Definition of Unfunded Liabilities
Okay, we see the problem, we hear the horror, we sense the danger, and we smell the monster. One question remains - what are unfunded liabilities?
An unfunded liability is a liability or debt that is not covered by an asset (such as income or collateral) of equal or greater value. The debts or liabilities in this case consist of the promises of financial support that the US government is making for the American people. These promises, which are also known as entitlement programs, have numerous forms and can get quite specific.
In the interest of simplicity and for our purposes, the unfunded liabilities or unbacked promises consist of the big three: Social Security, Medicare, and Medicaid.
Tens of millions of Americans are expecting these entitlement programs to provide them financial support and are secured by these promises. Although as indicated in their name, these entitlement programs are unfunded - hence, the money that millions of Americans are expecting, does not presently exist.
Definition of Social Security
As we previously learned when defining unfunded liabilities, these entitlement programs can be quite specific. The Social Security program for example, can be broken down into two major components and many others - each with its own volume of defining characteristics. The two major components that compose Social Security are Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).
SSDI is money accumulated through taxation and provided by the government to SSDI recipients who are enrolled in the program because they are considered 'disabled'. Those eligible for Social Security Disability Insurance include the blind, widowers, and physically disabled individuals for example. SSDI is meant to provide recipients with financial assistance to fill the gap in opportunity for financial security due to their disability.
In essence, SSDI is a transfer of wealth from the able to the disabled in order to ensure equal opportunity for financial security.
SSI is what we typically refer to as Social Security, that is, when we typically speak of Social Security, we are referring specifically to SSI, not the combination of SSI and SSDI.
SSI or Supplemental Security Income is money accumulated through taxation and provided by the government to SSI recipients who are enrolled in the program because they are considered to have insufficient earning power or opportunity for earning power. Those eligible for SSI include the blind, physically disabled, and people over 65 for example. The key point to note about SSI is that it is a supplement to one's income in order to provide sufficient security for them and thus, the one common characteristic of SSI recipients is - low income.
In essence, SSI is a transfer of wealth from the able to the disabled in order to ensure equal opportunity for financial security.
Big Three Unfunded Liabilities and What They Share
In a nutshell, the common thread of the big three unfunded liabilities (as well as the smaller and more specific entitlement programs) is that they are forms of social welfare and social insurance.
In essence, these promises of money are forms of financial aid for the elderly, physically disabled, and low-income earners. The financial aid comes as a recurring income through a program such as Social Security and a financial safety net through programs such as Medicare and Medicaid.
The unfunded liabilities are the result of a desire to diminish disparities in financial security and the opportunity to meet basic financial needs by necessitating a transfer of wealth from the able to the disabled, as distributed by the government through programs such as Social Security, Medicare, and Medicaid.
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