GlossaryBudget & spending
Unfunded liabilities
The gap between what Social Security and Medicare are scheduled to pay over coming decades and the dedicated revenue expected to fund them. It is a projection under current law and is not counted in the national debt.
Promises without funding
Social Security and Medicare are designed to be paid for largely by dedicated taxes, mostly payroll taxes. Each year the programs’ trustees project what those revenues will bring in over the next 75 years and what the programs are scheduled to pay under current law. When the promised benefits exceed the expected revenue, the difference, expressed in today’s dollars, is the unfunded liability.
The figures are large — often several times the size of the national debt — which is why they appear on debt clocks and in political speeches. They are also far more uncertain than the debt itself, because they depend on assumptions about birth rates, immigration, wages, health costs and interest rates decades ahead.
Why they are not part of the national debt
The national debt consists of securities the Treasury has issued and is legally obliged to repay. Future benefits are different: Congress can change them, and has done so before, for example by gradually raising the full retirement age in 1983. An unfunded liability is a projected gap under current law, not a contract with a lender.
That does not make the gap imaginary. Unless taxes rise, benefits are trimmed or the shortfall is covered by general borrowing, the arithmetic does not close. Treating it as debt overstates how fixed it is; ignoring it understates the pressure it puts on the budget.
Different ways of counting
The trustees report a 75-year figure and a considerably larger infinite-horizon figure. Economists also express the same problem as a fiscal gap: the permanent change in taxes or spending needed now to keep the debt stable. Each measure answers a different question, and comparing figures calculated on different bases is a common source of confusion.