In Politics, Infinite Horizon = Infinite Room for Error

Even today, a trillion dollars here, $72 trillion there: Pretty soon you're talking about real money.

Presidential candidate Fred Thompson would be wise to ponder the quote—apocryphal or not— from former Senator Everett Dirksen of Illinois, even if Dirksen was supposedly fretting only over mere billions.

Thompson was campaigning in Iowa last week when he said that America "couldn't afford the prescription-drug bill," known as Medicare Part D, because the country "basically put a $72 trillion commitment on top of an already-broken entitlement system."

A dramatic assertion, to be sure. Dramatic, but wrong.

Thompson "misspoke," campaign spokeswoman Karen Hanretty told Portfolio.com on Monday night. She said the candidate meant to say the $72 trillion prescription drug benefit figure was a part of—and not in addition to—other entitlements, chiefly Social Security and Medicare Part A and B.

She said the number comes from the Concord Coalition, a bipartisan think tank.

The quote raised eyebrows and drew barbs because the projected revenue shortfall of Medicare Part D over an "infinite horizon" is actually $17.1 trillion, according to Robert Bixby, executive director of the Concord Coalition.

"He got his facts wrong," Bixby told Portfolio.com, though he stressed that Thompson's larger point, that entitlement programs face a major revenue shortfall, is correct.

The Bush Administration began using "infinite horizon" projections several years ago as part of their push to privatize Social Security. "Infinite horizon" forecasts seek to estimate costs in perpetuity rather than the traditional 75-year time frame used by government actuaries in the past.

The Social Security Trustees' most recent figure for expected Medicare Part D unfunded liabilities over an infinite horizon is $17.1 trillion, Bixby said. Over the traditional 75-year projection, the figure is $8.4 trillion.

The total unfunded liabilities for Social Security and Medicare over an "infinite horizon" is $90.3 trillion, according to the latest Social Security report, Bixby added, meaning the federal government would need to stow away $90.3 trillion today to ensure the solvency of both programs "forever."

Over the 75-year time frame, total unfunded liabilities are $41 trillion. In other words, using the "infinite horizon" projection more than doubles the apparent unfunded liabilities estimate for both programs.

Part of the difficulty, Bixby explained, is that these projections are "theoretical" and they change from year to year. He said the "infinite horizon" concept is "particularly confusing" for people to understand, because it assumes an indefinite continuation of a funding obligation.

"Infinite horizon" is actually a private sector concept, Bixby said, and refers to the amount of money needed today to fund a company's pension plan indefinitely. In the public sector, the number gets muddled because the federal government—at least in theory—guarantees benefit payouts, meaning that less money is needed now to ensure the continued operation of Social Security and Medicare.

Critics of "infinite horizon" argue that its use in the public sector is inappropriate, and serves as an accounting gimmick used to overstate the severity of the funding shortfall faced by Social Security and Medicare.

"Infinite horizon" is so confusing in a public sector context, Bixby said, that when he goes on Concord's Fiscal Wake-Up Tour, he uses the 75-year projections.

Asked why, if Thompson is using incorrect facts attributed to Concord during his presidential campaign, the organization doesn't correct him itself, Bixby just laughed.

"If I had a dollar for every time a candidate got these numbers wrong, I would be a rich man," Bixby said. "They all get them wrong."

Thompson has only a few hours to get his facts straight before tonight's Republican presidential debate in Dearborn, Michigan.

Sam Gustin