Caution: These Links Will Ruin Your Sleep

A campaign pitch for an incumbent member of Congress you will not hear:  You are getting $4 worth of government for every $3 you pay in taxes and fees, and the other buck is piled on as debt for your kids and grand kids to pay! You should vote me back in!

The Treasury Department’s own news release Monday, flagged by The Republican Standard,  attempted the spin that this is not the fault of President Donald Trump and the halcyon days coming thanks to his wise policies will soon begin to reverse this.  Hang with us!  Reading through the actual reports on income and spending, however, it is impossible to build up any hope.

This is another one of those cases where I indulged my own morbid curiosity and am now sharing the results.  I do not spend much time with the federal reports, compared to the state spreadsheets, but from time to time everybody should dig into the depressing details.  Stop reading my observations and dive into the actual reports – I won’t be offended.

The federal budget is broken into two big categories:  on budget and off budget.  This in no way correlates to the state’s system of splitting things into general fund and non-general fund.  The federal off-budget component is mainly Social Security pension and disability payments.   Other situations where specific taxes or fees pay for specific programs, including Medicare and the Post Office, are lumped into the on-budget categories.

When Social Security was collecting healthy receipts exceeding its annual outlays, it was producing surpluses.  These off-budget surpluses provided a nice way to hide the true size of the deficit in the on-budget category.  Well, for federal fiscal year 2018 (which ended September 30) that was a very small fig leaf indeed – about $6 billion, compared to $49 billion the year before.  Will the current fiscal year 2019 produce the first cash flow deficit for Social Security?  Will that wake up anybody?

When you back out that small off-budget surplus, the on-budget deficit was $785 billion, just under 25 percent of the $3.26 trillion in on-budget spending.  That on-budget deficit grew $70 billion, almost ten percent in a single year.  You can choose whether to blame higher spending or tax cuts.  Machts nichts.

The big federal tax cut went into effect three months into this past fiscal year and was in play for nine months, but individual income tax receipts grew 6 percent for that year.  Perhaps it’s too soon to judge the impact until people file next year.  But the impact of the corporate income tax changes did show up last year, with a $92 billion (31 percent) drop in CIT revenue.  There was a healthy boost in customs duties and that will really take off for 2019. (Is that the plan? Make tariffs the main source of federal income for the first time since President Polk?)

The federal officials quoted in the official release make much of slight decreases in a couple of social benefit programs, such as SNAP (a.k.a. food stamps), but reviewing the spending sheets really reveals the depth and breadth of income-based transfer programs, plus the political genius of sprinkling them through so many difference parts of the budget.

SNAP and other food programs are in the Agriculture Department ($91 billion).  Federal student aid ($46 billion) is in Education.  Medicaid ($389 billion), Temporary Assistance for Needy Families ($21 billion) and Children’s Health Insurance Program ($17 billion) are in Health and Human Services.

Housing gets its own programs for the economically challenged ($48 billion).  The Earned Income Tax Credit ($59 billion) is buried under the Treasury Department and the Social Security Administration handles the Supplemental Security Income payments of cash ($55 billion) that are not part of the regular disability coverage, which is (of course) off budget.  I’m sure I missed some.  I think the Veteran’s Administration still makes some pension payments based on poverty (maybe not.)

A single Department of Federal Need-Based Assistance which puts all those programs in one basket would approach $800 billion and would be larger than defense spending or the payments on the debt ($521 billion).  Which of course is why no politician of either party will ever, ever do that and make things that clear.

What is the choice on November 6?  There really is no reason to differentiate the parties on this issue any more, or to believe any candidate promising something else.  A bipartisan deal on Fiscal Year 2019 explodes spending and the projected deficit this year approaches $1 trillion. We are in this condition in a strong economy and looking at the deficits run coming out of the last recession indicates the deficits in the next one (inevitable) will approach $2 trillion.

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24 responses to “Caution: These Links Will Ruin Your Sleep”

  1. LarrytheG Avatar

    You do – do a good job of encapsulating issues.. clear.. easy to understand the point and compelling.

    But let’s talk two of the programs – Social Security – and Medicare.

    Social Security is funded from FICA taxes not income taxes. Yes… the “surplus” that they are now feeding off of has to be paid with non-FICA dollars but remember that surplus was created originally with FICA dollars and when the Fed took those FICA dollars – all they did was put off the time when they would have to borrow money externally.

    The problem with Social Security is actuarial. People live far longer than they did when Social Security was created. In addition to that – Social Security pays disability and survivor pensions, Medicare Part A, AND they pay spousal benefits even for living recipients of Social Security. Try to buy an annuity that does all those things when you retire and I bet it will cost way more than 15% of your pay.

    At any rate – the Social Security issue is a gnat on a dogs butt compared to Medicare Part B which IS funded from income taxes.

    The original Medicare required recipients to pay 20% of the costs – as well as pay a monthly premium.

    They’ve (Congress) essentially blew up Medicare when they created Medicare Advantage which pays that 20% co-pay and now seniors have ZERO skin in the game so things like knee and elbow replacements and other high dollar medical stuff is running amok.

    The other problem is this. People who are 65 years old and 99% have medical conditions – are paying $134 a month for health insurance – that costs a worker with equivalent coverage 10 times that much.

    People on Medicare are buying vacation beach houses.. motorhomes, Viking cruises and 50K Ford F-250 pickups with the money they save from having to buy Medicare.

    Now.. I don’t expect the Dems to do a damn thing about it but I used to believe that when the stars aligned the GOP would… but that’s gone out the window also… with the deficit-financed Trump tax cuts.

    We can fix Social Security without destroying it – EASY.

    And we can save Medicare by putting the 20% co-pay back on it and bumping the premium up to 8% of retired folks income. That’s about $300
    a month for a retirement income of 50k.

    1. Social Security was covered extensively in the thread below. I think Steve covered it accurately and the off-budget items like this are a huge, looming financial issue. It is fundamentally a pay-as-you-go system and those types of systems encounter issues when the ratio of retirees to workers grows.

      1. LarrytheG Avatar

        Social Security IS pay-as-you-go – as are almost all private and public pensions…

        but Social Security is funded from FICA taxes not general revenues and has nothing to do with the deficit that Steve is talking about and to include SS as part of that issues is ignorant – either willful or otherwise.

        The basic problem with Social Security is that you cannot “adjust” it for actuarial changes without an act of Congress which lacks the spine to make the changes that are well known – increase the retirement age, change the chained CPI, increase the FICA tax and/or alter some of the extra benefits like paying spouses benefits.

        in terms of the “ratio” issue -that also applies to all other private and public sector pensions… it’s not something that is unique to social security and the solution is the same solution that is not happening with VRS in Virginia and that is to have employees increase their contributions.

        There is nothing wrong with Social Security as a concept. The problem is with the folks who are opposed to Social Security – as a concept but Social Security works just fine as long as it is kept actuarially sound – which is a doeable thing.

  2. Steve Haner Avatar
    Steve Haner

    Ok, but neither of those really deal with the $785 billion deficit in the past year. What will you do about the rest of it?

    1. LarrytheG Avatar

      Yep. but don’t let an annoying thing like a budget deficit keep the anti-social security folks from trying to claim it’s a social security issue!

      The big threats to the budget are Medicare Part B and National Security spending which is way more than just DOD. There are dozens, hundreds of law enforcement agencies from the FBI to ATF that we employ and most of them can retire with full pension after 20 years…

      here’s that list of more than 120,000 employees

      U.S. Air Force Office of Special Investigations

      U.S. Bureau of Alcohol, Tobacco and Firearms

      U.S. Capitol Police

      U.S. Central Intelligence Agency

      U.S. Customs and Border Protection

      U.S. Defense Criminal Investigative Service

      U.S. Defense Intelligence Agency

      U.S. Department of Homeland Security

      U.S. Department of State’s Diplomatic Security Service

      U.S. Drug Enforcement Administration

      U.S. Federal Bureau of Investigation

      U.S. Federal Protective Service

      U.S. Immigration and Customs Enforcement

      U.S. IRS Criminal Investigations Division

      U.S. Marshal Service

      U.S. Naval Criminal Investigative Service

      U.S. Office of Special Investigations

      U.S. Postal Inspection Service

      U.S. Secret Service

      It also costs the Budget 200 billion dollars a year to not tax money spend on employee-provided health insurance.

      All in all – the following tax breaks cost the budget more than a trillion dollars in unpaid taxes:

      1. NorrhsideDude Avatar

        I love the “it costs the budget… by not taxing”. When I hear the theory that it costs the government not to take what is mine, that I earned by actually working, it drives me crazy…
        It also drives me crazy that these entitlements have only existed for a max 80 years but somehow they are believed to be “rights” by most Americans. Be an adult, pay your own way, save some money, help out your friends and family and they’ll help you out.
        We went from being pioneers to panhandlers… Just make sure you have granite countertops, an iPhone, cable TV, and a SUV instead of a retirement account.

        1. LarrytheG Avatar

          It actually costs you MORE if the carve-outs for others and not you.

          The more tax expenditures there are – the higher YOUR taxes unless of course you’re one getting the tax cuts at the expense of others.

          1. TooManyTaxes Avatar

            Larry – this doesn’t make sense. Let’s assume you and I each have the same taxable income and deductions, except that you qualify for one tax break that I don’t get. Our taxes would be the same but for your added tax break. The added tax break gives you a lower total federal tax bill than I have.

            But it doesn’t increase what I have to pay.

            Now reasonable people can debate the value of specific tax preferences, deductions, credits and the like. That’s a subject for potential tax reform. But their existence does not affect the tax liability of anyone who doesn’t get the preference, deduction or credit.

        2. djrippert Avatar

          I’m 99% in agreement with you. The only quibble I’d have is that employer paid health insurance is a form of compensation as much as employers making matching contributions into your 401(k) account. Both are positives for society – healthier people who can afford their retirement. However, both are individual compensation as well. Why aren’t health care benefits paid by employers taxed as compensation?

          I’d rather see all compensation taxed at rates below today’s tax rates than see high rates on some kinds of compensation and no taxes on other kinds of compensation.

  3. The other 900-lb gorilla in the room is that the economy seems to be slowing down, evidence the stock market behavior this week. For some reason, the Fed feels it must relentlessly increase increase rates, each and every quarter, when such Fed tightening is generally thought to cause the onset of most recessions. Why can’t they skip a quarter or two? I do not see why they have to be in such a rush to increase interest rates.

    1. LarrytheG Avatar

      What the Fed does is try to keep inflation from running amok. There are disagreements about this. The other thing is – when the Federal govt cuts spending – it cuts jobs as 80% of the “spending” is for salaries. If you throw people out of work – guess what happens to the economy?

      One can argue that jobs in the private sector are more valuable that Govt jobs – but at the end of the day – they both spend their salaries in the economy and when they no longer have a salary- they don’t spend – and, in fact, start getting entitlements like unemployment, food stamps, etc.

      I’m not advocating a particular course of action – but I AM advocating that we do recognize the realities when we seek to form opinions.. in other words – we want to have informed opinions… and that means more than what we want to believe..

  4. LarrytheG Avatar

    Social Security – without any changes at all – will pay out at 75% of it’s original projections – for decades or longer.

    The shortfall that will occur is not caused because it is pay-as-you-go but that people are living longer and yes, the workforce is shrinking.

    Social Security is solely funded from FICA taxes and if we extend the retirement age to modern actuarial standards – and maintain that adjustment – SS will last as long as any pension system like VRS – which, by the way, CAN and DOES make actuarial adjustments that DO include increasing the amount of employee contribution – almost identical to the idea of increasing the FICA tax as necessary adjustment to increased life expectancy as well as a shrinking workforce.

    ALL pensions are subject to these forces! It’s not just Social Security. It’s ANY pension/annuity that pools people in a group retirement fund. When you buy an annuity – that money goes into a fund – but that fund is not set-aside – it’s part of a bigger fund that is used to pay benefits to people who have retired. That’s EXACTLY how pension funds like VRS work.

    The actual purpose of Social Security is to protect taxpayers from having to pay for seniors who did not save for their retirements – just as we end up paying for folks who end up unable to provide for their own needs – like Medicaid, TANF, etc.

    I know it is shocking to some but the reality is that way too many people do not/would not save for their retirements and would end up with the govt/taxpayers providing them with a place to live and food and health care.

    Social Security is not unique to the US. It is common in many other countries – 170 of them out of a little over 200 on all continents including Africa.

    Only the poorest 3rd world countries do not have Social Security programs.

  5. Larry, this isn’t complicated. The trust fund surpluses were used to mask the size of annual government deficits in the past. Going forward, now that the system has shortfalls (it is spending more on benefits than is raised in payroll taxes), the reverse will be true and it will increase the size of annual government deficits. This is exactly what Steve talked about. The government owes the trust fund money and will have to raise taxes (which it hasn’t), cut spending in other areas (which it hasn’t) or issue more debt to pay it back (this is exactly what is happening).

    1. LarrytheG Avatar

      Izzo – that Trust Fund was created from people paying their FICA taxes. It was a loan to the govt so it would not have to borrow that money by selling Treasury notes. They owe that money back to the folks who had it deducted from their paychecks.

      THAT’s not that complicated – we agree!

      But making Social Security the “cause” of the deficit is wrong and misguided.

      1. Larry, you are often attributing ulterior or duplicitous motives to people on this board when they don’t exist. I’d suggest sticking to the facts and arguments they present. If you look at what I wrote, you don’t see any line that says or implies “we’ve got to kill social security” or anything of that sort. I’m just trying to be realistic and factual in presenting the budget issues we face and there is no doubt the pay-as-you-go structure of our entitlement programs, changing demographics, and the failure of Congress to act in a timely fashion is causing problems. You have to be realistic about a situation if you want to resolve issues.

  6. LarrytheG Avatar

    Here’s the thing about “fixing” Social Security.

    Everyone says it but half of them truly want to adjust it actuarially to put it back on a more sound footing while the other half wants to use that as an excuse to undermine it, further harm it or kill it altogether.

    The vast majority of people support the CONCEPT of Social Security. They want to KEEP IT and they want to do the adjustments necessary to restore it to fiscal soundness.×747.jpg

  7. Steve Haner Avatar
    Steve Haner

    Larry, in more than 30 years on the inside of Republican politics I have never, not once, in any time or place, even behind closed doors, heard anybody say they wanted to eliminate OASDI. Allow for investment pools? Sure. Tinker with the CPI or try to get on a more sound footing? Constantly. But stop it entirely? I’ve never heard it seriously proposed and its so ingrained in everybody’s financial thinking these days that we’re all counting on getting it. This is an idea that goes back to Bismarck!

    Reagan and others of his political generation took the political hit for raising the retirement age, but to preserve the benefits. Dems like you have lived off the canard that the GOP wants to kill the program. It is a damnable lie. I think the poll you cited shows that.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Logic, not to mention hard science validates Iron Rule #!:

      Each “damnable lie” requires a Damnable Liar.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        For precision, I should amend the statement that “Each “damnable lie” requires a Damnable Liar” to say that”:

        Each “damnable lie” requires a Damnable Liar to get the damnable lie started. After that, all one needs are fools and complicit liars to keep the damnable lies going and spreading. Here the damnable liars use techniques such as gaslighting. See for example article found at:

        Also, as regards Brett Kavanaugh, see the article on the same Quillette website titled Individuals and Symbols written by Neema Parvini who explains how the damnable liar dehumanizes the victim by convincing the fools that the individual he targets symbolizes an evil group.

        This is a favorite trick of academics who make fools out of their students, convincing their students, for example, of the evils of white male fraternity boys such as happened at UVA during the Jackie affair.

        There, during the Jackie affair, the UVA administration tried to scapegoat their own grievous failings to properly care for and teach their students. Here, the complicit liars were UVA professors and the administrators who supported them in making their UVA students into their stooges believing a whole series of damnable lies peddled by their professors. Hence, they destroyed their students autonomy as individuals who were capable of thinking for themselves, and so they became slaves to the group think and ideologies of their professors. Beware of words like “solidarity” and actions like candlelight marches. Brainwashing and indoctrination is going on. This is a gross violation of students rights. The sacred duty of all legitimate professors is to empower their students to achieve their own autonomy as self sustaining free adults, instead of destroying their autonomy.

  8. The problem with the tax cuts is the timing. We’ve had a fairly strong economy and bull market for ten years. However, increasing deficits to fund a massive tax cut during “good times” is not the best idea. The government needs to save major stimulus programs that massively increase the deficit for the “bad times”, like when we have a prolonged downturn, a recession, or a depression. The Fed is being prudent to put the brakes on the rocket fuel the tax cuts provided. When the economy does take a turn for the worse, and it will, we will need some wiggle room (in the form of lowering rates) to get the economy going again, hopefully.

    I agree SS should be tweaked, mainly the full retirement age and the FICA income limits. Medicare is another beast. Larry has some good ideas about upping the copays and coinsurance for retirees, but up to a max-out-of pocket limit (maybe 15% of yearly income?). There are too many commercials on Fox News for “free” knee and back braces.

    1. TooManyTaxes Avatar

      Economic growth in the last year of the Obama presidency was an anemic 1.6%

      And the Treasury collected record taxes so far in 2018.

      We need to address and cut spending.

  9. Boomergeddon is coming!

  10. Steve is absolutely right, of course.

    And so are those who warn that the deficit numbers could start looking a whole lot worse when (as is inevitable) we hit another recession.

    A couple of points to remember. First, the deficit was heading higher even before the tax cuts added to them. Both Obama’s Office of Management and Budget document and the Congressional Budget Office forecast increasing deficits, primarily due to the increase in Medicare, Medicaid and interest payments on the debt. So don’t think that reversing the Trump tax cuts will change anything, except on the margins.

    Second, the Republican Hail Mary pass is that cutting taxes will goose growth to the point where the economy is growing faster than the deficits. That way, even if the national debt is climbing in absolute terms, it is shrinking as a percentage of the GDP, which means it is actually getting more manageable. Unfortunately, that’s looking like a pipe dream.

    The GOP fallback position: Let’s say that the Trump policy of tax cuts/deregulation increases the rate of economic growth by a full percentage point per year over the long term. Let’s say that deficits from the tax cuts also increase the national debt over what it would have been — but by only one-half percent per year. Under that scenario, the tax cuts increase growth over what it would have been more than added deficits increase the national debt over what it would have been, so we are marginally better off. Thus, in theory, Trump policy might stave off Boomergeddon for a couple of years. Is that what, in fact, is happening? I haven’t run the numbers, so I don’t know.

    Regardless, unless we get entitlement spending, defense spending, and domestic spending under control, we’re all hosed eventually. If you think things are ugly now, you ain’t seen nothing yet. Having a fiscally viable state government will be our bulwark against anarchy and chaos. Literally. I am not exaggerating. So, we need to get our act together here in Virginia.

  11. LarrytheG Avatar

    tax cuts DO goose growth – but not enough to cut the deficit. That should not be much of a revelation to any but the most obtuse.

    Conservatives and the GOP …USED to PREACH this… that it was SPENDING CUTS that reduced the deficit – even then it’s not so easy because cutting spending means cutting employees… no matter what one thinks about how productive they are – those laid off are not buying stuff in the economy.

    “Conservatives” right now are going to ride this tax-cut wave for as long as it lasts then run like hell for the exits when it inevitably crashes.. this is the state of our politics right now.

    In no sane world can we sell heath coverage to seniors for $134 a month and it alone will kill the deficit over time. Contrary to what many believe, seniors ONLY paid for Medicare Part A not Part B.

    Once again – I don’t necessarily advocate a specific remedy but I DO say that if we are going to fix it – we MUST seek the truth not what we want to believe and the simple truth is that we cannot sell health care to seniors for $134 a month without dire fiscal consequences. Most of the “other” stuff is distractions.

    Giving employer-provided health insurance tax-free no matter how much is a close second though…….

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