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Talking the Budget to Death

Posted: Fri Feb 18, 2011 4:50 pm UTC
by savanik
Recently, the House voted to cut funding for a second version of the F-35′s engine, meant to upgrade its performance and capabilities. This program was going to cost $450 million dollars this year. I’m not examining this particular bill’s merits or flaws – I’m just examining the value of their time in cutting this much money in general.

Congress in generally in session the whole year, with a small gap of two weeks December for the holidays. But they frequently recess the session for weekends, holidays, or for some months to reconnect with their constituents. On average, they spend about 120 days in session each year. I couldn’t find any figures on how long they spend in session each day, I'm generously assuming that it's eight hours a day, since the hours for general admission seem like standard business hours.

Congress passed 1100 bills last year. Many of these were bills passed to honor the achievements of notable people – often unanimous and unopposed, bills like that can be passed quite quickly. Let’s assume that they can get bills to cut $450 million passed with equal speed. That’s a huge assumption, mind – the $450 million dollar cut took a great deal longer just for debate. To put this in perspective, that’s roughly nine bills a day – less than an hour to introduce, debate, and pass each bill. And that’s assuming Congress works for the full eight hours when in session.

In order to bring down the projected $1.7 trillion deficit to a fully balanced budget with $450 million bills, they’ll have to pass bills continuously with nothing but budget cuts for 412 days – for the next 3.4 years. And that’s just assuming we keep spending at the current rate. Mandatory expenses for health care and social security are expected to balloon in the next few years.

Cutting millions out of the budget is laudable, but means practically nothing in the face of the deficit we’re currently running. It’s like the old joke goes – a few billion here, a few billion there, and pretty soon you’re talking about some real money.

How much money do legislators have to cut per bill to actually balance the budget? A more realistic assessment of my numbers is welcome.

Please note: This is not about *what* we should cut. If we get into that debate we'll never get out. :) But there's a lot of things I haven't taken into account in my figures - economic assumptions, increase in outlays, unemployment projections, etc.

Re: Talking the Budget to Death

Posted: Fri Feb 18, 2011 5:16 pm UTC
by Zamfir
that's an interesting way to put the number is perspective. Still, i think you are missing a thing.

Something like this engine cut was not originally a separate bill. it was part of the entire DoD budget proposal some years ago (which was as a whole clearly large enough to warrant attention). What happens is that all sorts of people read through a proposed bill, focusing on the small part that matters to them. Then they start complaining about particular issues that affect them.

In this case, I think the CBO calculated that cutting the engine would save money in the short term but was likely to increase cost in the long term because of less competition. That convinced some congressmen quickly, so it was put on a list of things the DoD had to change to its proposed budget before enough people would vote for it. The DoD wants its budget approved of course, so they make a new budget taking all those things into account, and the entire budget passed, without the engine cut.

I vaguely remember about this issue, I think the DoD internally decided that the CBO was wrong or something, and next year they put the cut back on. I am not sure if it was repeated a few times, but eventually it became a single sore point. So it is now a separate bill to make sure it gets its own decision without affecting the big normal budget bill.

TLDR: most bills are about larger numbers. Within such large bills, there are a few items that might stall the entire big bill. So those get taken out, and become separate issues. That's exactly how the big, complicated bills can pass easily.

Re: Talking the Budget to Death

Posted: Fri Feb 18, 2011 5:24 pm UTC
by JBJ
savanik wrote:How much money do legislators have to cut per bill to actually balance the budget? A more realistic assessment of my numbers is welcome.
Nearly all discretionary spending. All except for about $300 billion anyway. But a good estimate would be about 1.1 trillion in cuts.

Mandatory spending makes up about 2/3 of the budget. These are programs that Congress cannot change, like Medicare, Social Security, etc... Well, Congress could change them, but we're talking a major revamping of those programs which would take several years if not decades to phase out or significantly change.

What Congress does change in session, like you propose, is discretionary spending which is about 1/3 of the budget. Things like the F-35 engine, NASA programs, road improvements, and bridges to uninhabited islands in Alaska.

Tax receipts often only barely cover mandatory spending. If you look at a graph of last year, income was just a shade higher than mandatory spending only. It's not going to be much better for 2011. I can't get back to the page for some reason, but estimated tax receipts are going to be about 2.1 trillion in 2011. Mandatory spending is expected to be about 1.8 trillion. That leaves about $300 billion for all other programs and services in order to have a balanced budget. The current proposed budget has something like 1.4 trillion in discretionary spending.

Re: Talking the Budget to Death

Posted: Fri Feb 18, 2011 7:25 pm UTC
by savanik
JBJ wrote:
savanik wrote:How much money do legislators have to cut per bill to actually balance the budget? A more realistic assessment of my numbers is welcome.
Nearly all discretionary spending. All except for about $300 billion anyway. But a good estimate would be about 1.1 trillion in cuts.

Mandatory spending makes up about 2/3 of the budget. These are programs that Congress cannot change, like Medicare, Social Security, etc... Well, Congress could change them, but we're talking a major revamping of those programs which would take several years if not decades to phase out or significantly change.


Yeah. I was looking for a while if there was some way we could improve the programs, but when it comes right down to it, the social security administration is... remarkably efficient. Almost all the money they're assigned really does reach the intended recipients, very little is in overhead. The only gains you could really make are in combating fraud, so you'd really just be tacking on more administration and not accomplishing much for the amount of fraud we have. The only real choice there is to start seriously cutting into outlays... which just means flat-out giving less money to people on SSI.

Tax receipts often only barely cover mandatory spending. If you look at a graph of last year, income was just a shade higher than mandatory spending only. It's not going to be much better for 2011. I can't get back to the page for some reason, but estimated tax receipts are going to be about 2.1 trillion in 2011. Mandatory spending is expected to be about 1.8 trillion. That leaves about $300 billion for all other programs and services in order to have a balanced budget. The current proposed budget has something like 1.4 trillion in discretionary spending.


Oooh, nice graph. I was looking for something like that from the GAO or budget office or somewhere, but no such luck. Only got huge spreadsheets, which are ... not easy to comprehend. I was always aware that the discretionary spending was the lion's share of it, but didn't realize just how big it was.

What kind of a president can we elect to sit there and tell Congress, "You've got $300 billion of spending you can afford, anything more than that and I'm vetoing it.'

Re: Talking the Budget to Death

Posted: Sat Feb 19, 2011 4:26 am UTC
by Griffin
Of course changing mandatory spending is hard, but thats what they should be doing anyways since that is where the vast majority of our money ends up wasted. Look at defense - they can barely ever bring themselves to cut defense funding even when the military specifically asks them to!

Re: Talking the Budget to Death

Posted: Sat Feb 19, 2011 7:27 am UTC
by Cleverbeans

Re: Talking the Budget to Death

Posted: Sat Feb 19, 2011 6:35 pm UTC
by pizzazz
savanik wrote:
JBJ wrote:
savanik wrote:How much money do legislators have to cut per bill to actually balance the budget? A more realistic assessment of my numbers is welcome.
Nearly all discretionary spending. All except for about $300 billion anyway. But a good estimate would be about 1.1 trillion in cuts.

Mandatory spending makes up about 2/3 of the budget. These are programs that Congress cannot change, like Medicare, Social Security, etc... Well, Congress could change them, but we're talking a major revamping of those programs which would take several years if not decades to phase out or significantly change.


Yeah. I was looking for a while if there was some way we could improve the programs, but when it comes right down to it, the social security administration is... remarkably efficient. Almost all the money they're assigned really does reach the intended recipients, very little is in overhead. The only gains you could really make are in combating fraud, so you'd really just be tacking on more administration and not accomplishing much for the amount of fraud we have. The only real choice there is to start seriously cutting into outlays... which just means flat-out giving less money to people on SSI.

The problem is that in the past, social security has doled out more money than it took in (and, I believe, continues to do so, though I can't be sure). In the post World War II, when there were many people working, very few retirees, and the economy was booming, people were receiving far more from Social Security than they had put in, or indeed was ever sustainable. Instead of receiving money based on what they had put in, like with most investment plans, it was decreed that people receive enough money to cover pretty much their whole retirement (even though social security was only designed as "1 leg of a 3-legged stool"). As I said, this worked for a while, because Social Security was taking in much more money than it had to give out, but this is obviously an unsustainable plan.

Re: Talking the Budget to Death

Posted: Sat Feb 19, 2011 8:07 pm UTC
by jesseewiak
First, Social Security does not contribute to the deficit. It has it's own source of income (FICA) and takes no money that could go into say, defense or energy or whatever. Second, even in the doomsday scenario that people talk about how Social Security goes 'bankrupt' in 2035, do you know what that means? It means Social Security can only pay 75% of benefits instead of 100% of benefits. Fixing Social Security is relatively easy. Remove the FICA cap so that somebody making $500,000 a year gets taxed for Social Security on all their income instead of the first $100,000 and that takes care of about 95% of the shortfall. From there, we got seventy years to make small actuarial changes to fix the rest of the budget.

Medicare's an actual budgetary problem in the long term, but the other current budgetary problem to be blunt is that the economy sucks. Revenues dropped from about 2.5 trillion-ish in 2005 to 2.1 trillion-ish in 2009. That's all on the economy.

Re: Talking the Budget to Death

Posted: Sun Feb 20, 2011 11:31 am UTC
by sardia
jesseewiak wrote:First, Social Security does not contribute to the deficit. It has it's own source of income (FICA) and takes no money that could go into say, defense or energy or whatever. Second, even in the doomsday scenario that people talk about how Social Security goes 'bankrupt' in 2035, do you know what that means? It means Social Security can only pay 75% of benefits instead of 100% of benefits. Fixing Social Security is relatively easy. Remove the FICA cap so that somebody making $500,000 a year gets taxed for Social Security on all their income instead of the first $100,000 and that takes care of about 95% of the shortfall. From there, we got seventy years to make small actuarial changes to fix the rest of the budget.

Medicare's an actual budgetary problem in the long term, but the other current budgetary problem to be blunt is that the economy sucks. Revenues dropped from about 2.5 trillion-ish in 2005 to 2.1 trillion-ish in 2009. That's all on the economy.

Ahem, the reason Social Security doesn't "contribute to the deficit" is because excess funds are placed in a trust fund. This money doesn't just sit there, it gets invested into Treasury bills. Treasury bills are loans that the Federal government makes to cover any shortfalls in the budget. So the United States government takes extra money from social security, and loans it... to itself. Well, it loans it to the other part of the government, the general funds for the yearly budget. Aka, interest, medicare, social security, defense, and then the piddly bit left called discretionary spending.
Now, what happens when Social Security Insurance decides to cash in these investments? Well, it would sell T-bills or simply redeem it into cash. How does the general funds part of the government pay for said T-bills that are maturing? Well taxes pay for some, but the rest is paid for by raising cash by selling more T-bills...
Here's the question that really matters, will the US government ever default on it's obligations? If the answer is it will never default, then SS is just fine. If the answer is yes, then you have a major problem, and paying off the elderly is the least of your worries.

Other than this small point, I agree with the rest of your statement. Most likely, a combination of higher taxes from the general funds, higher FICA taxes, and less benefits given to a stricter population, and a larger tax base to feed off of.

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 7:54 am UTC
by pizzazz
sardia wrote:Other than this small point, I agree with the rest of your statement. Most likely, a combination of higher taxes from the general funds, higher FICA taxes, and less benefits given to a stricter population, and a larger tax base to feed off of.

I disagree that the solution should be to throw more money at the problem. SS cannot pay for itself indefinitely unless the money people get is based on how much they put in, just like... probably every single private investment plan in the world (I'm sure I'll get corrected on this, but for any standard investment plan, if the bank told you you're getting less money back than you put in, why would you ever agree to that plan? It's not like banks can pull money from elsewhere like the government can).

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 8:49 am UTC
by sardia
I believe SS is similar to insurance, not an investment. An investment makes money, while insurance prevents loss. You lose more in premiums to your insurance company than you get in payments for accidents. SS is suppose to work that way too.

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 5:42 pm UTC
by Griffin
Yeah, SS is supposed to be insurance, and if the government didn't repeatedly spend the money thats supposedly "dedicated" to SS on other projects it would be fine. It is also, as was said, one of the more efficient government projects, and it has almost always brought in more money than its sent out.

The two big money wasters are the military and Medicaid. Both are horribly inefficient, riddles with waste and fraud, and have a terribly large amount of problems in addition to being the vast majority of the budget.

And yet politicians refuse to talk about them. I just don't get it.

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 6:03 pm UTC
by zmatt
just an Idea. The Gov owns a great deal of land that is doing absolutely nothing with. The onyl time we ever had a surplus in the budget is when Jackson sold a bunch of it to settlers. We could do the same now. Obviously groups such as the epa would keep it from being abused. But it would be a good way to raise funds.

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 7:08 pm UTC
by Sero
What lands are these? The only large areas of land that I know of that the federal government owns, off the top of my head, are national parks and some military reservations. The former has strong arguments for not being sold commercially and the latter I was generally under the impression was generally chose for being in the middle of nowhere with nothing valuable on it so nobody minds if it gets all shot up. Is there a category I'm not aware of?

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 9:56 pm UTC
by Dark567
Sero wrote:What lands are these? The only large areas of land that I know of that the federal government owns, off the top of my head, are national parks and some military reservations. The former has strong arguments for not being sold commercially and the latter I was generally under the impression was generally chose for being in the middle of nowhere with nothing valuable on it so nobody minds if it gets all shot up. Is there a category I'm not aware of?

Selling ANWR to oil companies. But thats probably about it.

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 11:18 pm UTC
by Steroid
One problem of trying to balance the federal budget is that the incoming revenue is an unknown. A quick google tells me that around 90% of federal revenue is based on income tax, personal and corporate, and payroll tax. Meaning that if more people work, or if salaries go up, or if corporations make more money, there's more revenue. Now, by setting tax rates, it would seem that the government can control how much revenue they get, but the Laffer Curve says it's not that easy, and Hauser's Law says that it'll always come out at around 19% of GDP. Now, this concept could be wrong (the "Law" appellation is a euphemism; it's not actually an economic law), or certain degrees and methods of spending could have varying effects on GDP (so says Keynesianism), or many other factors could affect what revenue you take in.

Now, to me, experienced in personal budgeting, the solution to this seems obvious: estimate low. I don't spend my Christmas bonus until I have a check in hand, so I'm not disappointed or scrambling for cash if I don't get one. Particularly if you're in debt, where you have a natural savings sink for any excess revenue that essentially "earns" you the interest on your debt. So I don't see why the people who run the budget don't say something to the effect of, "All right, we'll base our spending on the revenue that came in in 2010, and leave it that way for the next 50 years. GDP will still grow, so even if we have a deficit now, holding spending steady will eventually erase it, then start paying down debt, at which point the surplus will grow exponentially since we don't have interest to pay off either." (Or rather, I *do* see why they don't say that: because fiscal responsibility is not the primary value of the government. But if it were, that would be a prudent way to proceed.)

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 11:28 pm UTC
by Dark567
Dark567 wrote:
Sero wrote:What lands are these? The only large areas of land that I know of that the federal government owns, off the top of my head, are national parks and some military reservations. The former has strong arguments for not being sold commercially and the latter I was generally under the impression was generally chose for being in the middle of nowhere with nothing valuable on it so nobody minds if it gets all shot up. Is there a category I'm not aware of?

Selling ANWR to oil companies. But thats probably about it.

Nevermind. I was really wrong. Apparently the US government owns about a 28.8% of the land in the US. It probably could sell a sizable amount for a good chunk of change.
http://en.wikipedia.org/wiki/United_Sta ... nvironment

Re: Talking the Budget to Death

Posted: Mon Feb 21, 2011 11:44 pm UTC
by Sero
Sure, but how much of that value is in the mineral and other resource rights they already frequently lease? My impression is that a lot of that land is not considered very valuable.

Re: Talking the Budget to Death

Posted: Tue Feb 22, 2011 12:40 am UTC
by Thesh
Steroid wrote:One problem of trying to balance the federal budget is that the incoming revenue is an unknown.


It's pretty steady though:

http://www.taxpolicycenter.org/taxfacts ... ?Docid=200

Since 2005, receipts (e.g. tax revenue) have been between 2.1 trillion and 2.5 trillion. Outlays (i.e. government spending) has been between 2.4 trillion and 3.7 trillion. It's easy to tell that your 3.7 trillion in outlays is going to exceed receipts unless you significantly raise taxes. The government simply makes a habit of spending more than they get in. You want to balance it? Use last years receipts as the basis for our spending and we will start being able to reduce the national debt.

That said, we won't get the national debt down to reasonable levels without an increase in taxes to go along with reduced spending (at least, not within the next 15 years).

Re: Talking the Budget to Death

Posted: Tue Feb 22, 2011 1:42 am UTC
by Steroid
Except that you can't "raise taxes." That's like saying a business needs to "raise sales" or an employee needs to "raise his salary." Those are goals, not options.

But yes, the debt is far too great to be dealt with short-term. We got into the debt we're in over 170 years, it would probably take at least half that to get out of debt while still providing the government services committed to. If they were to start phasing out the non-discretionary spendings and shrink government overall, it could take less. But the expanding bureaucracy is following an addiction pattern, and the first step, upon hitting bottom, is to admit the problem. That bottom hasn't been hit yet.

Re: Talking the Budget to Death

Posted: Tue Feb 22, 2011 3:23 am UTC
by sardia
Steroid wrote:Except that you can't "raise taxes." That's like saying a business needs to "raise sales" or an employee needs to "raise his salary." Those are goals, not options.

But yes, the debt is far too great to be dealt with short-term. We got into the debt we're in over 170 years, it would probably take at least half that to get out of debt while still providing the government services committed to. If they were to start phasing out the non-discretionary spendings and shrink government overall, it could take less. But the expanding bureaucracy is following an addiction pattern, and the first step, upon hitting bottom, is to admit the problem. That bottom hasn't been hit yet.

The Laffer curve is a cute thought experiment except that you have no way to prove that our tax rates are on the right or left side of the curve. Next, raising taxes is nothing like raising sales. If I raise the sales goal by 10%, the customers don't go to jail for not buying more. You will be punished if you don't pay the IRS. If you said that raising taxes is politically hard, well that's obvious. However the pressure from mandatory spending will overcome any resistance sooner or later. It's just a matter of how much we want to delay the pain.

Your name sounds familiar...I hope you aren't who I think you are.

Re: Talking the Budget to Death

Posted: Tue Feb 22, 2011 6:08 am UTC
by TheNorm05
Military Spending is where a hefty chunk of change just falls into a black hole, combine it with nearly 400 or so billion dollars a year in interest payments(that's with the incredibly low interest rates from QE and a bad market), and social security. If for instance, America could cut all military/defense/war of terror related spending it would curb most of the deficit, however at this time it's not enough to simply make the deficit = 0, as we'd need huge surpluses for a very long time to start cutting into the interest on the debt before we're really out of the woods.

Re: Talking the Budget to Death

Posted: Tue Feb 22, 2011 7:34 am UTC
by sardia
TheNorm05 wrote:Military Spending is where a hefty chunk of change just falls into a black hole, combine it with nearly 400 or so billion dollars a year in interest payments(that's with the incredibly low interest rates from QE and a bad market), and social security. If for instance, America could cut all military/defense/war of terror related spending it would curb most of the deficit, however at this time it's not enough to simply make the deficit = 0, as we'd need huge surpluses for a very long time to start cutting into the interest on the debt before we're really out of the woods.
If you plan to reduce our military spending and stick it to the old folks, you can't forget to cut off the poor and infirm who take medicare dollars.

Re: Talking the Budget to Death

Posted: Tue Feb 22, 2011 10:27 am UTC
by Steroid
sardia wrote:
Steroid wrote:The Laffer curve is a cute thought experiment except that you have no way to prove that our tax rates are on the right or left side of the curve. Next, raising taxes is nothing like raising sales. If I raise the sales goal by 10%, the customers don't go to jail for not buying more. You will be punished if you don't pay the IRS. If you said that raising taxes is politically hard, well that's obvious. However the pressure from mandatory spending will overcome any resistance sooner or later. It's just a matter of how much we want to delay the pain.

But the other point of the curve is that the amount of increased revenue is always less than the difference in rates multiplied by the revenue base. The slope of the graph is less than 1 at all points. And if this Hauser thing holds water, then the only way to raise tax revenue is to increase GDP. Point being, the federal government has control over the tax rates, but there are economic factors out of its control that make its revenue as unpredictable as hitting a sales goal.

As to pressure, the problem there is that other people are working on the logic that if you do lower tax revenues, the pressure to lower spending, even nominally mandatory spending (raise the SocSec age, cut Medicare, default on debt), will overcome resistance. It's a dangerous game of chicken.

Re: Talking the Budget to Death

Posted: Tue Feb 22, 2011 5:09 pm UTC
by savanik
Steroid wrote:But the other point of the curve is that the amount of increased revenue is always less than the difference in rates multiplied by the revenue base. The slope of the graph is less than 1 at all points. And if this Hauser thing holds water, then the only way to raise tax revenue is to increase GDP. Point being, the federal government has control over the tax rates, but there are economic factors out of its control that make its revenue as unpredictable as hitting a sales goal.


Or predicting the stock market. Is it just me, or is the stock market in general leveling off instead of growing expontentially anymore? If it's a reflection of our overall growth in GDP, we may not be able to rely on 'growing ourselves out of debt' anymore.

As to pressure, the problem there is that other people are working on the logic that if you do lower tax revenues, the pressure to lower spending, even nominally mandatory spending (raise the SocSec age, cut Medicare, default on debt), will overcome resistance. It's a dangerous game of chicken.


The problem with mandatory spending is that in order to cut it, you actually have to change the laws involved. That takes a kind of political will that only comes from unified desperation. Even a single-party government won't solve it - the Republicans have shown they're just as good at spending as the Democrats. We need new leadership. Or at least more desperate ones. :)

Re: Talking the Budget to Death

Posted: Sat Feb 26, 2011 5:32 pm UTC
by Economica
pizzazz wrote:The problem is that in the past, social security has doled out more money than it took in (and, I believe, continues to do so, though I can't be sure). In the post World War II, when there were many people working, very few retirees, and the economy was booming, people were receiving far more from Social Security than they had put in, or indeed was ever sustainable. Instead of receiving money based on what they had put in, like with most investment plans, it was decreed that people receive enough money to cover pretty much their whole retirement (even though social security was only designed as "1 leg of a 3-legged stool"). As I said, this worked for a while, because Social Security was taking in much more money than it had to give out, but this is obviously an unsustainable plan.

There should be a rule against posting blatantly and provably false statements in SB.

Social Security has consistently raised more revenue in FICA taxes than it has doled out in benefits. Indeed, that's where the entire concept of the 'Social Security Trust Fund' comes from.

I can provide a pretty graph:
Image

Now, Social Security is expected to go into a cash-flow deficit in the near future, but to pretend that it has been so in the past is, frankly, wrong.

Re: Talking the Budget to Death

Posted: Sun Feb 27, 2011 6:55 pm UTC
by pizzazz
Economica wrote:
pizzazz wrote:The problem is that in the past, social security has doled out more money than it took in (and, I believe, continues to do so, though I can't be sure). In the post World War II, when there were many people working, very few retirees, and the economy was booming, people were receiving far more from Social Security than they had put in, or indeed was ever sustainable. Instead of receiving money based on what they had put in, like with most investment plans, it was decreed that people receive enough money to cover pretty much their whole retirement (even though social security was only designed as "1 leg of a 3-legged stool"). As I said, this worked for a while, because Social Security was taking in much more money than it had to give out, but this is obviously an unsustainable plan.

There should be a rule against posting blatantly and provably false statements in SB.

Social Security has consistently raised more revenue in FICA taxes than it has doled out in benefits. Indeed, that's where the entire concept of the 'Social Security Trust Fund' comes from.

Yeah, that was a mistake on my part. What I wanted to focus on was that people were receiving money based on what was claimed they "needed," which was done because when the baby boomer's were working there were many more workers than retirees, but now the ratio is dropping.

http://www.ssa.gov/history/pdf/T5a4.pdf gives some historical data on OASDI outlays and benefits. The last year it gives us in 2003, so let's compare it to something a few decades ago--say 1975. In 1975, about 26 million people received a total of about 5.7 billion dollars. In 2003, about 1.8 times as many people were receiving social security, but they received 7-8 times as much total money (almost 40 billion). I don't know if inlfation is taken into account in that table, but has infation totaled 300% from 1975 to 2003?
What I really want to do is compare the respective labor force sizes, but I can't for the life of me find the number of American workers in 1975 (Wikipedia cites a newspaper in saying there are about 155 million individuals working in the United States at the moment).

[url]http://www.cklawreview.com/wp-content/uploads/vol81no2/Rix.pdf[\url] Covers some of the issues with aging population, though I haven't read the whole thing yet.

Re: Talking the Budget to Death

Posted: Mon Feb 28, 2011 6:37 pm UTC
by firechicago
pizzazz wrote: I don't know if inlfation is taken into account in that table, but has infation totaled 300% from 1975 to 2003?

Almost, 239% to be exact

This has been another edition of easy answers to easy questions.

(Edited to add: More generally, when you're calculating inflation, it's good to remember that things got sort of crazy in the late 70's and early 80's, with inflation around 10% a year for the better part of a decade.)

Re: Talking the Budget to Death

Posted: Wed Mar 02, 2011 11:05 pm UTC
by roflwaffle
sardia wrote:
TheNorm05 wrote:Military Spending is where a hefty chunk of change just falls into a black hole, combine it with nearly 400 or so billion dollars a year in interest payments(that's with the incredibly low interest rates from QE and a bad market), and social security. If for instance, America could cut all military/defense/war of terror related spending it would curb most of the deficit, however at this time it's not enough to simply make the deficit = 0, as we'd need huge surpluses for a very long time to start cutting into the interest on the debt before we're really out of the woods.
If you plan to reduce our military spending and stick it to the old folks, you can't forget to cut off the poor and infirm who take medicare dollars.
Did they mention anything about old folks? It appears to just focus on military spending. We could cut defense spending to ~$200 billion, which would probably swing the budget into the black as the economy recovered and the ~$600 billion in tax breaks expired, but who knows whether we care more about providing a social safety net for the elderly and medical care for the poor/elderly.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 1:42 am UTC
by Antimony-120
roflwaffle wrote:Did they mention anything about old folks? It appears to just focus on military spending. We could cut defense spending to ~$200 billion, which would probably swing the budget into the black as the economy recovered and the ~$600 billion in tax breaks expired, but who knows whether we care more about providing a social safety net for the elderly and medical care for the poor/elderly.


TheNorm05 wrote:Military Spending is where a hefty chunk of change just falls into a black hole, combine it with nearly 400 or so billion dollars a year in interest payments(that's with the incredibly low interest rates from QE and a bad market), and social security.


Emphasis mine.

Still not relevant as SS isn't relevant to the budget balance for reasons discussed earlier in the thread, but that's where the "stick it to the old folks" was coming from.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 7:18 am UTC
by pizzazz
Antimony-120 wrote:
roflwaffle wrote:Did they mention anything about old folks? It appears to just focus on military spending. We could cut defense spending to ~$200 billion, which would probably swing the budget into the black as the economy recovered and the ~$600 billion in tax breaks expired, but who knows whether we care more about providing a social safety net for the elderly and medical care for the poor/elderly.


TheNorm05 wrote:Military Spending is where a hefty chunk of change just falls into a black hole, combine it with nearly 400 or so billion dollars a year in interest payments(that's with the incredibly low interest rates from QE and a bad market), and social security.


Emphasis mine.

Still not relevant as SS isn't relevant to the budget balance for reasons discussed earlier in the thread, but that's where the "stick it to the old folks" was coming from.


Saying Social Security is not relevant to budget balance because it has its own income source does not make sense. Firstly, any money spent on SS can't be spent on other things. We could not have social security and still have payroll taxes, or tax other things instead, to get the same revenue. And it could then be spent on anything. Secondly, money "set aside" for social security obviously isn't, as has been mentioned before, because funds from SS have been pulled for other projects. And if that can happen, it could easily be that other funds would have to be pulled to be spent on SS if/when SS does run out of money.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 6:26 pm UTC
by Griffin
So, basically you'd want to remove the social security program, and then raise taxes to compensate and keep the tax burden the same?

While arguably a reasonable stance, it's one of the VERY few public programs that pay for itself. It works. It's balanced, at least for now. Why don't we first cut the things that CAN'T seem to figure out how to work within their budget?

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 7:37 pm UTC
by savanik
pizzazz wrote:Saying Social Security is not relevant to budget balance because it has its own income source does not make sense. Firstly, any money spent on SS can't be spent on other things. We could not have social security and still have payroll taxes, or tax other things instead, to get the same revenue. And it could then be spent on anything. Secondly, money "set aside" for social security obviously isn't, as has been mentioned before, because funds from SS have been pulled for other projects. And if that can happen, it could easily be that other funds would have to be pulled to be spent on SS if/when SS does run out of money.


Cue person saying that that's not true, and SS money is strictly accounted for, etc.

The precise mechanism by which Social Security money is transferred into the General Fund of the U.S. Treasury is:

The Social Security Administration has to strictly maintain its accounts with the revenue from Social Security taxes. They invest their revenue to get a financial return, under the theory that their investments will grow faster than the money that comes in. The problem is that their primary method of investment is... buying government debt, in the form of bonds. This means that they hand the government the money they took in as SS taxes and get an IOU in return.

Of course, those bonds have a specific maturity date, so this only becomes relevant if the U.S. Government defaults on its debt... but this is becoming a more likely possibility every day. Other than that caveat, though, then yes, SS pays for itself. On the other hand, if we weren't spending the money on Social Security Taxes - for example, if the SSA brought in more money from its investments than it paid out in benefits - we could lower taxes instead.

Maybe if the SSA bought less bonds and diversified their portfolio they'd be able to provide a greater return on their investment while at the same time reducing their risk of a US Government default.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 7:49 pm UTC
by sardia
Griffin wrote:So, basically you'd want to remove the social security program, and then raise taxes to compensate and keep the tax burden the same?

While arguably a reasonable stance, it's one of the VERY few public programs that pay for itself. It works. It's balanced, at least for now. Why don't we first cut the things that CAN'T seem to figure out how to work within their budget?

I don't think you understand my position. Here's wikipedia's summary: http://en.wikipedia.org/wiki/Social_Sec ... Trust_Fund

Social Security excess funds are put in a strange place, Treasury bills. Treasury bills are bonds that earn interest, but the bonds relate to the US government. The metaphor that is given would be if I took your money of $100, and promised to pay you when you got older. Now if I was a rational person, I'd probably invest it in something that would earn interest so that I wouldn't spend the money that I'd owe you. If I bought a corporate bond for $100, then I would expect some interest and then get that value back when the bond matured. Now think about what would happened if I bought a bond issued by MY SELF. When the bond matured, I would owe myself, $100+ interest, which I would then go pay you when you got older. This means that for a long time, I'll have excess money lying around which is technically tied up as future obligations to you. That makes it mighty tempting to spend a bit of it now, because I owe you money later, not now.

What does this all mean? It's kinda vague. What it really comes down to is when those T-bills that are owned by SS are called in, how will the US government pay for it? The 4 answers are taxes, T-bills, spending cuts from other programs, or reduced SS Benefits. The talk you hear around washington is usually some way to reduce benefits to those less deserving or make them pay more; this is all an effort to buy us more time to deal with the SS problem.

Edit: Ninja'd by savanik. You have to realize that the government takes SS money seriously, and doesn't have much appetite for risk. What's the absolutely most risk free thing in the entire world? T-bills. It's backed by the wealthiest, and most militarily powerful state in the yadda yadda yadda, you know this already. Now Bush jr. tried to do some version of this during the 2nd term, but nobody was buying it. What you are suggesting is reducing the risk of US default by making the benefits that SS gives out riskier. As in, there is a x percentage that your benefits will be reduced due to the stock/bond you choose crashing.

"if the SSA brought in more money from its investments than it paid out in benefits - we could lower taxes instead."
I disagree with this sentiment; why is it bad for SS to have a cushion against say, default from buying riskier investment vehicles? More importantly, this will scenario won't happen currently. Current trends show that SS expenditures are rising faster than SS income. You would be bolstering current income and then canceling it out by reducing income from taxes. Why would lowering taxes be a great idea? You are increasing risk for the SS fund in exchange for lowering payroll taxes.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 8:02 pm UTC
by Dark567
Economica wrote:
pizzazz wrote:The problem is that in the past, social security has doled out more money than it took in (and, I believe, continues to do so, though I can't be sure). In the post World War II, when there were many people working, very few retirees, and the economy was booming, people were receiving far more from Social Security than they had put in, or indeed was ever sustainable. Instead of receiving money based on what they had put in, like with most investment plans, it was decreed that people receive enough money to cover pretty much their whole retirement (even though social security was only designed as "1 leg of a 3-legged stool"). As I said, this worked for a while, because Social Security was taking in much more money than it had to give out, but this is obviously an unsustainable plan.

There should be a rule against posting blatantly and provably false statements in SB.

Although it hasn't in the past, it certainly is currently and will continue adding to the deficit in the future unless measures are taken.
http://factcheck.org/2011/02/democrats- ... s-red-ink/
sardia wrote:Now Bush jr. tried to do some version of this during the 2nd term, but nobody was buying it. What you are suggesting is reducing the risk of US default by making the benefits that SS gives out riskier. As in, there is a x percentage that your benefits will be reduced due to the stock/bond you choose crashing.
Nassim Taleb(author of "The Black Swan") argues that that risking benefits is a lot better than risking government. A default by the US government would probably cause the single worst financial shock the world has ever seen. Risking benefits could cause people to be poorer or have to work longer, which sucks, but wouldn't verge on the civilization collapse a US default could.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 8:32 pm UTC
by Zamfir
Dark567 wrote:Nassim Taleb(author of "The Black Swan") argues that that risking benefits is a lot better than risking government. A default by the US government would probably cause the single worst financial shock the world has ever seen. Risking benefits could cause people to be poorer or have to work longer, which sucks, but wouldn't verge on the civilization collapse a US default could.


But those are not the two only options. The alternative to less benefits is raising taxes to pay for the benefits, not default.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 8:37 pm UTC
by Antimony-120
Zamfir wrote:
Dark567 wrote:Nassim Taleb(author of "The Black Swan") argues that that risking benefits is a lot better than risking government. A default by the US government would probably cause the single worst financial shock the world has ever seen. Risking benefits could cause people to be poorer or have to work longer, which sucks, but wouldn't verge on the civilization collapse a US default could.


But those are not the two only options. The alternative to less benefits is raising taxes to pay for the benefits, not default.


Well yes, if one wanted a dramatic exit in flames from any possible future political career one could discuss raising taxes by that much. But most politicians recognize that people freak out when they hear about tax increases to keep up with inflation (meaning it's not really a tax increase at all), and raising taxes to compensate for something that is something like 25% of the budget is going to invovle a large increase.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 8:49 pm UTC
by Роберт
Antimony-120 wrote: But most politicians recognize that people freak out when they hear about tax increases to keep up with inflation (meaning it's not really a tax increase at all), and raising taxes to compensate for something that is something like 25% of the budget is going to invovle a large increase.

I'm confused. Why would you need "tax increases to keep up with inflation"? Taxes are already a % of stuff, so inflation is already increasing the amount of money taxed to keep up the inflation rate.

Especially when you consider that several tax bracket items don't account for inflation, so people get bumped into higher brackets solely due to inflation, so and there's capital gains tax... so real value taxed automatically increases with inflation without any tax increases.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 8:57 pm UTC
by Zamfir
Antimony-120 wrote:Well yes, if one wanted a dramatic exit in flames from any possible future political career one could discuss raising taxes by that much. But most politicians recognize that people freak out when they hear about tax increases to keep up with inflation (meaning it's not really a tax increase at all), and raising taxes to compensate for something that is something like 25% of the budget is going to invovle a large increase.

Yeah, that's a choice voters will have to make. More taxes, or less benefits. With inflation as a hidden tax/soft default third option. Democracies move between those poles all the time.

Re: Talking the Budget to Death

Posted: Thu Mar 03, 2011 9:00 pm UTC
by Dark567
Zamfir wrote:But those are not the two only options. The alternative to less benefits is raising taxes to pay for the benefits, not default.
Sure but there is risk that the revenue drys up. Its a lot easier to increase revenue to cover unexpected emergencies when your revenue is low, than it is to gain revenue when your revenue is already high.

For that matter I am not sure that unless benefits get pushed backto a later age, that we haven't created an unstable system where we would have to raise taxes indefinitely or raise population indefinitely, neither of which seem very desirable.