Long Term Debt Outlook
Robert Waldmann
I’m not sure if I should post this here. I think it might be stimulating. However, I am ignorant and have no intention of learning (except from comments). I feel free to display my ignorance after the jump.
The conventional wisdom seems to be that we have to do something about the long term deficit, but that the parties can’t agree on what to do and the people aren’t willing to let them do what is necessary. I think the conventional wisdom is totally wrong on each count.
First, I don’t think we need to do anything. That is, I think that under current law, the debt to GDP ratio will stabilize and decline. Obviously I shouldn’t just think this. I can check CBO forecasts and know one way or the other. The standard view is that, under current law, the deficit would vanish in the medium term and return and grow to an unsustainable level as the population ages and Social Security and Medicare spending increases. This was true last year, but I don’t think it is true now. The change is that the ACA (health care reform)would (according to the CBO) bring the growth of Medicare spending under control unless the ACA is modified. The CBO forecasts that, under current law, Medicare spending will grow to about 6% of GDP and level off (from about 4% now). The CBO also forecasts that Social Security OASDI spending will grow 1.2% of GDP and level off.
So the long term current law deficits seem to me to be about 3.2% of GDP. The long term inflation forecast is 2% and the long term read GDP growth forecast is 2 to 3% s, it seems to me that the debt to GDP ratio is forecast to decrease 1 to 2% per year over the long term. That’s sustainable. I think the conventional wisdom has not accepted the CBOs forecast of Medicare spending under current law (of course the conventional wisdom has still not accepted the idea that Medicare and Social Security OASDI are two different programs). Or maybe “do something” includes “leave the current laws unchanged.”
I’d even guess that deficits will be sustainable forever under current law plus doc fixes and AMT fixes, but that really is just a guess.
However, there is no chance at all that we won’t do something and, in particular, no chance that Bush tax cuts for the non-rich won’t be extended. I’d say the main problem isn’t that the parties can’t agree on what to do but that they can agree to create unsustainable long term deficits.
As noted with more evidence in my post below, the US public seems perfectly willing to do what is necessary. They are eager to soak the rich supporting allowing Bush tax cuts for families with income over $250,000 to expire and removing the FICA tax cap (and I think applying FICA to capital income). I’m not sure a majority supports both measures, but I guess (again I am shamelessly guessing) that this would pretty much pay for the Bush tax cuts for the non rich and satisfy the Federal Governments intertemporal budget constraint.
Frankly, I think the long term deficit problem is that neither party is willing to follow the wish of the majority to massively increase taxes on the rich.
Please correct my errors of fact and logic in comments.
Looks to me like you’ve nailed it.
Cheers!
JzB
“..no chance that Bush tax cuts for the non-rich won’t be extended.”
Not sure why you are sure. If, as has happened repeatedly, one part or other puts extreme conditions on their votes for a measure, then howl about the other guys blocking its passage when the other guys don’rt meet those extreme tems, then we have politicians blaming each other for a bad outcome, instead of voting together for a good one. This seems a real risk now, since doing nothing results in higher taxes.
Long term debt outlook. There is $10T unfunded 20 year obligation for the DoD that can be cut.
Two easy solutions not broached: tax increases and cutting the discretionary part of US government outlays from 40% now to say 20 percent like it is in other OEDC nations.
Until those items are touched there is no issue with the “class 4 liabilities” (Don Levit’s notional GAO 04- 485SP table pg 66) of SS, Medi’s and other entitlements in the long distant horizon.
If you spend $215B a year on military equipment ‘investments’ that creates a outflow of $430B over the following 20 years in operations and support. A flow of new stuff at that magnitude requires a infinite cash outfolw of $400-500B per year. All this assuming the military industry complex gets more efficient, which is not apparent.
Time to cut the war machine.
It is guns versus cat food.
Robert:
What level of debt to revenues would be acceptable?
Don Levit
I fail to see how letting the tax rate for incomes over 250k return to the rates under Clinton amounts to “soaking the rich”
I also agree there is a good possability that congress will not be able to pass any change to the scheduled expirations of the current rates and frankly, I think that will be a good thing.
Onubre Einz, who covers the U.S economy for the French daily Le Monde ( http://www.criseusa.blog.lemonde.fr ) resorts to another interesting angle, namely:
US GDP grew in Q2 by $ 151 billion. At the same time, the federal debt grew by $ 428 billion, and the U.S deficit by $ 286 billion,In order to produce 1 $ of GDp growth, the administration
had to use $ 2.83 of financial deficit and $ 1.89 of budger deficit. Sustainable ?
Robert,
First, Obamacare (ACA) will get modified and the cuts that are mandated in them won’t happen, Similar to the current doctor reimbursement cuts in Medicare that get overturned each year. (Also why no one beleives the CBO score for medicare – the law gets modified every year). CBO scored a bill, as they should, even though they new that it will never be actually implemented as passed. The idea that ObamaCare as written will stop the growth in health care costs is a fantasy, at best it will slow the increase.
Second, Your not soaking the rich with income tax increases. Your soaking high-incomes – basically people who want to get rich. Even the death-tax won’t get the rich. Bill Gates’ billions will never be seen by the IRS. What you do accomplish is making it very difficult to join the rich. Thus entrenching an aristocracy. If you want to soak the rich you need a wealth tax…and that’s not going to happen.
Third, According to Obama’s forecast we will increase the debt at a minimum rate of $500B/year through 2020. That’s a minimum. Odds are it will be even higher since the GDP growth rates in that estimate are rather optimistic.
I’ll let coberly hack at you over the SS issue.
Lastly, and most strange, your making a Dick Cheney argument that deficits don’t matter. That we should not be concerned. Is that really what you want to convey?
ilsm’s fantasy isolationist rhetoric at least is fiscally sound. You cut the defense budget by 50% your going to generate a lot of savings – maybe even balance the budget. Of course you won’t be able to defend more than the CONUS from any threat (screw are allies and hope everyone sells us oil at the market rate).
But its weird that people on AB who railed against Bush’s minor deficits(in comparison with Obama’s) is going to buy the deficits don’t matter argument…
Islam will change
Dear Don
I’d say that a constant or decreasing debt/gdp ratio is acceptable and a growing ratio is unacceptable. Off the top of my head, I don’t know how many assumptions I’m making, but both claims seem pretty solid to me. In my post I assumed that the debt to GDP ratio would be close to 1 when the GDP gets back close to trend (I forget where I read that) so the rate of growth of nominal debt would be close to the deficit as a share of GDP and we’d be OK so long as the rate of growth of nominal GDP will be greater. Hence 2% (inflation) plus two to three percent (real GDP growth).
I was going to say, what do you factor in for our future wars. Now if Dumbya had enacted taxes to pay for his adventures that would not be an issue, but then more Americans might have thought twice about what a swell idea it was to get involved in two ground wars in Asia.
I can’t predict what congress will do. The people of the USA want to soak the rich, but the rich won’t be soaked. Instead they will just pay Clinton tax rates. I agree that’s not a soaking. A majority of the people also want to eliminate the FICA ceiling (and if I understand the poll question correctly apply the tax to capital income). That’s getting to be a bit of a bath, since a reasonable estimate of the incidence of the tax implies that the employee ends up paying the employer’s share too.
With Clinton era income taxes and uncapped FICA the rich would be, if not soaked at least rather wet. I think the deficit would be under control (debt shrinking as a share of GDP).
But there is no way this is happening any time soon. Even if there were no Republicans in congress, most Democrats in congress consider the median American an irresponsible raging red. I note only that Matthew Yglesias just argued in favor of promising to give the people what they want *even though it would not be good policy, because it won’t happen and pandering to populism is a good way to win elections.
He is on the left wing of the chattering class. The elite just agrees that soaking the rich would be bad policy. None of them seems to see any need to present any evidence.
That is my preferred outcome. From Mike Kimmel’s postings I am convinced that paying a few more bucks in taxes does not cripple recoveries, the unemployed do not pay much income taxes anyway and at least the government will spend the extra tax dollars.
http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf
CBO: Long Term Budget Outlook (rev)
CBO was forced to revise the LTBO this month because some people including Dean Baker pointed out some errors in their calculations for the crowding out effects of public debt on private borrowing.
In the end the cover image and Figure 1-1 tell the story. Under Extended Baseline, in other words Current Law the budget returns to balance in 2014 or so and stays there throughout the rest of the 25 year baseline. While debt held by the public dips after 2015 that gradually starts rising until it hits a level slightly higher than the 2012 peak. This was apparently too much good news for CBO, or more charitably did incorpoate continuation of current law in areas that actually are not only unlikely but counter to Obama Administration proposals, particularly the ones that would preserve the tax cuts for the bottom 98% of Americans.
The Medicare Report had similar good news, with the new projection of an actuarial gap 80%+ smaller than the one in last years Report. This was such good news that PGPF Pres David Walker had to write an Op-Ed to counter it, one that the NYT dutifully printed http://www.nytimes.com/2010/08/15/opinion/15walker.html
which in turn was countered by a post by Paul van de Water of CBPP
http://www.offthechartsblog.org/critics’-misleading-attack-on-“misleading”-medicare-report/
The combined good news on the budget/debt front was so unexpectedly large that most people haven’t fully processed it and which resulted in both CBO and the Medicare Trustees advancing ‘alternative’ models showing less advantageous outcomes. I haven’t extracted the numbers from the Medicare Report but it looks like many trillions of those ‘unfunded liabilities’ so beloved by the Peterson folk are now officially off the books (one indication of why they were bogus numbers to base policy on to start with).
Bruce,
Just so I understood the above corrrectly. Is the CBO syaing that if nothing changes from now, that the US budget will be balanced in 2014? that the 2014 yearly deficit will = $0.
You do know that off-the-books expenses still go right into the national debt don’t you? (That was rhetorical) We really did spend all that money we obligated on the defense supplementals for the Iraq and Afghanistan campaigns. It went into the US debt.
Or am I just mis-understanding? (I think I’m in error, since the idea that we will balance the budget in 2014 seems out in fantasy land…)
Islam will change
Bruce, table 2-2 tells a different story. Graph 1-1 is actually comparing revenue with primary spending: “Under CBO’s current-law scenario, primary spending—
all spending except interest payments on federal debt—” (Note: definition take from the referenced CBO Report.)
Table 2-2 has this set of data:
Total deficit 2010 -9.4 2020 -2.7 2035 -4.3
Since you refer to the CBO it is best to use their numbers and analysis. Read this piece titled, Federal Debt and the Risk of a Fiscal Crisis.
http://www.cbo.gov/doc.cfm?index=11659
If you guys think that the budget will be balanced by 2014 you are off the wall. That is simply not going to happen. We are going to total debt to GDP greater than 100% in the next year. Our deficit is 9+% of GDP and that is going to 10%. The budget will be in deficit by more than $1 trillion each year for the next five.
By the way, SS is nearing 6% of GDP not the 2% you claimed.
Buff they are not my numbers.
I suggest you follow the link.
Krasting where did I claim 2% of GDP? The right number is 4.8% and it doesn’t project to go to 6% until near the end of the projection period, which is to say the 2070s/2080s. The 2% represents the actuarial gap as percentage of payroll.
Th
And to repeat my answer to Buff, these are CBO numbers and not mine.
Buff,
Who are “are” allies? Their “defence” establishments are 5 to 7% of their government outlays while the US’ hits 20%, just less than social security. If they were defending themselves, if they saw a threat, if they saw an expensive way to deal with irrational fear, then maybe the US should help defend them.
Hang around there is a lot more to come about gutting the war machine. $1.6T in open-ended investments in just the top 95 “programs”. That is a bow wave that makes SS and medicare look cheap.
Sure I would be an imperialist if the empire and its war machine were not such a serious drain on the economy and it were paid for from income taxes and not payroll taxes.
The military industrial complex is a protected industry that is not building anything for any kind of war.
Attacking waste and welfare for the war profiteers is hardly “isolationist”. I travel overseas for fun not for empire.
Deleted two replies because I didn’t understand the units. It might help if you you now supplied them?
I’ll check the table.
Don,
It depends.
In good times a declining ratio. In bad times a ratio to limit the pain and grow the economy.
Note: during war and during good times you raise taxes and avoid deficits. Especially in war because the war spending in unproductive.
But the voodoo economists over the past 30 years have driven debt higher even in good times.
Monetarism must be wrung out of the economy before we can determine a good level of debt to GDP.
Unless you wish to do a Hoover, with phony debt vigillantes, and austerity. Then just sit back and watch the suffering as long as you still have a house and electricity.
Is that the debt to GDP level you desire? What are the conditions you would use to judge a ratio?
Bruce K,
This is by Dean Baker,
http://www.cepr.net/index.php/blogs/beat-the-press/the-wall-street-journal-raided-my-bank-account
August 17, 2010
The Wall Street Journal Raided My Bank Account
Yep, I paid for the paper this morning. Okay, most people would not call that “raiding.” But where on earth does the Wall Street Journal get off saying * that the government has been “raiding” Social Security for decades? Was this article a paid political advertisement? (It reads that way.)
Of course, it makes as much sense to say that WSJ raided my bank account as to say the government raided Social Security. (Perhaps more, I thought I was buying a newspaper.)
There was absolutely nothing improper done with Social Security money. It was used to buy government bonds. Readers of a business paper like the WSJ may have thought that its reporters understood how U.S. government bonds work.
The Social Security trust fund will redeem the bonds when they are needed to pay benefits, just as private citizens and corporations often buy bonds and then sell them off when they need the money for some other purpose. In the meantime, the government used the money it borrowed for other purposes. That is the way government bonds and other bonds work. It is also exactly how the law was been written, and it has been followed.
It also would been helpful to point out that there is no obvious problem with the deficit and debt levels discussed in the article. The text seems to have been written by a hyperventilating reporter, when the numbers should raise about as much concern as a 4-2 baseball score.
The economy of course does face a crisis. The collapse of the housing bubble has left 15 million people unemployed and is costing us $1.5 trillion a year in lost output.
Remarkably, these basic facts are largely absent from the article as the WSJ seeks to get readers and voters to focus on the deficit and its goal of cutting programs like Social Security and Medicare.
* http://online.wsj.com/article/SB10001424052748703723504575425851623589976.html
— Dean Baker
I said we would be OK if we stuck to current law, but we won’t stick to current law. You argue I am wrong because we won’t stick to current law. Did you read the post ?
I favor a progressive income tax to soak the rich. In any case people with incomes of $250,000 per year are rich right now (unless their income was winnings on a lottery ticket). You want to define “rich” so that hardly anyone is rich. Notably, the estate tax generated massive revenue and it only applied to millionaire estates. When you claim that the feds don’t get rich people’s money with the estate tax, you create a false dichotomy. They don’t get anything like as much as they would have were it not for estate planning and the collected a lot before Bush. This is a very public fact.
You claim I wrote that deficits don’t matter. In fact, I wrote that the debt will be sustainable. That doesn’t mean that I think the level of debt will be optimal. I think that sustainable debt is very costly because the illussion of wealth due to the illusion that government bonds are net wealth crowds out investment. I think that, except when the economy is in a recession *and* liquidity trap, the federal government should run surpluses until it pays off its debt and then keep running surpluses and buy stock in all listed companies (proportional to capitalization) and not vote the shares. I have written this several times and nothing in the current post contradicts anything I wrote in the past.
Your claim that I argue that deficits don’t matter is not based on anything I wrote in the post. In the post I only talk about whether deficits are sustainable not whether different sustainable levels of debt are equally good. I ask again, did you actually read the post ?
Bruce K,
The future budget buster is the service on the federal debt, some of it paid to the $2.4T balance in SS Trust Fund. By 2070 assuming the war machine and corporate welfare keep a steady percent of GDP and SS rises to near 6% and Medi’s rise fractionally as GDP. Debt service will consume more than 20% of GDP which is the target rate of on budget tax/revenue receipts.
The issue is building debt, which implies busting the 20% of USG outlays for the war machine and the 20% USG outlays for other discretionary welfare for corporate dividends. Taking apart the 60% of outlays for the aged, sick and poor won’t cover much and the pain needs to be shared by those who have benefitted from 30 years of monetarism and shifting wealth to the top percenters.
Sorry I missed one of your gross huge massive errors. I wrote that under current law the debt would be sustainable. You think you are contradicting me when you write “According to Obama’s forecast we will increase the debt at a minimum rate of $500B/year through 2020.” Obama is not proposing to stick to current law. He proposes extending the Bush tax cuts for individuals with income under 200,000 and families with income under $250,000. I was not writing about Obama’s proposal. I wrote “current law” and I meant current law. Notably, I very explicitly wrote that analysis of current law is irrelevant as the Bush tax cuts for families under $250,000 will be extended.
I might add that 500 billion is between 3.5 % and 3.6 % of current GDP (GDP is forecast to be higher in 2020). That level of deficit is sustainable forever. The long term increase in the deficit due to aging and increasing health care costs will make Obama’s proposals unsustainable. This is exactly what I wrote.
In the future please read my posts before commenting.
SS benefits reach 6 percent of GDP around 2030. See Figure II.D5 of the 2010 report. It does not change significantly by 2015. The runup takes about 15 years.
Good luck Robert. Many of our commenters are keyword driven, they hit ‘debt’ ‘deficit’ ‘social security’ and off they go on their own trick ponies.
BK,
If the Congress does nothing because of R v D gridlock, tax receipts will go up dramatically. But, no, I do not believe the budget will be balanced (even when not counting interest as the CBO report defines “Primary deficit or suplus”). I also don’t believe that loss of confidence in Treasuries can occur in the 5 year timeframe either.
And Table 2-2 p 46 of the doc I linked shows no such thing and isn’t even on the same topic. Which CBO doc are you referencing?
Sorry bout that! It was table 1-2 on pg 7 of your referenced report. Must be that ole man dyslexia again.
ilsm:
In the article you provided by Dean Baker, there was a quote from Baker on July 9th in one of the comments:
“This would mean describing thge payroll tax as a Social Security tax even though the money was being used to finance the war in Afghanistan or other expenditures.
If people realized that their representatives in Congress wanted to use taxes designated for Social Security for other purposes – in effect defaulting on the government bonds held by the Social Security trust fund – it is likely that many would be voted out of office.”
Don Levit
Interesting, the things people come up with about what other people think.
The issue I see is that the money taken in from excess payroll taxes over needs the past years went buy T-bills which funded tax cuts, wars and military gear where there was no improvement in US productivity.
Money spent on war and military equipment has been recognized as money taken away from better uses. This is the crux of Eisenhower’s military industrial complex speech, and work by Seymour Melman from Columbia University in the 1960-70’s as well as a number of other researchers.
War is a non investment.
The military industrial complex is expensive, unproductive, a sheltered industry that does not meet promises and I have spent almost 40 years in the complex, and can affirm that any use including tax cuts is better than spending for war.
But I won’t try to explain Baker, those are my observations of what was done wrong with the $2.4 Trillion in social security payroll tax surpluses and accrued interest could have been better invested.
ilsm
i like your answer better than Robert’s. looking for an “optimum” ratio that we don’t understand seems to me to be a fools errand. as you note deficit spending makes sense at some times. less so at other times. instead of “fine tuning” the economy, we ought to see if we can’t just get the damn thing to run.
btw, Don, apparently your research about “class 4 liabilites” has struck a chord. i think you might give us a careful essay about that, in the right place, and help us learn something i at least don’t know about. but please be careful about leaping to conclusions.
Robert
i would offer my opinioin about changes to FICA tax. eliminating the ceiling would be bad policy. raising it slightly might not be so bad… as long as we understand that some people have a few good years and a few bad years, and paying the “extra” tax in the good years would just be extra insurance against the bad years. but this needs to be approached not as “soaking the rich” or even “getting the rich to pay their fair share”. just a minor tweak in a basically fair insurance plan that needs to be kept that way.
applying the tax to income from capital might also be “fair” as we understand that even capitalists go broke from time to time and might need to collect social security rather than welfare in their old age. but care would have to be taken to keep the “tax” at a level that represents a reasonable cost of insurance to them.
for me right now, the political risks inherent in either move are too great. especially when you consider that SS can pay for itself with a tax increase (savings increase) of twenty cents per week per year. and that SS has not a damn thing to do with the deficits.
charles
of course not. but who would say it was. if i go out and spend 10,000 dollars on a used car in fifteen minutes, does that mean i can sustainably spend 40,000 dollars per hour the rest of my life?
that’s what your question amounts to.
Buff
I hacked as you suggested. now i’ll take a couple of swipes at your arguments.
getting rich is not supposed to be easy. what you are talking about is taxing away some conspicuous consumption. i don’t think that will hurt anyone. if you are going to get rich, you are going to do it whatever the tax environment. seriously, getting rich is not just a matter of keeping your pre tax income and investing it in the bank.
second… our allies can defend themselves if they think they are threatened. my guess is that there is no credible enemy over the horizon that requires defense spending at the level we are maintaining. and in general i believe in strong defenses. i just don’t believe in crippling ourselves by wasting money on “defense.” different things entirely.
as to the Obama deficit v the Bush deficit… again you are arguing that when the kid runs the family car into the ditch, and dad pays to have it towed out, that the bill for the towing is dad’s fault.
The reduction in debt must not be made based on letting the infrastructures rotting and without improvement in the health care of the people, must be made cutting the stratospheric defense budget, that goes directly to the pockets of the wealthy
It is crazy that USA has a defense budget which is almost 50% of the whole world, and having, at the same time 40 million people using routinely food stamps
I need to point out
that even if social security goes to 6% of GDP abd Medicare adds another 4% of GDP, you can look at these as “taxes” and despair
or you can look at them as the cost of living longer, note that your income has gone up in the meanwhile and you can well afford to pay for a better life in your old age.
put that another way: the rises in Social Security represent expenses you are going to have to pay for one way or another unless you plan to live in an igloo at the edge of the arctic ocean without medical care. the issue is not “rising costs” but “what’s the best way to pay for them?” social security and medicare are the best ways to pay for them. the safest and fairest, certainly. except, of course for the politicians trying to take them away from you by pointing at the “rising costs” and pretending you can avoid the costs of living longer by the simple trick of not paying for them.
Thank you Don.
I think the Congress is hoping no one will notice that they are planning not to pay back the money they borrowed.
In the near future, however, they won’t have it to borrow any more. And the SS taxes will indeed go more or less directly to paying for benefits. For some reason this is seen as a crisis.
well, i said it on Roberts other thread, but it bears repeating
a “soak the rich” philosophy will not work. it isn’t even good for you.
we do need a tax raise, and the rich need to pay their fair share… a progressive share. but there is no reason the poor and the poor middle can’t pay a fair share also. a one percent raise in the taxes of the middle, and a 2% raise… for the duration of the unsustainable deficit… on incomes over 100k, would be easily affordable. have no effect on “growth.” in the meanwhile a gradual increase in the payroll “tax” would enable the poor to pay for their own retirements, and would not reduce them to misery at whatever their current income level is.
moral here is that if we need to balance the budget… and i think we need to at least approach that… it is going to work far better if we say “lets ALL do it for the country.”
saying, “no, you pay it,” is irresponsible and bad politics.
Robert,
I did read the post. Did you read my reply? Maybe I should have been clearer up front. The idea that current law will stay the same even for just a few years is a fantasy.
So I will defer to you. If we don’t change anything, your right. But the idea we won’t change anything, and have Medicare cut Doctor re-imbursement rates in 2011 for example, is fantasy. Sorry I deal in reality.
And do you really beleive that adding $500B/year to the Federal deficit forever is a good thing? or sustainable? And that is a minimum, it keeps going up in the out years.
Islam will change
coberly,
Getting rich is hard now. I have issues with trying to make it so hard as to entrench are current set of rich in stone. SHould we increase taxes. Yep. But should we be punative about it, especially since your not going to actually get ‘the rich’. No.
Second our allies have been living under the US defense umbrella for the past 60 years. basically we have paid the price for a chunk of their defense. In some cases we have been successful – Western Europe, South Korea and other places we have failed (South Vietnam). It has been a bi-partisan position since 1945 that we maintain the DoD with the its current capabilities (really much reduced from even the DoD of as recently as 1989). I don’t believe in waste either. I also don’t beleive in ilsm’s isolationism – which is what he advocates. YMMV.
lastly, “as to the Obama deficit v the Bush deficit”, your analogy works if after the kid runs the family car in the ditch his younger, inexperienced brother decides to torch the car while waiting for Dad to show up. No one is paying any bills yet…
Islam will change
I believe it is the first time the US went to war and did not use some sort of bonds and taxes to fund it, and consistenlty kept the expenditures off budget and hence not official deficit. Obama put the war back on budget. And it was a bi-partisan not so subtle sleight of hand approved by many people (voters) at the time…perhaps at the start not so ridiculous as the war was to last only a few months total…but certainly not a year or two later.
And many are the same players crying out about responsibility now. And asking social security to help pay the cost rather than income tax, which has a differnt enough constituency to matter. Of course this happens only if we let it.
Don deserves no thanks, there is not just one but two huge mistatements here each stemming from a fundamental refusal to listen.
“f people realized that their representatives in Congress wanted to use taxes designated for Social Security for other purposes – in effect defaulting on the government bonds held by the Social Security trust fund”
They are not using taxes designated for Social Security for other purposes, unless you believe the lie that Special Treasuries are somehow not real obligations. Under the law Social Security taxes can be used for two purposes: paying current costs including benefits and admin or purchasing securities fully guaranteed as to principal and interest by the Federal Government. And despite some bad faith attempts in the past, and some malign intentions vis a vis the future that is all those taxes have EVER been used for.
As for “in effect defaulting on the bonds”. Even more dumb. When you buy a bond, any bond, the seller takes your money and uses it for SOMETHING. And that something doesn’t have to be related to the end purpose of the buyer. Now certainly the seller can make stupid decisions about how to spend the proceeds, for example they might spend them in ways that don’t contribute to their ability to pay them back, but that is not ipso facto anything like a “default”.
Don you keep talking down to us as if you were addressing a credulous class of teenage Randite fanboys taking Econ 1 at Glibertarian U. The words sound serious and connected to some process of thinking about the nature of bond finance but simply aren’t. After your first post here some weeks ago I invited you to “Stick around here Don, you might learn something”. Man talk about false expectations, because we covered all this same material that first day and clearly none of it stuck.
Well rather than talking equity I would talk efficiency. What is the correct overall tax structure that will grow national wealth while maximizing the general welfare?
In the fifties we had taxing and spending policies in place that served to create a large rising tide that did in fact lift almost all boats. Except those floating in places like Appalachia, the Mississippi Delta and the Inner Cities. Many of those boats remained nearly as leaky as the had been before the New Deal. And so the national response were the Civil Rights Acts, which served to start equalizing opportunity and the Great Society which proposed to give immediate assistance.
Not every part of the Great Society worked super well, Medicare has mostly passed its test while other programs have had mixed results, but by and large we no longer have whole communities of children absolutely starving, growing up on school lunches and government cheese not meeting MY standards for economic justice, but would be the envy of many a kid in Malawi or Mumbai.
Did the Great Society require some big tax boost? Well no, it was actually accompanied by a major tax cut as top rates went from 90+ plus, to 70%. Did it somehow translate to lower living standards for non-recipients? Well no, by and large the middle class did fine during the years of Democratic dominance, though employment was pretty uneven at times. But clearly 70% top rates did not keep rich people from getting richer and the middle class improving its living standards over time. And we should note that the debt to GDP ratio dropped throughout. http://en.wikipedia.org/wiki/File:USDebt.png
Which brings us to the 80s and 90s. Did lowering the top rate to 50% and then to 35% serve to advance the general welfare? Well no, Real Wages stagnated for the middle class even as the debt to GDP ratio went up. And while there was an improvement in Debt to GDP at 39% top rates, it is more and more clear that the contribution of higher taxes was just that, an assist rather than purely causal.
But when we set aside theoretical ideas about the fairness of taxation and instead examine overall effectiveness in both increasing one, national wealth overall, two, the general welfare, and three reducing the debt burden going forward the clear bias should be to higher top rates rather than lower ones. Rich people have been getting rich throughout, at no point in America’s history has there been a general lament that we have too few millionaires at the top, if they really want to ‘Put America First’ then they should accept the solution that advances all three goals: more wealth, better distributed, and creating less debt. And I don’t think a 2% bump is hitting the sweet spot, restoring Clinton rates being seen as only the first step
In some countries it is hard to get poor and hard to get rich.
In the US is it easy to get poor, and somewhat less hard to get rich.
Getting poor in the US is too easy. It is being poor that is the issue.
To hell with how hard it is to get rich.
Thirty years of trickle down and voodoo economics has made it far easier to get rich and keep it for the very few.
Dan said: “…consistenlty kept the expenditures off budget and hence not official deficit.” I’m frankly surprised you said that. The War is NOT OFF BUDGET, and especially not “official deficit”, whatever that means.
GW preferred to fund the War with supplemental budget bills. That makes the funding obvious and immensely visible. It also gives anyone not wishing to fund the War to vote against the funding.
You know how deficits are calculated! Revenue in minus expenditures = deficit. It’s simple, simple arithmetic.
Bruce Webb wrote Under the law the Social Security tax can be used for two purposes: Paying current costs or purchasing securities fully guaranteed to principle and interest by the federal government.
I agree with you about the securities part.
Could you cite the part of the law that allows for paying current costs.
Do you mean the current costs for Social Security?
I assume, you do not mean by that, loaning the surplus to the Treasury to pay current costs.
If that is also in the law, I would appreciate a citation.
If you pay current costs with the surplus (general government expenses, not Social Security costs), you no longer have the funds available to purchase securities other than lowering expenses, raising revenues, or borrowing from the public.
Don Levit
Don Levit
Last time I eyeballed a long term CBO projection was the one they did shortly after O took the reins. It averaged about 1 trillion a year in deficits up to 2020. They also threw in about 800B over the period for cap and trade revenue. They have finally made breathing taxable. One more reason we will need all our SS.
I don’t think anyone believes we will have a balanced budget in 2014, or a surplus ever.
Most mainstream (read Keynesian) economists believe a 3% deficit is “sustainable”. They just have a different definition of what forever means. I have seen them use 2014 ish time frame for the 3% deficit level.
BTW, the Bush medicare drug benefit was and is the single biggest budget buster. Menzi Chen at econbrowser points this out frequently along with nice charts and numbers. (all archived and searchable)
Since drug prices in the US are about double what they are in the rest of the free world, this is one of our more blatant forms of corporate welfare.
It should be on our hit list along with excessive, unaffordable International Defense and some of our other “cool” plans like going to Mars, etc…before we can seriously say we are anywhere near “austerity” ground.
Keep up the “War on Semantics”, Bruce and coberly.
As part of the”phony IOU” scare story, I have seen some say the special treasuries represent a “different class” of treasury making it easier for the USG to target default on these and not “Debt Held by the Public”, otherwise known as t-bills, notes and bonds which are handles we are all quite comfortable with for some reason.
But the only legal difference I’m aware of is the special treasuries are “non-marketable”. They also can be called early if the Treasury chooses. Other than that, the way to keep from being confused is to think of them as “claims on the US taxpayer”, same as traded treasuries. The USG is allowed to pay them off in cash, but we know the USG doesn’t have any, which is why they need to rollover the debt with sales of “Debt Held by the Public”.
So it’s not that tough to get. Close your eyes, click your heels together and repeat…”It is a claim on the US taxpayer”. This will make everyone feel better.
Not to say all treasuries don’t still have interest rate risk, inflation risk, currency risk and default risk. This is what makes me feel bad.
But the USG did it and that’s why they report National Debt as the sum of “Debt Held by the Public” and “Intergovernmental debt”. This IS our now upwards of $12 trillion figure and IS the number that creditors of the USG are supposed to look at. Another semantic error is saying “Public Debt” interchangeably with “Debt Held by the Public”. This leads to wrongthink conclusions like “social security is adding to the public debt” whenever the USG has to sell new treasuries to the public in order to retire special treasury debt.
The rough rounded terms and numbers look like this:
National Debt (12T) = Debt Held by the Public (8T) + Intergovernmental Debt (4T)
Nuff said.
Now we just need to explain it to a former hedge fund manager. (peterson)
ilsm,
Its relatively easy to get out of the poor-house in teh US. Follow some easy rules and you almost garenteed to at least make lower middle class.
1) Finish High School on time, getting the max education you can
2) No drugs, no criminal activity, don’t associate with people who do.
3) Marry after age 25
4) No children until after your married
5) Live frugally, dress conservatively, show up on time and work hard
Follow these rules and it’s almost impossible to end up poor. Punt HS, get pregnant or get someone pregnant and become on a first name bases with local law enforcement and your not going anywhere.
Islam will change
Did I miss something? I’m pretty sure it was possible to get rich in the 50’s, 60’s and 70’s when tax rates were very different from what they are today. And it seems to me that a lot of people who “got rich” in the financial markets of the 80’s, 90’s and 2000’s did so as a result of asset bubbles (junk bonds, S&L crisis, LBO’s, stock market, real estate, CDO’s, CDS’s, etc.). Are asset bubbles and the subsequent crashes what we want?
Also, it seems to me that the definition of rich is very different from what it used to be. Five million dollars would be enough to make you wealthier than over 90% of US households and could provide someone with an income above the 95th percentile. But these days, I don’t think 5 million dollars is considered all that much money. Not when you see stories of $20M CEO salaries, $40M golden parachutes, $100M endorsement deals, and so on. People no longer seem to accept “rich” as simply being better off than most. Under the current definition, I don’t think you’re rich unless you (and your children and grandchildren) can have or do anything you want for the rest of your life. I other words, you’re not rich unless you can afford to fly on private jets and own a 100+ foot yacht.
Rdan,
CoRev is correct. The War is NOT OFF BUDGET. It was paid through by the supplemental bills not through the DoD normal appropriations process. But it was still paid for and on budget!!!!
It also gave everyone a chance, multiple times over the years, to express their support for or against the war to be very explicit. And guess what. Bush got huge, overwelming bi-partisan support for the war without fail even when congress had Dem majorities after 2006. Some of the votes in the Senate were over 90% in support of the war!!!
Has Obama gotten that much support for ANYTHING controversial? Yet Bush got it over and over and over again.
Islam will change
Actually, Bush did depart from simple arithmetic, in spite of the Yale degree.
The war cost numbers were not added to the reported annual deficit. But as someone pointed out, it does cost real money and the treasury funded it in the usual way.
But in the end, one of our USG Departments of Honesty (either the OMB, GAO or CBO, I forget who is in charge) adds it to the National Debt. So that’s where we can find it.
I did miss the news that O changed that, so learned something new.
Don,
Try again. I couldn’t even understand what you just said. And if I understood what I think you said, well, I suggest you read the SS primer at the link titled Webb’s Social Security at the top.
BY law, as I understand it, payroll taxes pay for current SS outlays (plus a slight overhead cost) and any excess is used to buy the special treasuries (T-Bills). If payroll taxes can’t cover the outflow, then SS cashes in the T-Bills (like China is doing lately) to meet the demand. Once the T-bills are gone and if you still need more funds I beleive there are automatic corrections to make funds in = funds out. The details of that situation are not clear enough in my mind to explain, but they are in the link at the top. Plus coberly and Bruce have explained them a zillion times.
Nothing in law, again as I understand it, allows excess payroll taxes to go direct to the treasury. They buy T-bills from the treasury. The treasury then throws the money into the general fund like all other funds it gets from T-bill sales.
I am starting to agree with Bruce here. I am not clear what your point is. The system at the macro level is fairly straight-forward (especially for a Government program). Coberly and Bruce’s beef is that the cat-food commision (love that!) is trying to find revenue anywhere it can. And the cat-food commission incorrectly see the payroll tax as another revenue stream to try to feed the huge deficit hole in the general fund. The entire point is to get SS back off the table. Simple and I agree.
So Bruce and coberly (and to a MUCH lessor extent myself) have explained this over and over. What’s you point in 3 sentances or less?
Islam will change
Don, one more try. I suggest printing this out and attaching it to your refrigerator. I suggest using a refrigerator magnet.
You and your employer each send 6.2% of your gross income to the USG. The USG pays all current SS expenses with it and has a “surplus” leftover. They spend it on other things. They credit the SS Trust with special treasuries in the amount of the surplus. This meets everyone’s definition of “borrowing”.
The special treasuries have a maturity date when the borrowings are to be re-paid. Repaying borrowing is what make borrowing different from stealing.
Please try and memorize this.
We should keep in mind we have been living in a “no-pain” era. Politicians have cleverly discovered that the electorate will support anything if they don’t get taxed for it, at least immediately. A tax break will make them absolutely ecstatic.
I think the result would have been much different if they said “would you like to go to war with X and we will add a special payroll tax of y until we finish war with x,y, and z?”.
CR, I beleive you are not correct. You said: “The war cost numbers were not added to the reported annual deficit. But as someone pointed out, it does cost real money and the treasury funded it in the usual way.
But in the end, one of our USG Departments of Honesty (either the OMB, GAO or CBO, I forget who is in charge) adds it to the National Debt. So that’s where we can find it.”
I do beleive you are confusing “Projected Budget Deficit” (which is a budget approval/legislative issue associated with the 1985 balanced budget “Pay-Go” act) versus the actual “Annual Deficit” which is calculated monthly by Treasury from real numbers.
That’s possible, I guess. But doing it “off projected budget” was what confused me in that case. Hard to tell which one they are talking about when reading news reports. At any rate, I started just watching the National Debt Total on my Deficit Clock website.
The problem isn’t the ratio of debt/GPD, or whether or nor it is going up or down. The problem is the shear volume of debt relative to the funding provided. While the US ran ongoing deficits throughout the 80s, they roughly matched the imbalance in trade, allowing the nations that exported to the US to recycle their dollars into claims on US assets, chiefly government debt. It was true of the OPEC nations in the 70s, true of Japan in the 80s, and even true of the Chinese in the early 2000s. The problem now is that the gross amounts of the deficits have hugely increased (think various govt bailout programs) while trade has decreased with slower economic activity. There are just not enough dollar holders out there to continue buying this level of US Treasury debt. It is inevitable that as the external buying interest slows that the price of debt must go down, leading to increased interest rates regardless of Fed activities. Either we promptly get our economic house in order, or we will ultimately have to repudiate the debt, either overtly or through use of the US goverment printing presses. And if you think you like tax increases, just wait until you see what goverment wealth confiscation via inflation looks like.
Bruce/Coberly,
It is more a war on circular logic than semantics, although related.
The con artists say: the environment is protected just fine by state regulations. Then never go to what state regulations nor whether the regulations are adequate or enforced, just accept the authority of state regulations without recognizing the incompetence of the argument.
What you have to do is push the describer of the reliance on authroity to explain the authority and how the authority is applied and how it is abused.
On Sunday 60 minutes Leslie Stahl was woofed for 5 minutes in her coal ash disposal segment, by an industry apologist who stuck to his guns that state regs are “good enough”.
I was screaming at my car radio for Stahl to pin the guy down on the regulations but she did not.
Expect that from the mainstream media. Here we should pin them down and delve into the appleals to authority and clip the cirular logic in the seam.
Howard Lothrop,
You can not scare me!!
Very wrong logic.
I am fearless, I am not scared of “tax increases” or “goverment wealth confiscation via inflation”. Both of those are a natural consequence of monetarism, pillaging corporate welfare, war profiteering, raidng the SS Trust Fund, voodoo economics and class war pushing wealth into the hands of the few.
Trade deficit chases the too many dollars from US G deficits rolling around the economy many of them borrowed from wealthy folk rather than paid in taxes. The government spent them borrowed bucks to the tune of 40% expenditures on war toys and other corporate welfare, nothing productive. That the Chinese floated their currency meant the trade deficit did not require a mass print of US Dollars also called inflation. See all the Chinese did was delay ” goverment wealth confiscation via inflation” which you seem so afraid of.
There is no problem if there are no recycled Chinese dollars coming in then the price of Chinese goods goes up, or the Fed prints a bunch of US dollars and buys T Bills.
As long as China is willing to subsidize the US dollar the fed don’t have to act.
If the Chinese do not recycle dollars then there is motive and impetus to start making things in the US.
That is a good thing the more produced in the US the more it can pay back the special treasuries held by SSTF.
And cutting the corporate welfare 40% of the US G budget frees resources to make thing that SS pensioner buy.
So, Howard only a percent or two of the US have to worry about your scare mongering. The rest of US are better off with higher taxes and “goverment wealth confiscation via inflation”.
I am not so fearless, I just don’t fear the stuff you spout about.
It wasn’t subject to normal budget rules about offsets.
Buff
actually, I am inclined to agree with you. a tax raise need not be “punitive,” and i argue that point elsewhere in this thread. i suspect that the reason there is no enemy on the horizon may be exactly because we are too strong for anyone to waste their time building a competitive army. and as long as you admit Bush (and predecessors) drove the car into the ditch, I will say I am a little worried about the O man and what is he doing with those matches?
Yes of course I mean current costs for Social Security.
And instead of a refrigerator magnet a 1/2″ router bit set on high from a Drexel might let more light into Don’s skull. Whrrr!
Don
poor Don. way up thread now I thought you said something I agreed with. I still think that, but I am learning that people don’t hear what you say, they hear what they think. I don’t want to get into a fight with Bruce about this, but your next comment (I am assuming next, but js-kit confuses me about time and order) you seemed to be back in the same old rut. I’d like to help you out, but it would just dig us in deeper. My advice this time: smile and sigh and go on to the next things.
Bruce
I think I agree with all that, but given the present climate, I’d try to get that 2% on the high end, see absolutely no reason for not getting 1% from the middle end, and am absolutely certain the poorest of the poor can pay for their own Social Security according to the present highly progressive pay-out schedule, with a tiny boost in the payroll tax… a boost that will be more than compensated by increased wages, either already in the cooker, or definitely within reach of some other Action.
After that, you want super high marginal rates, go for it. But I suggest you call it a Patriot tax, and not a soak the rich tax.
Maybe I was thinking Makita or DeWalt so apologies to all cordless tool manufacturers out there, but someone’s thinking needs some power cleaning.
CoRev,
Send a link and define the “deficit”. There used to be two: general fund and unified. Which are you discussing and send a link from CBO or OMB (better they apply budget rules for the executive) as to the official formula. I hope you are not referring to a generally accepted defintion as used among unoffical auditors.
Is unified budget cash in and cash out? So that there is no accounting for what the excess of payroll taxes less SS pay outs goes for. And the accrual of interest into all those trust funds may or may not be stated as “the” deficit. That is the deficit was understated.
I suspect but you can enlighten me that unified budget deficit does not care if the deficit is misstated because it don’t care what is on or off budget.
Off budget receipts excess to payouts reduce the deficit and are deferred taxes.
Which gets real interesting when someone says SSTF special treausries are different than real T Bills that a rich guy buys instead of paying taxes.
The SSTF special treasury provided cash which allowed a deferral of income taxes to pay for the war. A T Bill my rich Uncle bought with his lowered taxes provided cash as a similar deferral of income taxes.
Both notes represent a deferral of taxation.
I have a real hard time seeing what is different about defaulting on SS held notes and defaulting on private held notes.
Please elucidate.
Coberly:
I think the more we get to know each other, the more we will see we have common values.
My next question to Bruce would be then, “Does the federal government have the right to borrow from the trust fund to pay for battleships, etc.?”
Is that written in the law, or even in subsequent legislation?
Or, is this an action that just “evolved?”
I provided a quote earlier during the deliberations about Social Security that the borrowing to pay for other expenses was a concern; that it would be a new way of internally financing government through the bureaucracy, rather than through appropriations, a more democratic process.
Don Levit
Don Levcit
Except that the 70s sucked (except for the music and mini skirts) and the early 80s cure sucked.
I happen to believe the 2% can live thru it without much of a lifestyle change (maybe the net worth statement drops to a half or a quarter, but they would need an accountant to notice), but it would be quite painful for the rest of us. We don’t have that kind of margin in our savings, 401k, pension or SS trust fund. At this point we can’t get just inflation…we get stagflation and high interest rates. (after nailing your portfolio, if you have one) so no help for the economy, wages or jobs there.
We may not notice a return to progressive taxation, but the push is for regressive taxation. I even have seen “liberals” exposing the merits of a VAT. Just when I’m retired and am starting to sympathize with poor people!
ILSM, I’m surprised that you also do not know what the deficit is. Look here: http://www.treasurydirect.gov/news/pressroom/pressroom_bpd08052004.htm
It’s a very simple concept. This is how FMS defines it: The deficit is the difference between the money Government takes in, called receipts, and what the Government spends, called outlays, each year.
What you are defining is budget and projections (guesstimates) related. Guesstimates/projections (CBO, GAO, OMB, etc) are not real deficits. Deficits are related to real spending versus real revenue.
Don
yes. i think we agree about something here. but i also think you are spinning your wheels, and it is not clear why.
Yes the federal government has the right to borrow from the trust fund to pay for battleships, etc. Yes. Yes. Yes.
I am sure it is written in the law somewhere, but exactly where I have no clue. and no interest. There is no other reason for a Trust Fund. The Trust Fund lends excess Social Security money to the federal government. Quite formally. The federal government does with the money exactly what it does with all the money it borrows… or taxes. It buys stuff. There is nothing remotely unusual about this. It’s the way things work.
The way SS money is borrowed does raise a question… the question you seem to be stuck on. Can the congress “”effectively default.” The answer is that it can. But that’s what we are here fighting against. As I have said a number of times. The Congress can do damn near anything it wants… short of violating the Constitution… and even that is a bit iffy, given a compliant Supreme Court. But the ultimate limit on what the Congress can do is what the people will let it get away with.
So that’s why Bruce and I and others are trying to educate the public so they will see the threat. And that is why we tear our hair and gnash our teeth when you come in and say, “gee, they can “effectively default” on this… as if that was some kind of argument against Social Security.
It’s not. It is what the enemies of Social SEcurity have been saying for 75 years. And so far Congress has not “defaulted” or “stolen the money.” There is no reason why it ever should. Unless people like you are confused into believing that because it CAN happen, it HAS happened, or MUST happen. NO. IT does take eternal vigilance to keep it from happening. But that is the price of freedom and Social Security.
What is far worse than defaulting on the Trust Fund, is the possibility that they will CHANGE the basic nature of Social Security itself. Turn it into welfare, or turn it into a market gamble.
What it is, what it was designed to be, is INSURANCE for workers paid for by workers. Defaulting on the Trust Fund would cost the workers a few pennies a week. Changing the program would destroy the possibility of workers saving for their own retirement in the safest way yet invented by man.
Don, I think you are on a completely wrong track. Yes, when I last looked at the original SS legislation, the excess was to be placed in the “General Fund”. (IIRC, this is the way nearly all TFs were legislated to operate.)
Once in the “General Fund” they are just another dollar spent wherever needed, just like any other revenue.
It is not: “…an action that just “evolved?””
Things are improving with Don’s thinking, so I’ll take a shot at the answer in case Bruce gave up already.
The government does borrow from the trust fund to pay for anything in the budget. If we knew which battleship we could foreclose on, that would be an improvement. But that is the same problem anyone has that buys a t bill, note or bond. It is backed by the “full faith and credit of the United States” and nothing else.
Some people have strongly suggested that the trust fund be run like a diversified pension fund. Then it could have stocks, gold, foreign bonds or whatever in the portfolio. Problem is not all these things have done to well the past 10 years, so being all in treasuries is not that bad, at least not yet.
Congress still “appropriates” spending. If they do it dumb, we get dumb. Using the SS surplus keeps some issuance volume of normal treasuries from public markets which probably holds interest rates down a little. But so does all the foreign central bank buying too. But those days are over once the surplus disappears and we need to convert the fund to cash to make SS payments. That is how the system was designed decades ago, so no big surprise there.
Going to the 2011 Budget “Analytic Perspectives”. pg 128 (16/44 in .pdf key)
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/concepts.pdf
“In addition to selling debt to the public, the Treasury
Department issues debt to Government accounts, primarily
trust funds that are required by law to invest in
Treasury securities. Issuing and redeeming this debt does
not affect the means of financing, because these transactions
occur between one Government account and another
and thus do not raise or use any cash for the Government
as a whole.”
CoRev, from this do you agree when I conclude the ‘cash raised from payroll taxes that “buy” special treasuries is not included in the deficit. And the debt rises while the deficit does not look so bad because cash from payroll taxes used to buy special treasuires is not counted as deficit in the year the deferred income taxes are covered by payroll taxes.’
Yea or nay?
We could read more from the link but I am getting tired and would rather write about the GAO reports on ineptitude in military programs, cost over runs, poor performance and never deliver the goods. One subset commits $1.6T for a bunch of expensive late stuff that no one knows enough to sell it.
Grandpa and poor kids are not the ones to suffer.
The point exactly, a bit of progressive taxation, some tariffs on dumped slave labor, a bit of inflation, cut the war machine, cut corporate welfare, raise user fees, and a bit of hard work.
The 70’s and 80’s were really not so bad. The music was good, the US was beating the Saudi royals, and I was a lot younger.
They with guidance from Volcker laid the foundation so that it took 28 years for voodoo economics and raging militarism to ruin the country.
Some pain is to be expected.
And Grandpa and the kids are not the ones to suffer.
Just realized I mispelled Menzie Chinn’s name. oops.
I found it in the Analytic Perspective for 2011, page 139.
Unified budget deficit in 2011 is $1,267 billion—a $1,363
billion on-budget deficit partly offset by a $96 billion offbudget
surplus. The off-budget surplus consists entirely
of the Social Security surplus.
3 Social Security had small
deficits or surpluses from its inception through the early
1980s, but since the middle 1980s it has had a large and
growing surplus. However, under present law, the surplus
is eventually estimated to decline, turn into a deficit, and
never reach balance again.
It seems there is no accounting for general fund deficits but an accounting for off budget surpluses, so they know how much cash comes from payroll taxes.
ILSM, you need to be presenting this to Bruce or Dale. Earlier you seem to be confused with budget projections, debt and deficits. I have just been trying to define the deficit.
ILSM, you need to be presenting this to Bruce or Dale. Earlier you seem to be confused with budget projections, debt and deficits. I have just been trying to define the deficit.
With this statement, I’m still not sure you fully ken their meanings: “It seems there is no accounting for general fund deficits but an accounting for off budget surpluses, so they know how much cash comes from payroll taxes.”
Well, how many congresses have tinkered with SS since 1937?
Look here a $96B surplus to buy special treasuries and send cash to the on-budget spending.
Unified budget deficit in 2011 is $1,267 billion—a $1,363
billion on-budget deficit partly offset by a $96 billion off-budget
surplus. The off-budget surplus consists entirely
of the Social Security surplus.
Note 3 Social Security had small deficits or surpluses from its inception through the early
1980s, but since the middle 1980s it has had a large and growing surplus. However, under present law, the surplus is eventually estimated to decline, turn into a deficit, and
never reach balance again.
The trustees and Bruce Webb can discuss the estimated
Don’t agree with your math. 20 cents times 160mm workers comes to $1.6b increase in the first year. It goes up by that amount every year. Tjhe increase in the 10th year is therfore $16b. That is a drop in the bucket. The increase have to be much more than you suggest.
CoRev,
Where do you get this: “Once [payroll taxes’ Off Budget Surplus is] in the “General Fund” they are just another dollar spent wherever needed, just like any other revenue. “?
A sale of a T Bill is NOT A REVENUE!!
Selling a T-bill or taking the Off Budget Surplus and exchaning the cash for a special treasury is not raising revenue, it is selling a note. Debt is not revenue.
Where do you get the idea that payroll taxes’ Off Budget Surplus send revenue to the general fund?
Short answer please.
coberly,
I have railed about Bush’s spending since my first comments on this blog. I always have thought the tax cuts after 9/11 were just plain stupid.
The problem with Obama is he not only has continued Bush’s spending issues but put them on steroids! We keep digging a bigger hole.
Islam will change
coberly,
That reply at 8:35 was probably your most lucid comment you;’ve made on SS to Don ever. Maybe he will get it this time…or not. Thanks.
Islam will change
ILSM, you’re kidding, right? 1) your first statement implies that the Govt has a mechanism for tracking any and every dollar recieved. Do you?
2) why did you change my quote?
3) saying this: “Where do you get the idea that payroll taxes’ Off Budget Surplus send revenue to the general fund? ” essentially denies your: “Look here a $96B surplus to buy special treasuries and send cash to the on-budget spending. ” yesterday at 11:08:13PM.
Your understanding of the fundamentals of revenue flow seems very lacking. It confirms my comment earlier of your confusion over terms. Remember “on” and “off” are budgetary terms. General fund and deficits are revenue expenditure terms. Budgets are estimates and goals, expenditures and deficits are measures of what is happening.
Bruce–Cordless tools are punk. NO
CoRev said about ilsm, Where do you get the idea that payroll taxes send revenue to the general fund?
And that denies that the 96B surplus was used to buy special Trasuries and send cash.
First of all, payroll taxes go to the Treasury’s general fund. They stay there. Credits (or cash equivalents) are credited to the trust fund, and the Treasuury’s general fund lowers by the amount of the trust fund credits.
I assume we are talking about the “surplus” in one of the Clinton years.
This was generated by the surplus in Social Security and Medicare.
When the surplus was lent to the Treasury’s general fund to buy special Treasuries, an asset was created for the SS trust fund.
A corresponding liability was created for the Treasury.
In budget reconciliation, this nets out to a wash.
The liability dollars in the Treasury’s general fund is used immediately to buy battleships, etc.
The asset part is only a bookkeeping entry, until the Treasuries are redeemed, much later.
That occurs when trust fund income (excluding interest) falls below expenses.
Don Levit
6. Don’t get sick, injured or have a chronic illness.
fine.
but then let me add that the stupid behavior you see that keeps people in poverty is more or less what you can expect from people who are badly led. or caught in a situation where good behavior does not present itself as the obvious choice.
i agree that these people are stupid. but i expect people to be stupid. the ones who do not “act” stupid are generally those who are in a more fortunate situation to start with, with more or less automatic “leaders” in their environment. i call for something like paternalism. you seem to think that is the same as communism.
might be worth noting that the “family” was destroyed first in this country by chattel slavery.
Don Levit
“only bookkeeping” is the way all businesses keep track of money. debts owed and accounts receivable. your whole understanding of the situatioin goes to hell when you say “only” bookkeeping.
Don, your concepts are not FAR OFF, but your use of terms is very confusing. for instance: “First of all, payroll taxes go to the Treasury’s general fund. (Yup! Absolutely.) They stay there. Credits (or cash equivalents) are credited (credits for what??? Don’t you mean surpluses???))) to the trust fund, and the Treasuury’s general fund lowers by the amount of the trust fund credits. ”
You also make this statement: “In budget reconciliation, this nets out to a wash.” What’s budget reconcilaiation have to do with it? It is a legislative step.
If you improve on your terminology then we may be able to better understand your logic.
Don, your concepts are not FAR OFF, but your use of terms is very confusing. for instance: “First of all, payroll taxes go to the Treasury’s general fund. (Yup! Absolutely.) They stay there. Credits (or cash equivalents) are credited (credits for what??? Don’t you mean surpluses???))) to the trust fund, and the Treasuury’s general fund lowers by the amount of the trust fund credits. ”
You also make this statement: “In budget reconciliation, this nets out to a wash.” What’s budget reconciliation have to do with it? It is a legislative step.
If you improve on your terminology then we may be better able to understand your logic.
Coberly:
Should I have said “bookkeeping” without the “only?”
The money that paid for the Treasury is gone – it was spent years ago on battleships, etc.
The trust fund does not represent cash; neither does it represent any ability to pay future benefits.
In order to cash in the Treasury, the Treasury either has to raise revenues, decrease expenses, have a surplus, or borrow from the public.
When I think of Roosevelt wanting the plan to be self sustaining, with no moneys paid out of the Treasury, I don’t think he envisioned this internal borrowing.
For, how will the fund be made whole? – you guessed it – through the Treasury’s general fund.
Don Levit
CoRev:
All the taxes go to the Treasury’s general fund. The trust fund is credited with “cash equivalents.” From a paper entitled Long-Range Fiscal Policy Brief No. 5,” published by the CBO it states
Page 2 “The receipts themselves are deposited in the Treasury, and program expenditures are made from the Treasury. So while trust funds’ programs sources of spending authority and accounting may differ from those of other federal activities, the programs affect the overall condition of the government in the same manner as all other programs – through the income and expenditures of theTreasury.”
“Even Social Security, largely supported by taxes on employees and employers, is credited from the government’s general fund to the Social Security trust funds.”
Go to: http://www.cbo.gov/doc.cfm?index=3974&type=0.
I find the asset and liability netting out to a wash a very interesting concept.
Just think: the government can borrow from itself, not have to worry about even paying interest for many years, much less principal, and being able to use the funds currently for battleships, etc.
What an advantage!
What power!
Don Levit
Don Levit
Don, i don’t know what game you are playing, but it is ending for me. You said: “Even Social Security, largely supported by taxes on employees and employers, is credited from the government’s general fund to the Social Security trust funds.”
But the referenced article said this: “Even Social Security, largely supported by taxes on employees and employers, is credited with substantial amounts of intragovernmental income, the largest being “interest” accrued on its holdings of federal securities.”
There is a world of difference between your quote/parpharase, and what the CBO actually said.
Neither statement is truly wrong, but yours is misleading at best and/or deliberately deceptive to make some obtuse point only you seem to understand.
G’day to Ya!
Don
you are back to your old tricks. i have explained this and explained this. i don’t think you can possibly understand it given the way you insist upon looking at it. One more time: the government borrowed the money to pay for the battleships. it still owes the money to SS. it will get the money it owes by taxing or other borrowing.
SS is not borrowing money from the Treasury. The treasury borrowed money from it. Just the way the treasury borrows money when it sells a savings bond. It is true that the interest the Treasury pays on the bonds comes out of taxes. but that is not a “problem.” it’s just business.
I am going to try to avoid replying to you in future. We keep going around in circles.
Shouldn’t we explain to Don how refrigerator magnets work?
I have magnetic design experience.
Coberly wrote:
SS is not borrowing from the Treasury. The Treasury borrowed money from it.
You are absolutely correct.
If I stated it the way you wrote, then I was mistaken.
CoRev:
You are correct about the quote. The paper was emphasizing that much of the revenues for Social Security and Medicare come from other than FICA taxes.
You left out the next sentence: “But no public or outside entity pays that interest; it is a credit from the government’s general fund to the Social Security trust funds.
In actuality, debt is issued to “pay” the interest to the trust funds.
(And Roosevelt didn’t want to use any funds from the general fund for the program, huh)?
Don Levit