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 How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung

nachricht Demographic change depresses tax revenues
04.11.2016 | Fraunhofer-Institut für Angewandte Informationstechnik FIT

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: Quantum optical sensor for the first time tested in space – with a laser system from Berlin

For the first time ever, a cloud of ultra-cold atoms has been successfully created in space on board of a sounding rocket. The MAIUS mission demonstrates that quantum optical sensors can be operated even in harsh environments like space – a prerequi-site for finding answers to the most challenging questions of fundamental physics and an important innovation driver for everyday applications.

According to Albert Einstein's Equivalence Principle, all bodies are accelerated at the same rate by the Earth's gravity, regardless of their properties. This...

Im Focus: Traffic jam in empty space

New success for Konstanz physicists in studying the quantum vacuum

An important step towards a completely new experimental access to quantum physics has been made at University of Konstanz. The team of scientists headed by...

Im Focus: How gut bacteria can make us ill

HZI researchers decipher infection mechanisms of Yersinia and immune responses of the host

Yersiniae cause severe intestinal infections. Studies using Yersinia pseudotuberculosis as a model organism aim to elucidate the infection mechanisms of these...

Im Focus: Interfacial Superconductivity: Magnetic and superconducting order revealed simultaneously

Researchers from the University of Hamburg in Germany, in collaboration with colleagues from the University of Aarhus in Denmark, have synthesized a new superconducting material by growing a few layers of an antiferromagnetic transition-metal chalcogenide on a bismuth-based topological insulator, both being non-superconducting materials.

While superconductivity and magnetism are generally believed to be mutually exclusive, surprisingly, in this new material, superconducting correlations...

Im Focus: Studying fundamental particles in materials

Laser-driving of semimetals allows creating novel quasiparticle states within condensed matter systems and switching between different states on ultrafast time scales

Studying properties of fundamental particles in condensed matter systems is a promising approach to quantum field theory. Quasiparticles offer the opportunity...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Sustainable Water use in Agriculture in Eastern Europe and Central Asia

19.01.2017 | Event News

12V, 48V, high-voltage – trends in E/E automotive architecture

10.01.2017 | Event News

2nd Conference on Non-Textual Information on 10 and 11 May 2017 in Hannover

09.01.2017 | Event News

 
Latest News

Tracking movement of immune cells identifies key first steps in inflammatory arthritis

23.01.2017 | Health and Medicine

Electrocatalysis can advance green transition

23.01.2017 | Physics and Astronomy

New technology for mass-production of complex molded composite components

23.01.2017 | Process Engineering

VideoLinks
B2B-VideoLinks
More VideoLinks >>>