Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

'Unfunded Liabilities' a Financial Myth

14.04.2009
A growing chorus of complaints about the U.S. government’s “unfunded” debts may be unsettling, but no cause to become unnerved, a University of Illinois tax expert says.

Law professor Richard L. Kaplan contends the notion of “unfunded liabilities” is merely an ominous new catchphrase coined during debates over massive spending programs such as Social Security and Medicare that is rooted in financial fallacy.

“The only possible meaning of ‘unfunded liability’ is in contrast to a ‘funded liability,’ which presumably is more financially secure and apparently morally superior as well,” said Kaplan, an authority on tax law and government entitlement programs.

But in the end, he says, a “funded” liability is really no different than an “unfunded” one. To illustrate, he gave an example of parents who promise to buy their daughter a car when she graduates from college in four years.

The couple needs to invest $26,654 today to buy the car later on, assuming a $30,000 price tag and after-tax earnings of 3 percent a year, which Kaplan says are both guesses at best.

Where to invest so the cash is there when it’s needed is an even bigger rub, he says. Most Americans fund retirement and other long-term savings with a healthy percentage of stocks, which the recent economic crisis has shown could quickly turn their “funded” liability into an “unfunded” one.

“Even if Congress were to set aside tax revenues to fund Social Security, Medicare and every other ‘liability,’ that money would still need to be invested in some kind of assets,” Kaplan said. “And those assets just might be worth much less when they’re actually needed than when they were first invested.”

Bonds are a safer alternative, and U.S. government bonds are the most trusted, he said, but are nothing more than IOUs that promise future payouts.

“Consequently, an ‘unfunded liability’ by the government to make good on some financial commitment in the future is functionally no different than a ‘funded liability’ that consists of the only dependable asset around – namely U.S. Treasury obligations,” Kaplan said.

He suggests retiring the archaic phrase, saying it “implies an alternate state of fiscal adequacy that really does not exist at all.”

“Recent events have shown that whether we are talking about stock in General Motors or Citicorp, money market mutual funds, or even bank deposits, it is the federal government that ultimately stands behind these ‘assets,’ ” Kaplan said.

Jan Dennis | Newswise Science News
Further information:
http://www.illinois.edu

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Molecular switch will facilitate the development of pioneering electro-optical devices

A research team led by physicists at the Technical University of Munich (TUM) has developed molecular nanoswitches that can be toggled between two structurally different states using an applied voltage. They can serve as the basis for a pioneering class of devices that could replace silicon-based components with organic molecules.

The development of new electronic technologies drives the incessant reduction of functional component sizes. In the context of an international collaborative...

Im Focus: LZH showcases laser material processing of tomorrow at the LASYS 2018

At the LASYS 2018, from June 5th to 7th, the Laser Zentrum Hannover e.V. (LZH) will be showcasing processes for the laser material processing of tomorrow in hall 4 at stand 4E75. With blown bomb shells the LZH will present first results of a research project on civil security.

At this year's LASYS, the LZH will exhibit light-based processes such as cutting, welding, ablation and structuring as well as additive manufacturing for...

Im Focus: Self-illuminating pixels for a new display generation

There are videos on the internet that can make one marvel at technology. For example, a smartphone is casually bent around the arm or a thin-film display is rolled in all directions and with almost every diameter. From the user's point of view, this looks fantastic. From a professional point of view, however, the question arises: Is that already possible?

At Display Week 2018, scientists from the Fraunhofer Institute for Applied Polymer Research IAP will be demonstrating today’s technological possibilities and...

Im Focus: Explanation for puzzling quantum oscillations has been found

So-called quantum many-body scars allow quantum systems to stay out of equilibrium much longer, explaining experiment | Study published in Nature Physics

Recently, researchers from Harvard and MIT succeeded in trapping a record 53 atoms and individually controlling their quantum state, realizing what is called a...

Im Focus: Dozens of binaries from Milky Way's globular clusters could be detectable by LISA

Next-generation gravitational wave detector in space will complement LIGO on Earth

The historic first detection of gravitational waves from colliding black holes far outside our galaxy opened a new window to understanding the universe. A...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Save the date: Forum European Neuroscience – 07-11 July 2018 in Berlin, Germany

02.05.2018 | Event News

Invitation to the upcoming "Current Topics in Bioinformatics: Big Data in Genomics and Medicine"

13.04.2018 | Event News

Unique scope of UV LED technologies and applications presented in Berlin: ICULTA-2018

12.04.2018 | Event News

 
Latest News

When corals eat plastics

24.05.2018 | Ecology, The Environment and Conservation

Surgery involving ultrasound energy found to treat high blood pressure

24.05.2018 | Medical Engineering

First chip-scale broadband optical system that can sense molecules in the mid-IR

24.05.2018 | Physics and Astronomy

VideoLinks
Science & Research
Overview of more VideoLinks >>>