The Ignored Campaign Issue: the Deficit

FederalDeficitby Jon N. Hall2/17/16
The largest financial operation in the known universe is the United States federal government. For fiscal 2009, that operation ran a budget deficit of -$1.412T, the all-time record. That’s debt at more than -$3.868B a day, more than -$161M an hour, some -$2.686M a minute. That’s debt at -$44,774 … a second.

Amazing, no? Surely others have also done that math. The only figure I got from the government is the -$1.412T deficit for 2009, which I got from Table 1.1 at the White House website. The other numbers I derived by already possessing the occult knowledge of how many days there were in 2009, and how many hours there are in a day, etc. If you wish to verify my math, multiply 44,774 by 60 (for seconds), then multiply that by 60, then multiply that by 24, and multiply that by 365. If your computer’s calculator works like mine, you should get a figure of 1411992864000, which rounds up to 1.412T, which is close enough for congressional work.

Obama & Co. ran four “official” back-to-back deficits of more than a trillion. Over at Treasury Direct, we learn that on Jan. 20, 2009, the day Obama was first sworn into office, the Total Public Debt Outstanding was $10.6T. Seven years later and that debt was $18.9T, an average of $1.185 trillion a year for seven years. The Debt Held by the Public (i.e. the hard debt) fared a bit better, but also averaged more than a trillion a year for seven years. The eyes glaze over at such numbers. However, after Republicans took control of the U.S. House in Jan. 2011, we began to see some control over spending, and deficits contracted.

On Jan. 19, 2016, the Congressional Budget Office reported in its summary of “The Budget and Economic Outlook: 2016 to 2026” that for fiscal 2015, Congress ran a -$439B deficit (see Summary Table 1 on page 2). That’s nearly a trillion dollars of progress since 2009. However, the CBO also estimated that the federal deficit for fiscal 2016 will be -$544B. Of course, that’s an estimate, and it could always be way off, but it appears we may be going in the wrong direction again. Worse still, the CBO predicts growing deficits over the next ten years, with the red ink again lapping over the trillion-dollar mark by 2022.

The issue of the federal budget deficit has receded as a priority issue since 2009, when the deficit first topped a trillion. Back then, the issue was so big that it helped spark the formation of the Tea Party. But we’ve gotten accustomed to monstrous deficits, (the feds will just print the money, right?). So those who fret about debt may seem to some like worrywarts, a bunch of old fuddy-duddies. Americans now care more about jobs, the economy, and ISIS beheadings of Americans than about the federal debt. The debt, however, could crush America.

The problem with balancing the budget is that the federal budget is a fraud. The fraud really ramped up in 1969 with the adoption of the so-called “unified budget.” Under the unified budget, there is the “on-budget” side and the “off-budget” side, (they’re listed in that CBO table). The on-budget side is said to be discretionary. It is the side of the budget for which appropriations are made, where all spending must be accounted for. The off-budget side of the budget is said to be mandatory. This is the part of federal spending that is not subject to the budget process, where spending is “automatic,” where spending “must” be done. The off-budget side is where we find entitlements, and that’s where Congress must go if they’re ever to get control over spending.

There is one simple change to federal spending and budgeting that would force Congress to take the action needed to protect America from the runaway spending of one type of entitlement and it is this: require all entitlements that have their own dedicated taxes, like the payroll tax that funds Social Security and Medicare, to operate solely off of those taxes. Such entitlements would then become entirely separate from the rest of federal spending; revenues from dedicated taxes would not be used to pay for other programs. Every benefit would be paid for with revenue coming directly out of dedicated taxes.

That simple change need not stipulate any other changes, such as raising taxes, cutting benefits, and means-testing. But it would force some kind of action, for if the money hasn’t come in, the checks won’t go out. Medicare providers and retirees would have to wait for the tax revenue to come in.

Since 2010, Social Security has been cash-flow negative. That means the revenue from the payroll tax isn’t enough to pay benefits. So, monies are transferred from the “trust funds” back to the Social Security Administration to pay for benefits. In A Summary of the 2015 Annual Reports, the SSA reports: “The Trustees project that this annual cash-flow deficit will average about $76 billion between 2015 and 2018 before rising steeply.”

The funds being paid back to the SSA to cover benefits are being borrowed. Yet Democrats persist in telling us that Social Security doesn’t affect the deficit. If my remedy were enacted, we’d see an immediate improvement of $76B in the overall deficit; the feds wouldn’t have to borrow to pay back that $76B.

The change I’m suggesting is a hard sell. That’s because government would have to admit to a massive fraud; they’ve been lying to us for decades about the nature of federal finance. But remember that requiring Social Security and Medicare to operate solely off of cash-flow from their dedicated taxes is what’s supposed to happen anyway when the so-called “trust funds” run dry. But the “trust funds” are frauds. Most of the “content” of the Social Security “trust fund” isn’t from surplus revenue from the payroll tax … it’s from “interest.”

That “interest” is also a fraud. When money is borrowed in normal financial transactions, the borrower uses the borrowed funds to buy something, which has a marketable value, and which can be repossessed by the lender. If the SSA had used the payroll tax surpluses to buy, say, commercial real estate to rent out, they’d have an additional source of revenue. Conservatives wouldn’t like such an intrusion into the private sector, but at least the surpluses would have been invested. Instead, the surpluses were spent in the years they occurred on everything from homeland security to agriculture subsidies to earmarks for cowboy poetry festivals.

There’s another type of entitlement, programs that are not funded by their own dedicated tax, such as Medicaid and the ObamaCare subsidies. Such programs are pure welfare and their spending presents a different problem for Congress. From page 3 of the CBO report:

Federal spending for the major health care programs accounts for a much larger fraction — more than 60 percent — of the projected growth in mandatory spending: Outlays for Medicare (net of premiums and other offsetting receipts), Medicaid, and the Children’s Health Insurance Program, plus subsidies for health insurance purchased through exchanges and related spending, are expected to be $104 billion (or 11 percent) higher this year than they were in 2015.

That $104B in increased healthcare spending happens to be almost exactly the size of the increase in the projected deficit for 2016. The CBO “boosted its projections of federal outlays for Medicaid to reflect higher-than-expected spending and enrollment for newly eligible beneficiaries under the Affordable Care Act.” The red ink will be even worse if more states expand Medicaid under ObamaCare.

Spending for Medicaid and ObamaCare subsidies isn’t budgeted; it’s automatic; it just happens. If all the new Medicaid patients under ObamaCare have hepatitis C, AIDS, the Zika virus, Ebola, and sprained ankles, they’ll all get treated, the feds will borrow the money. (It’s an entitlement, he explained.)

If America elects a decent president this November, one of his/her first orders of business come 2017 will be urging Congress to balance the budget as soon as possible. But Congress will never balance the budget if they don’t get control over the “automatic” spending of entitlements. We need to dispense with the very ideas of “entitlement” and “mandatory” spending. All federal spending, including welfare like Medicaid and the ObamaCare subsidies, should come under the budget process. Americans can have as big a damned welfare state as they want as long as they pay for all of it themselves each and every year.

We’re still going into debt at a rate of about $1.5 billion a day, but Congress keeps postponing the reckoning, the fiscal Day of Judgment. There are many huge issues facing the voter this year, and the deficit is woven into each of them.

Jon N. Hall is a programmer/analyst from Kansas City. • (990 views)

This entry was posted in Economics. Bookmark the permalink.

11 Responses to The Ignored Campaign Issue: the Deficit

  1. Brad Nelson Brad Nelson says:

    The debt is the equivalent of the decadence of the Roman colosseum or of a state Roman orgy. That our civilization doesn’t care it is spending itself into oblivion, while they obsess over soda-pop fizz, is a decisive sign of a frivolous, ignoble culture. We are on the downswing as a civilization even while “Progressives” dream of a bright, utopian future where one can change one’s gender as one does a pair of slacks.

  2. Timothy Lane says:

    The deficit does come up during the campaign. The Demagogues like to boast (falsely, of course) that Obama has halved the deficit — which assumes that FY 2009 was all the fault of Bush, even though the budget wasn’t finalized (and the SwindleUs bill passed) until Barry Screwtape Obama took over.

    The way the trust funds work can be described thus: The Social Security (or whichever you choose) trust fund consists of Treasury funds that are sometimes moved into (or from) the general fund of the Treasury. They’re just separate items in a list, but all consist of Treasury funds.

    • Brad Nelson Brad Nelson says:

      Nothing funnier than listening to these politically evil and dishonest people on the Left screaming about Bush’s deficit, saying how harmful it is (and I agree). But when one of their own does it, you get kooks such a Paul “I’m a fraud” Krugman extolling the virtues of deficits. These are not good people. Anyone who runs a business or even just keeps a household budget knows that what we’re doing as a nation is “unsustainable” … ironically a word that never comes up regarding the deficit although it will about a plethora of environmental wacko stuff.

      • Timothy Lane says:

        Liberals always proclaim that their choices are a matter of principle — even though they routinely change them due to partisan changes. Thus their “principled” stance in favor of rejecting SCOTUS nominees in 2007-8 versus their equally “principled” stance against rejecting one now. Thus their repeated switches (based purely on “principle”, of course) for or against independent prosecutors depending on which party holds the presidency. They assume that no one pays any attention to their repeated changes — which is quite true of their voters.

      • Kung Fu Zu Kung Fu Zu says:

        Anyone who runs a business or even just keeps a household budget knows that what we’re doing as a nation is “unsustainable”

        Aahh. But if you had a printing press in your basement and did what our government did, you’d be in jail. They even used to execute counterfeiters.

        Wait a minute! You do have a printing press!!!

        • Timothy Lane says:

          There has actually been concern about very good copiers being used to copy paper currency well enough to fool clerks. It’s the best technique since Alves Reis counterfeited Portuguese currency with the same British printer who printed the legal currency. (He used it to try to buy control of the Bank of Portugal, the only national entity that could prosecute counterfeiting. A clever scam indeed, by a clever scammer. And the result for Portugal, in the end, was Salazar.)

  3. Rosalys says:

    Trust funds? What trust funds? There aren’t any trust funds! It’s ALL smoke and mirrors. It’s ALL a lie. And as for suggestions as to what should be done IF we elect the right president? Forget it! You’re delusional! It ain’t gonna happen! There is no way to dislodge thoroughly, evil, dishonest, thieving, lying, scumbag oligarchs, in league with Satan himself, without forcibly, physically removing them, either at the end of a bayonet or in a box. But, as Dr. Phil so often says, “The best predictor of future behavior, is past behavior.” Based on past behavior, I predict that nobody in a position where they are actually able to, is going to to a damned thing to hold these criminals accountable before it is too late, and we find ourselves in a bloody civil war or a brutal totalitarian state.

    I’m praying for revival, and I’m praying for courage!

  4. David Ray says:

    I still remember liberals crying about Reagan’s deficeit . . . all while forgeting about who did the spending and who’s tax cuts nearly doubled revenue.
    (Pssst. Hey dumb-ass liberals . . . it’s called the Laufer Curve.)

  5. nhhentai says:

    The marginalization of deficits as an issue has been more pronounced because of Trump, who has broken with Republican orthodoxy on several fiscal issues.

    • Timothy Lane says:

      True. Unfortunately, far too many other Republicans only talked about it anyway. And no Demagogues really care.

    • Brad Nelson Brad Nelson says:

      Or, as I say, “Eat, drink, and be merry (or Mary if you’re into that sort of thing) for tomorrow our children and grandchildren will pick up the tab.”

Leave a Reply

Your email address will not be published. Required fields are marked *