or until the majority of Americans unite behind clear solutions that cross party and ideological lines. The AUP’s solutions demonstrate bold out-of-the-box thinking that appeals to the majority of Americans who take the time to read them. Do not let others tell you what to think! As an American citizen, you are responsible for your nation’s fiscal problems and her solutions. If our solutions make sense to you then please ask your elected representatives to support them. Together, we can get this done. Thank you! 

Economic Goal:

Continuously improve the standard of living of all U.S citizens.

Our fiscal problems are far less complicated then our politicians and special interest groups would have you believe.

Problem 1: Why is our job market so weak?

Reason: Business leaders do not believe investing in U.S. based employees is the best use of their money.

Solution: Remove the barriers that impede hiring U.S. based employees.

Problem 2: Why are Social Security and Medicare going broke?

Reason: Pay-As-You-Go funding is an inefficient money management strategy.

Solution: Replace Pay-As-You-Go funding with Pre-Funding at birth.

Problem 3: Why are health care costs out of control?

Reason: Healthcare payments include a hodgepodge of interventions that have nullified free-market cost controls.

Solution: Reintroduce free market principals and support a catastrophic coverage plan based on patient income

Problem 4: Why does the Federal Government spend $1.40 for each $1.00 collected in taxes?

Reason: Congress is fiscally irresponsible with a career incentive to spend.

Solution: Reinforce existing and define some new Constitutional limits on Congress

Problem 5: Why are our energy costs out of control?

Reason: The United States does not have an energy policy

Solution: Energy Independence ASAP; Carbon Free as soon as commercially viable

Problem 6: Why is the U.S. education system ranked 17^th in math and 25th in science.

Reason: The education reward system is not based on student achievement

Solution: Base teacher compensation on student results and unshackle local ingenuity

America faces other major challenges but a unified electorate can resolve the above six problems within two years.

Please visit our web site to learn more: www.AmericansUnitedParty.com

Americans United Party - Energy Policy

For several decades now, the global warming environmentalists on the left and the drill-baby-drill free market capitalists on the right have held our national energy policy debate hostage. The result has been at best, a muddled energy policy that has failed to serve the best interests of the American people.

The reason why neither argument has been able to break the logjam is that both arguments miss the salient points of what is best for America. The appropriate arguments are two-fold. First, we should view our energy dependence on unfriendly and unstable foreign governments as a national crisis that threatens our way of life with as much danger as that posed by the World War II Axis powers. Second, any plan based on the likely exhaustion of a finite, irreplaceable, critical resource like oil is more than strategically unsound; it is dangerously irresponsible.

To learn why we should and how we can achieve energy independence in ten years and strive for CO2 neutrality and oil conservation in twenty years or less, please read our position papers called “10-for-10 Energy Independence Plan” and “10-for-10 Alternative Energy Plan - the Sequel”.

The 10-for-10 plan provides a general framework for reducing foreign energy imports by 10% each year over the next 10 years. It references the undisputed fact that our economic lifeblood – energy - is not in our control but in the control of those who do not wish us well and asks the question what we would do if external sources interrupted our energy supply for any reason. The paper stresses the point that as a nation, we must recognize that our energy dependence on foreign sources is in fact a national crisis requiring immediate attention. The paper argues that the solution to ASAP energy independence is simple – do it all, do it now, do it here and do it smart. The paper stresses that free markets must determine the energy winners and losers not the government. The energy “winners” must do so in the free-markets and cannot be supported by the taxpayers for the simple reason that the American taxpayer cannot afford to support an energy source that cannot stand on its own any more than we could support any major unprofitable industry. The government’s role is to provide policy direction leadership, research funding, and infrastructure build-out for undisputed free-market winners; but not to subsidize ongoing unprofitable industries.

The 10-for-10 the Sequel plan does not debate the merits of the global climate change arguments but rather recognizes that oil has a finite supply that we, as a species, cannot afford to exhaust. Even if we had economically viable energy alternatives, and if we could economically neutralize all potential environmental hazards from petroleum use, the paper argues that some future discovery may unearth a use for oil that is even more important to humankind than its currently know uses.

America's short, mid and long-term interests can best be served through energy independence as soon as possible and alternatives to finite based sources as soon as economically practical. The 10 for 10 plans provide a framework and a timeline for achieving these objectives. Americans deserve a defined, measurable national energy policy. Tell your elected leaders to "Get 'R Done".