#32024
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MountainBiker
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What they are doing when they accrue expenses is recognize a future liability that they expect to have to pay out at a future date. In the business world, for financial reporting and tax purposes the accrual is taken as a real expense in the current year, though the cash hasn’t yet been paid out. Businesses like to accrue all sort of things so as to reduce current earnings and in turn reduce their current tax liability so as to retain more cash. I was a CFO and did it all the time. In the case of SS & Medicare, I believe they are forecasting expense out for something like the next 75years, and so each year they need to add a year and drop a year from the calcs to move it forward. In this example, my guess is that the the $7 trillion is the difference between the approx. $1.3 trillion in current expenditures and a projected $8.3 trillion 75 years or so in the future, hence recognizing an additional $7 trillion in SS/Medicare obligations in this annual drop a year, add a year exercise. While businesses accrue future expenses, they do not accrue future income that will generate the cash to pay those expenses. Same goes for govt. They try to recognize their future obligations for SS & Medicare but they don’t recognize the future tax stream that will be received to fund it. The value they derive from this process is that it informs them of how high the SS & Medicare taxes will have to rise to in order to pay for those future obligations, and/or how much deficit spending they will incur if they don’t raise taxes.

The bottom line is that on an actuarial basis, the feds screwed up big time decades ago in setting the tax rates that current retirees paid relative to the benefits they were promised, especially as concerns Medicare. The future obligations are vast and the tax stream to fund it is not even in the ballpark. There are limits to how high they can raise taxes, and so future generations can expect cuts in the benefits. They are already doing it by understating the inflation rate. In the future they won’t be able to be as subtle as that.