Ten reasons why Wall Street should be very worried about U.S. debt

6. Entitlements: where we go from here. Markets generally look at financial statements which are governed by GAAP accounting, which requires accrual of future commitments. Countries and states are not bound by accrual accounting, leaving markets to wonder (and sometimes panic) when they find out what hasn’t been accrued. The existing federal debt, which is already at elevated levels, does not include the present value of unfunded future entitlement payments. Government agencies have estimated this latter number at $36-63 trillion, which is 3-6 times the existing stock of federal debt held by the public. How much would tax rates have to rise to support entitlements growing at 5%-7% per year, if nominal GDP grew at 4%-5%? First, the 2001 tax cuts would have to expire on all brackets, and then tax rates would have to be raised by the same amount on everyone. At that point, federal debt to GDP would still be well above 2007 levels, but at least it would create some borrowing capacity to fund entitlement payments. The question is what such a policy would do to growth and employment.