Government Policy and Budget Discussion Thread (no politics)

[Cincydawg]

Yeah, the landlords have bills too, and so do cities and states, which will be the next crisis.  The loss of tax revenue for ATL must be enormous.

Landlords usually can allow a bit of leeway to keep tenants in place for a while, a month or three depending.  I'm hoping they can let some restaurants slide and hopefully make it back up in a year or so.

[betarhoalphadelta]

Okay, since @medinabuckeye1 brought this over here, I'll post the analogy to describe the SSTF and then explain why I talk about it the way I do...

Ok... Let me go on then...

Assume that I'm a new college grad in my early 20s. I decide that for the purposes of my life, I'm actually going to get two jobs instead of one, because I have a particularly interesting "side hustle" that I can do for fun in addition to my career.

So I get two jobs.

• The income from Job A goes into my left pocket. I define Job A as the one that pays the bills, i.e. my "mandatory spending".
• The income from Job B goes into my right pocket. That money becomes my "walking around money", i.e. all my discretionary spending.

Now, I'm a new college grad and can choose to live pretty spartan, and my mandatory bills don't consume all my spending. Prudently, I want to save that money and plan for the future. I may one day get married, have kids, and I'm sure my bills will go up significantly.

Now, where do I save it? I've got a great idea! My right pocket is offering savings bonds, and promises that if I lend the excess money from my right pocket to my left pocket, it'll promise to pay me back with interest when I need to draw down on those assets.

My right pocket is a bit of a spendthrift. And flush with not only the cash from Job B, but all the excess leftovers from Job A, it spends and spends and spends. It keeps creating bigger and bigger promises to the left pocket, but hey, I'm good for it, right? I have excellent credit!

Years and years go by. I get married, have kids, my conditions change and I find my left pocket needing to draw down those assets.

So what do I do? The way I look at it, I have four options:

• Work more hours at Job A. Obviously if my mandatory spending goes up, maybe I should be bringing in more money into left pocket. (This is akin to raising the payroll tax or removing the cap to allow the SSTF to keep growing).
• Work more at Job B, since you need to start paying back left pocket. (This is akin to raising income taxes to pay back the SSTF.)
• Quit spending excess money out of right pocket. It's time for some serious austerity measures! Now instead of having walking-around money, Job B can go pay back Job A. Sure, my standard of living goes down, but at least I'm being fiscally sound. (This is akin to Congress reducing discretionary spending, which we all know ain't happening.)
• Find some new source of money... Hey, maybe right pocket can borrow money from the Chinese to pay back left pocket. Maybe right pocket can max out its credit cards to pay back left pocket. I mean, this causes my overall debt load as a person to get much, much worse, but at least left pocket is getting paid back! (This is akin to the federal deficit increasing much more quickly than it would without a growing SSTF.)

But you're right... None of right pocket's spending is responsible for left pocket needing to draw down the assets it has built up.

But that doesn't change the fact that every one of #1 through #4 is a bad move for @bwarbiany -- who wears the damn pants.

Now, the other option would have been if left pocket had been loaning YOU the excess money over the years, @Cincydawg -- it would have meant that right pocket didn't have as much hidden income to overspend in the past, but it also would mean that it wouldn't require more earning power from @bwarbiany to pay back the assets to myself.

The American taxpayer thinks it has an asset to draw down on, in the SSTF. But that asset comes from our own tax dollars (or deficit borrowing), so it's not like "we" are helped by some magical trust fund that's full of money. The SSTF is a claim on future taxpayers. The only difference is that it has to be funded from income taxes rather than payroll taxes. If you want to call that an "asset", well as one of the non-retired guys paying those income taxes, it certainly seems like a burden to me.

So Congress has not "raided" the trust fund, or anything like that. But the money has been spent. It's been spent by design. That's exactly how the system was set up.


The reason I think this is bad is because Americans like to believe that there's a meaningful relationship between our income and our spending. Naturally we have common prudent ideas about spending within our means, about making a budget, about avoiding debt, etc. We often try to apply the ideas that have to be followed for a household budget to the national budget. And sometimes when you have multiple sources of income and multiple avenues of spending, you treat them differently for very important reasons, such as my Job A / Job B and left pocket / right pocket comparisons above. 

Social Security is a highly popular program with tons of political support. So even when Social Security was running a surplus, people didn't really mind it because they saw it as "ensuring the future stability of the program." And the very idea of a trust fund (and calling it that) makes it easy to support... "I'm putting extra money in there right now to be sure that social security is around when I retire--because it's saving that surplus."

Much of the rest of the government is up for debate. We hate spending [on other people, not on ourselves] and we hate income taxes [on ourselves, not on other people]. Congress knows that people like getting things from government and hate paying for it, so there is a natural inclination to try to spend as much as possible, and tax as little as possible.

So what did the social security surplus do? It allowed Congress to spend money that was politically popular to spend without getting that money from income taxes which are unpopular. And the whole time, it looked like Social Security was being prudent by amassing a "trust fund", but all that trust fund contained was promises. Promises ARE assets, of course, to the Social Security program. But those promises are claims on the rest of us, not a big pile of money.

Money is fungible. So at the end of the day, it actually doesn't matter whether the federal government is getting it from the income tax, from the payroll tax, from capital gains taxes, etc. But politically it REALLY matters a lot.

Which is why those of us who understand the nature of the SSTF call it things like "an accounting fiction" despite the fact that those bonds are real and WILL get repaid. The money to repay those bonds has to come from somewhere, and it'll be our taxes.

[CWSooner]

https://www.thenation.com/article/archive/tom-dispatch-america-defense-budget-bigger-than-you-think/

It’s really $1.2+ trillion when you include everything that’s not accounted for in the base budget. Absolute insanity.

The $1.2 trillion figure is just as deceptive as the $554 billion base figure.
For example, counting the entire DHS budget as part of defense spending is just not correct.  Counting the Coast Guard seems semi-justifiable (I don't know where it's budget was housed before DHS was formed--probably the Treasury Department), but airport security certainly isn't.  And I don't know if the civilian contractors could be replaced more cheaply with government employees.  Government employees typically do not get paid less or work more efficiently than their civilian equivalents.
And this gets back to counting apples to apples.
I've taken exception to the assertion that our defense budget exceeds that of the next 15 countries combined.  Two charts that I assume are apples-to-apples comparisons indicate that that is not even close to being the case.
As I said earlier, I'll stipulate that there's fraud, waste, and abuse in our defense spending.  Like every government program, there's some large fraction of the spending that is just going to line people's pockets and/or get politicians re-elected.  The only fix I can think of for that is term limits.
I also stated that it is entirely possible that our force structure is not what it ought to be.  But that IS The Nation you are citing.  I'm not sure what level of defense spending they would approve of, but I'm pretty sure it wouldn't be enough for us to defend our national interests.
I do think that the F-35--which The Nation cites in that article--is a pig that we're just going to keep putting more lipstick on.  But I might be wrong about that.  Like every government program, it's over budget and behind schedule.  Will it ever be an effective weapons system?  I suspect not, but maybe it will.  I believe that the Israelis have used it in combat and they seem OK with it.  But maybe they have to say that to keep us happy.
But what sort of defense structure do you want?  Aren't you calling for us to go to war with China?  That's certainly going to cause defense spending to increase.

[Cincydawg]

My idea is to reevaluate our defense commitments overseas (which does not mean abandon them all).  That would be my first step, rather than just cutting spending and still having commitments.  I don't think we can maintain trillion dollar deficits indefinitely.

I don't think term limits would do much in reality.  

I had a notion that we'd set tax rates each year depending on the budget that passed.  If the budget called for say $5 trillion in spending, we'd have $5 trillion in revenue (calculated), not the same as a BBA.  That has problems of course, not least of which is "Hauser's Law".

But if "we" saw our taxes go way up, "we" might be more interested in seeing spending get cut for real.

[CWSooner]

. . . Biden is going to get absolutely clobbered by Trump. The guy can barely speak properly. He CLEARLY is showing sings of early stages of dementia. I'm not even trying to be funny. There is something obviously wrong there. I feel bad for the guy. He's freaking 78 years old after all. If the guy actually got elected (which he won't) he would be 79 on his first term with 4 more years to go. That job ages you like no other job. He likely wouldn't make it through.

Joe Biden--never, not on his best day, the sharpest knife in the drawer--has deteriorated rapidly over the past 2-3 years.  My 87-year-old mother, who is going downhill pretty rapidly in her mental facilities, is sharper than Biden.

[OrangeAfroMan]

Neither presidential candidate can speak like a lucid human being.  This is our reality.

[CWSooner]

On Social Security:

On the other thread @bwarbiany did a great job of explaining it.  I want to go back a bit further. 

The program was passed in the 1930's under FDR.  When it became effective they IMMEDIATELY started paying benefits.  Think about that for a minute. 

A lot of people think that their money that was paid into it was "saved" and will be paid back to them when they retire.  This is just fundamentally untrue.  On DAY ONE, SS started paying benefits. 

One of the original points was to try to encourage old people to retire so that younger people (who had families to support) could get jobs. 

From then to now there have been taxes charged and benefits paid.  Sometimes at a surplus, sometimes at a deficit.  When there was a surplus, as @bwarbiany explained, the surplus was "loaned" to the Federal Government which was spending more than it was taking in and they just stuffed the SS fund with IOU's. 

What to do about it? 

There are a multitude of issues to confront but the big ones are these:

• The population of elderly/retired people is exploding.  The Baby Boom ran from 1946-1964.  Those people are now 56-74.  Worse, following the Baby Boom the birth rate tanked.  Here is a chart of births by year in the US.  During the 1946-1964 Baby Boom there were ~ 3-4 Million births per year peaking in the late 1950's and early 1960's when there were at least 4.2M births every year from 1956-1961.  More on births below. 
• The number of native-born Americans in their prime earnings years is comparatively very low.  On AVERAGE* people earn the most from about the ages of 35-50.  Those people, today, were born in 1970-1985.  For those years births were never higher than 3,760,561 (1985).  *Average:  Some people earn a lot younger or older but on a population-wide comparison this is a solid figure.  People younger than 35 are generally still getting established and people older than 50 start to retire, die, or reduce their productivity for other various reasons. 
• Medical Expenditures:  Technically Medicare is separate from SS but it all effectively works from the same sources and Medicare has an unfunded liability that is even larger than SS.  Years ago when they added Rx coverage to Medicare they didn't raise the tax.  John McCain railed against that.  The rest of the politicians (both sides) just did it anyway.  From a responsibility standpoint it was insane.  You can't pay for something with nothing but they just stuck in in an IOU and kicked the can down the road and the voters basically applauded. 

Birth rates:
From the link I shared, birth rates (per 1,000 pop) were over 30 back in 1910.  Prior to that they were even higher.  Back in the 1800's most Americans were farmers and LOTS of kids died of diseases that we don't even worry about today.  In those days, it was not at all unusual for a family to have 6, 8, 10+ kids.  As we industrialized, that slowed down.  It slowed gradually through 1925 (the chart is in 5-year increments) then plummeted during the Great Depression of the 1930's. 

The birth rate fell from 30+ in 1910 and 25+ as late as 1925 to Just over 30 in 1930 and <20 in 1935 and 1940.  In 1945, the last year of WWII the rate was still just over 20.  During the Baby-Boom of 1946-1964 it got as high as 25.3 (1954 & 1957).  The birth RATE peaked, as noted, in the early-mid 1950's but the raw NUMBER of births peaked a bit later due to growing underlying population.  Thus, the peak in number of births was not until later in the 1950's up through 1961. 

Now I certainly don't want this to become a political discussion of abortion and birth control and it doesn't have to.  I'm bringing them up just to illustrate what happened, not to comment on whether it was good or bad. 

The Birth Control Pill was first available in the US in 1960.  Griswold v Connecticut (US Supreme Court Case in 1965) banned State Laws prohibiting contraceptives (and set the stage for Roe v Wade a few years later).  Note, politically, that this was not Griswold v Alabama, it was Griswold v Connecticut.  My point is that these laws were not some Southern bible-belt thing, they were pretty common nationally. 

My point is that prior to about the mid-1960's the only reliable way that a woman could avoid pregnancy was to abstain from sex.  People tried other things such as condoms and the rhythm method.  That generated an old joke:
Q: What do you call a woman who uses the rhythm method for birth control? 
A: A mother. 

Since women couldn't reliably avoid pregnancy without abstinence and for societal reasons related to that, most people back then got married and had kids very young.  Among people who graduated from HS up until about the late 1950's it was extremely common for the women to get married within a year or two of HS graduation.  There was a draft then so a lot of the guys either got drafted, volunteered for the draft (2 years instead of 3) or enlisted (3 years) then came home and got married. 

Various factors but mostly the widespread availability of reliable birth control enabled women to choose to delay having children and consequently the birth rate flat out plummeted.  Remember that it was >25 as late as 1957.  From 1957-1968 the birth rate dropped every single year and by 1968 it was just 17.5.  Note that this is still pre-Roe (1973). 

The birth rate then bounced around between 17.2 and 18.4 through 1971 then fell off a cliff in the mid 1970's.  From 1973-1976 the birth rate was <15.  I was born in 1975 which had the fewest number of births (3.1M) since before the Baby Boom and the lowest birth rate (14.8) until the late 1990's. 

The birth rate started climbing after the mid-1970's.  My guess is that was a result of those women who delayed family in the mid-60's to mid-70's started coming back. 

Why all of this matters for SS?
This all matters for SS because, as was explained above, there is no magic pot of money to pay benefits.  Instead, the program is, effectively, simply a wealth transfer from working-aged people to retired people.  Further, as I covered above, people generally are the most productive from about 35-50.  The problem for the system is that there just aren't a lot of 35-50 year olds today comparatively. 


Births in 1989 finally hit 4M again for the first time since the Baby Boom.  Since then births have run right around that number.  The rate continues to fall (or stagnate) but the raw number is growing (or at least stable) due to growing population.  The problem is that those 4M people born in 1989 are still only 31.  They will not hit their most productive age for another few years and Baby Boomers are still hitting retirement age at 4M+/year. 

They system is going to be a mess until the Baby Boomers start to die off in numbers.  The oldest of the Baby Boomers are now 74 while the youngest are only 56.

Great layout, Medina.
I read recently that our native-born birthrate has fallen below replacement level.  Child-bearing-age Americans aren't having many kids.

If it weren't for immigration, we'd be in population decline.

[OrangeAfroMan]

we'd be in population decline.

I don't see the problem.

[CWSooner]

My idea is to reevaluate our defense commitments overseas (which does not mean abandon them all).  That would be my first step, rather than just cutting spending and still having commitments.  I don't think we can maintain trillion dollar deficits indefinitely.

I don't think term limits would do much in reality. 

I had a notion that we'd set tax rates each year depending on the budget that passed.  If the budget called for say $5 trillion in spending, we'd have $5 trillion in revenue (calculated), not the same as a BBA.  That has problems of course, not least of which is "Hauser's Law".

But if "we" saw our taxes go way up, "we" might be more interested in seeing spending get cut for real.

Andrew Mellon, Treasury Secretary for Harding and Coolidge, believed that taxes that were too high would simply not be paid.  Ultra-high earners would find legal (or illegal) ways to shelter their income from too-high taxation.

He urged and Congress passed huge income tax reductions from the high rates that had been imposed to pay for the Great War.

Speaking in terms of marginal rates, the bottom rate had been 25% on low earners and the top rate had been 75% on the highest owners.  That was reduced to 5% and 24% respectively.

Mellon argued that lower rates would provide increased incentive to invest in new technology and would produce increased revenue to the federal government.

Despite the reduced tax rates, wealthy (more correctly, "high income") Americans (our AP textbook disparagingly calls them “Mellon and his fellow millionaires”) paid much more than they had before.

Taxable income:  <$10,000/yr >$10,000/yr         >$100,000 Total
1921         $155 million         $194 million         $69 million $349 million
1926        $32 million         $361 million         $255 million $393 million

The blue figures are a subset of the column immediately to the left, so they don't show up in the "Total" column.

Causation is always hard to prove in complicated systems, but the economy grew rapidly, the very rich paid much more in taxes than before, everybody else paid much less, federal spending decreased 50%, and the majority of the Great War debt was retired.

I'm not arguing that our tax rates should be lowered.  But beyond a certain point, higher tax rates result in lower revenues.

I think we have gotten spoiled on handouts, or at least the promise of handouts, and at the same time are unwilling, perhaps even unable, to pay for all the nice goodies our elected representatives tell us that they--in their generosity--will be providing.

[CWSooner]

I don't see the problem.

Do you believe that because you don't see it that therefore there is no problem?

[OrangeAfroMan]

I think more population creates more problems.

[Mdot21]

The $1.2 trillion figure is just as deceptive as the $554 billion base figure.
For example, counting the entire DHS budget as part of defense spending is just not correct.  Counting the Coast Guard seems semi-justifiable (I don't know where it's budget was housed before DHS was formed--probably the Treasury Department), but airport security certainly isn't.  And I don't know if the civilian contractors could be replaced more cheaply with government employees.  Government employees typically do not get paid less or work more efficiently than their civilian equivalents.
And this gets back to counting apples to apples.

You have to include the Department of Homeland Security and everything else they did. That’s all legitimately a part of defense. It’s not included because if people knew the real number they’d lose their shit. Most Americans are pretty dumb unfortunately.

[Cincydawg]

Most Americans think most other Americans are dumb.  I worry about the one's who don't in fact.

It's like how 89% of folks polled claimed they were better than average drivers.

[Mdot21]

Most Americans think most other Americans are dumb.  I worry about the one's who don't in fact.

It's like how 89% of folks polled claimed they were better than average drivers.

Have you seen Tiger King? See the people in that show, aside from Joe Exotic. That’s your average American.