Contingent Liabilities: More Bailouts to Come?

Even with the government already assuming unprecedented levels of deficits and debt, and Congress considering a new health care entitlement likely to exceed $1 trillion, taxpayers face hundreds of billions of dollars in additional risks not fully reflected in the customary budget presentations. When these “contingent liabilities” are taken into account, taxpayers’ potential exposure is far greater than typically acknowledged. To summarize:

• The current year’s deficit is estimated to exceed $1.8 trillion, a record level, and the debt is projected to nearly triple over the next decade under the President’s budget.
• These deficit and debt levels do not include the unfunded liabilities of Social Security and Medicare, which government actuaries estimate to exceed $43 trillion in today’s dollars.
• In addition to projected deficits, debt, and unfunded liabilities, the government has “contingent liabilities” that represent trillions of dollars in outstanding potential obligations. They pose a serious risk of requiring taxpayer bailouts to cover losses that could approach $1 trillion. The discussion below describes 11 such programs, their financial conditions, and the taxpayer exposures they are creating (see Table 1).
• Taxpayers are usually unaware of the potential financial exposure at stake in these programs until it becomes explicit – and by then the Federal Government has little choice but to fund a costly bailout.
• As Congress and the administration pursue major interventions in the economy – especially their plan to initiate a takeover of the health care sector, one sixth of the economy, and create a huge new health entitlement – this paper reflects the costly difficulties government has in managing programs that are less complex and that, in some cases, date back to the country’s origin.

Read the full report here.