The Government’s ‘Fiscal Gap’ Just Got Ugly

I actually like reading financial reports from companies. That’s because you can learn a lot about their fiscal health.

Well, the same is true of government, although I’m not usually in the habit of reading tomes from the Treasury Department. So forgive me if I didn’t sit down and fully read the recently released Financial Report of the United States Government (FRUSG).

Instead, over the weekend I read an interesting article about this report in Investor’s Business Daily, written by Sheila Weinberg.

Weinberg is a CPA. She’s also the founder and CEO of Truth in Accounting, a nonprofit organization that does great research on government financial data.

I also love the fact that Truth in Accounting promotes transparency, and makes sense of otherwise-arcane government data. That way, you don’t have to sit there and spend your weekend trudging through the Treasury Department’s tortured fiscal language.

In her article, Weinberg pointed out one disturbing fact. As she puts it:

While the stock market has recovered from the dark days of 2008, the federal government’s financial health has continued to deteriorate in alarming ways.

One of the most-alarming ways, says Weinberg, is the big decline in the so-called "fiscal gap."

But what is this fiscal gap, and why is it so important?

Here I will let Weinberg do the explaining. She puts it both succinctly and thoroughly in the following:

The fiscal gap is a key snapshot of the government’s financial health that estimates the tax increases and spending cuts required to maintain the current ratio of national debt to GDP.

That’s a more meaningful number than the national debt alone because it also takes into account money coming into the government’s coffers, and the implications on future public policy.

If the government were an individual, that would be akin to comparing a person’s credit card bill with their pay stub.

So, what does the current fiscal gap look like?

***

Not good, according to Weinberg.

The ratio of debt to GDP is currently around 75%. That means that the government has borrowed a sum equal to three-quarters of all goods and services produced across the nation in a given year.

In other words, the government owes a ton of money.

The worst part of this is that the fiscal gap has surged in recent years. From 2015 to 2016, the fiscal gap increased by one-third.

Here’s how Weinberg explains it:

According to 2015 financial reporting, the government needs roughly $270 billion (annually, until 2092) to keep the debt-GDP-ratio at its current level. That works out to $2,200 for every taxpayer, every year — just to hold the debt level steady at an already concerning level. Do you have an extra two grand lying around this year for Uncle Sam?

And what’s responsible for the rising fiscal gap?

Well, readers of Uncommon Wisdom Daily likely already know the answer — and that is Social Security and Medicare.

Per Weinberg:

For years, politicians have promised these politically popular benefits without increasing the taxes necessary to fund them. Not increasing taxes correspondingly has led to massive underfunding.

Social Security and Medicare expenses continue to rise year after year at the same time that less money is flowing into the system, which increases the fiscal gap.

Entitlement programs represent the federal government’s largest expense (far exceeding defense spending), but for political expediency their costs are not accounted for in the national debt.

Just think if those entitlement obligations were counted in the national debt.

The real figure would be around $100 trillion, per Weinberg, not the current $20 trillion.

Finally, Weinberg puts the issue into frightening perspective, writing:

The more holistic $100 trillion number breaks down to a $308,000 burden for every American taxpayer. These bills are real, and they’ll come due one day.

That fact is enough to strike fear into any rational human.

Unfortunately, Washington politicians from both parties refuse to be rational, choosing to put their heads in the proverbial sand in ignorance.

The only thing we can do here is choose not to do the same.

***

What’s your take on the fiscal gap, and are you afraid that this issue is being almost completely ignored in Washington? I’d love to know what you think about this, or any of the recent issues we’ve covered in the Afternoon Edition. And, letting me know is easy. All you have to do is leave me a comment on our website or send me an e-mail.

***

It was another watch-and-wait day for the markets, as the countdown to the potential (some say probable) Wednesday Fed rate hike continues. Stocks barely moved, as the S&P 500 gained 0.9 points while the Dow dropped by 21.5 points.

• Did you know Intel had its eye on Mobileye (MBLY)? News that INTC is looking to buy the driverless-technology company for $15 billion sent the Jerusalem-based firm’s shares up 30%.

• Marissa Mayer will reportedly get a $23 million severance package when the Verizon-Yahoo! merger completes. No word yet whether Mobileye CEO Ziv Aviram will stay on after Intel takes over, or in what capacity.

• Which jobs will robots take first? Oxford University says middle management, commodity salespeople (ad sales, supplies, etc.), report writers/journalists/authors/announcers, accountants & bookkeepers, and doctors may either see a decrease in business or an increase in non-human colleagues. (Ad Age)

• Which jobs will robots take last? Preschool/elementary school teachers, pro athletes, politicians, judges and mental health professionals. (Ad Age)

• Bye-bye, bitcoin ETF: After the SEC rejected the Winklevoss Twins’ proposed bitcoin ETF, the cryptocurrency — which was recently worth more than an ounce of gold — fell about 20%.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “The Government’s ‘Fiscal Gap’ Just Got Ugly”

  1. Hi Brad,
    So Lord knows, we have a pension disaster in this country and your nice column is talking about yet another financial disaster and that is under/unfunded liabilities to fund our governments, which has led to a MASSIVE MASSIVE MASSIVE FISCAL GAP. As you state the national debt is totally misleading because if fails to take into account the MASSIVE and MONSTROUS UNFUNDED LIABILITIES OF SOCIAL SECURITY AND MEDICAID/CARE. This is a financial titanic about ready to happen!!! I am even more convinced than ever before that the capital markets will collapse significantly. If EVER there was a house of financial cards, not just here, but worldwide (ie. look at Italy’s financial state) it is NOW!!!!!!

  2. First cut the unnecessary free loaders (illegal people) from getting benefits they do not deserve. Then go after waste and the overcharging the government for services. Then make sure that the people who are receiving services are live people and not someone falsely claiming they are that person. Fine heavily and collect the fine from those corporations that are defrauding the system.

  3. It is a HUGE issue for me. Both Bush & Obama tried to shore up Social Security and all the Congresssmen said “Oh, it is not really a serious issue.” It is incredible to me that No one wants to face up to the problem. We should raise the Retirement age to 70 at least and the early retirement from 62 to 67 or 68. We should remove the cap on who pays into the system. On a current debate issue, I think we should make everyone making $200,000 or even $150,000 move off Obama Care and keep the low end people on. These 1% or 3%ers can afford to buy their own insurance. We should let Medicare and other programs buy Meds form the least expensive company, even from another country. We talk about the obscene profits the medical system are making.

  4. It’s really not necessary to include future promised spending under debt. Let’s take this down to a personal level. I have borrowed $20,000 to buy my car, and another $50,000 of student debt. I also pay $1500/mo for rent, $1000/mo for my daughter’s college tuition, and $500/mo for health care. I also have to buy food and other things. What’s my debt? If I go to the bank, they’ll say my debt is $70,000 (no credit card debt right now). But I’m planning a trip to Europe that will incur $7000 of credit card debt. And my daughter has 3 more years of college ($36,000 that I’ll pay) and 4 years of grad school ($48,000 that I told her I’d pay). Plus I’m planning to live in my apartment for 20 more years ($360,000 of rental costs and $120,000 of medical costs). So that adds $571,000 to my “real debt”, and I actually owe $641,000, not $70,000. I guess I should be filing for bankruptcy, as my “real debt” is about ten times what the bank (and everyone else) says! This is NOT how debt is calculated, either in my case, or the government’s case.

  5. What you call ” entitlement programs” are what working Americans have paid for decades, believing they would be getting it back when the time comes!
    Stop this GOP rhetoric and advise the idiots in DC. Not to make things worse by giving the richest another tax cut! If the corporations paid, even a portion, if what their tax obligations instead of getting subsidies in record profit years, we would not be in this state.
    Also, ask “why every GOP presidency digs us deeper into deficit, and then the Democrats have to come and clean up the utter mess!

  6. well the President wants to build a wall which will cost over a trillion dollars, he is asking for over 50 Billion dollars to strengthen the Military, which I might say is very strong ,he promise to exempt taxes from companies that keep their manufacturing plant in the U.S. So what do we expect will happen? Financial debt beyond our wildest dreams.

  7. I e mailed you my comments on your excellent letter regarding the fiscal gap and Weinberg’s analysis on your e mail page.

    However, I neglected to mention how terribly sad I was to hear of the death of
    Larry. He will be greatly missed.

  8. The military budget is mostly excluded from damnation? Why? At least Social Security and Medicare receive many individual contributions to offset some of their payments (in my case, for nearly 60 years) — what offsetting contributions are part of the military expenditures? And what exactly would you calculate is the “cost-benefit” aspect as well as multiplier effect of our outrageous military budget (including the unaccounted for “black” portion not shown in your pie chart). Oh, is it that I am missing the assumption that the military-industrial complex, as the major component of our contemporary capitalistic corporate socialism, does not deserve the same scrutiny as the less lucrative crony scams involving general societal well-being?

  9. There have been reports of the end of the world for at least 2,000 years. I’ve heard since the mid-seventies that SS would run out of money and become insolvent just any day. I’ve heard folks in your company assure us of a market crash last year. Wrote it on my white board. None of it has happened. Actually all of it may happen in the long run, but in the long run we will be dead.

    Timing is important. Timing is impossible to predict. It is amazing what messes the human brain can create. It is amazing what messes the human brain can solve.

  10. Brad,

    Weinberg’sc comments are really frightening. But nobody talk about paying back some of the debt incurred.

    Of course especially president ever talk about reducing the debt. President Obama continuously doled out benefits 50% was on food stamps. When he increase benefits people loved to hear. It is not only politicians kick the can down the road but also people screamed “don’t cut my benefits: social security and medicare” So people are all intoxicated to “benefits” .

  11. thanks brad,

    if we apply this ‘formula’ to the oz ratios: our debt is ‘only’ AU$500bn. so that it becomes AU$2,500bn. in reality as we have roughly the same set up as you guys and our population is around 24,000,000, so it means every oz citizen is in the ‘net’ for AU$104,000 to the government debt, which, like in u.s.a. is growing and growing etc. etc. etc. our ‘official’ unemployment rate is around 6%, but, big but, around 20% of those employed are actually underemployed; working 2 or three days a week as they see fit and pay very little tax. 35 % are in government employ so that 65% are carrying a rather heavy burden in the private sector. but our government is telling us that things are great, that our economy is ‘on track’. but they don’t tell us where the track is going! oz is a mostly mining and farming country with ‘house swapping’ as its main economic activity, through speculation and overseas ‘investment’. anybody with just one ounce of economic sense can see where that will lead us! but no! the economic models tell us that oz is doing fine. so much for transparency in government, both federal, state and local. we just had a state election in western australia and the liberal government got ‘the boot’ quite savagely because they simply told porky pies to all and sundry. we are in debt to AU$39bn. that is on top of the fed $500bn. oh dear i gotta lie down somewhere. cheers, ron

  12. The fiscal gap is and has been right-wing ideology since the “drown the baby” theory was first forwarded in the 1970s. The Republicans began acting on this “theory” starting with Reagan tax cuts and the Greenspan Commission to “fix” Social Security. All that was needed was “unified accounting” to apply the Social Security “surpluses” to the national accounts in order to massively understate the actual amount of deficit spending being done. I believe the CBO has reported since the 1980s that most of the underfunding of the government budget pretty much every year has been due to tax cuts that were not offset by spending cuts. So we have finally arrived at “the baby is dead” with no choice but to live with the result of this successful long-term Republican plan, and that is a new oligarchy of the top 5% or so, while our government has placed 80% of the US population in permanent debt slavery. Whoever wrote that Republican plan back in the 1970s should be proud of a truly successful execution.

  13. With the political attitudes prevalent among our elected representatives, that is, don’t tell the truth because we won’t get reelected, the system will simply, at some time in the near future, collapse. By collapse, I mean that Congress will be forced to enact legislation that will greatly reduce entitlements and increase taxes in a very short period of time. This will be very financially disruptive to millions of older Americans.

    As an older American, I have tried to prepare for this inevitability by living modestly, saving a significant portion of my income, working at staying healthy, and subscribing to and following the advice of several of your and other financial services.

    However, I am concerned over the reaction of those who could not afford this type of lifestyle or simply ignored the necessity of planning for the future. There is also the reaction to the required tax increase on younger generations to be considered. My hope is that the reaction will be civil and not violent.

  14. Quit paying Congressmen and Senators until they come up with a fix that doesn’t cost taxpayers anything else.

  15. Social Security and Health and Human Services should take the lions share of the budget. What is more important than the health and welfare of the countries citizens?
    The fact that a major part of the 14% of the defense budget is taken up by useless, stupid wars, making it necessary to spend another 15% to take care of the people left injured is a crime against the country. Credit G. Bush, for that.
    The country needs to get its priorities straight.
    Definitely not elect incompetents who WANT to be war presidents.
    That is the last thing any president should want.
    Whatever one might think of President Trump, at least he has not expressed a desire to go to war.

  16. P.S. I hope the Winklevosses take their bitcoin ETF idea elsewhere, who needs the SEC, anyway!

  17. Fiscal Gap > Well, the S.S. fund has been “borrowed” from and not repaid, from what I’ve been reading for years. Medicare is essentially insolvent and still nothing has been done to curb or end medicare fraud, not to the utterly absurd cost of ‘medicine’ in this country, which is mediocre at best and ridiculously expensive. But non of that even compares to the size of the ever increasing military budget, which is beyond absurd compared with the rest of the world, Instead of proposing raising taxes in order to fund obligations, how about cutting the pentagon’s budget, I cannot imagine a greater waste of resources and lives than the war-machine.

  18. Renounce the FRN as a representation of the U.S. Dollar (along with its associated spurious “National Debt”), & come up with a new currency of our own that belongs to & benefits ALL of us, instead of the FRN which belongs to & benefits only the big banks.

  19. DEAR BRAD, THANK YOU VERY MUCH FOR YOUR NICE , THOROUGH AND GOOD EXPLANATORY 4 VIDIAS , HWO YOU SENDING OF ME THIS DAYS!THANK YOU FOR THIS CARE! BEFORE YEARS IN ACADEMIA MIUSIK I STUDING ONE SEMESTER ICONOMY AND THINKING THIS;”BECAUSE OF ME IS NECESSARY THIS DRY AND TEDIUM MATERY?” BUT AFTER , WHEN THE DESTINE OFFER OF ME MUCH BIG CURIOSITY AND DIFICULTY I UNDERSTAND , THAT THIS MATERY IS MUCH , MUCH IMPORTANTE FOR ONE PIU GOOD LIFE AND NECCESSARY IT IS STUDING.MY SITUATION IS MORE BAD , BECAUSE I MORE SIGNING O F THE STREET , BUT I SEE IN MY PROFESSIONAL HORISONT ONE BIG WINDOW.IN MY GOLD CASTEL FULL WITH SMERALDY E BRILLIANTS HAVE PLATINIUM WAY , HWO GO TO GOD EVERY DAY, GOD IS MUCH , MUCH CAREFULL AND GOOD , TENDER AND WITH LOVE TO ME. I AM ONE HAPPY PERSONNE , BECAUSE EVERY DAY I LIVE WITH MIUSIK AND SONGSTO GOD AND LOVE TO ALLWORLD!!THANK YOU MORE ONE TIME AND WISH OF YOU SUCCSES, GOOD MOMENTS AND PROSPERITY;TATYANA MIRCHEVA-DATA-14.03. 2017-BREMEN -GERMANY.

  20. Regular workers pay Social Security taxes on 100% of income. The very wealthy are already
    done paying their Social Security taxes for the year. They pay on only a small portion of their income. Then there’s been a loss of trillions of dollars due to tax breaks for the wealthy, and looks like more tax breaks are coming. And a loss of trillions from money hiding in the Cayman Islands, and places like that. BUT, all we talk about is cutting Social Security and Medicare for the elderly and vulnerable. During the Reagan years taxes were raised to have enough in SS for the Baby Boomers. Somehow that money got spent on other things. Might that be a scandal worth looking into?

  21. I think the federal government chooses not to include social security and medicare promises in the federal debt because they know those promises will not be fulfilled. In other words, they have no intention of ever paying that debt. But of course that is not a problem for our current politicians because most of them will no longer be in office when the debt comes due. They will be sipping Mai Tais paid for by the generous government employee benefits they will still be collecting when everyone else’s benefits are cut.

  22. If you introduced a GST tax in USA. – added value tax – and introduced a higher tax on cheap gasoline you would balance the bidget in no time. Best wishes Hans

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