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Fiscal Sustainability Facts and Solutions

2010 April 29
by Ian Welsh
2008 Budget

2008 Budget

1) Social Security, at current rates, is not expected to run short of money before 2037.

2)The simplest way to “fix” Social Security, if you’re worried about a “problem” 27 years in the future, is simply to remove the contribution limit.  End of problem.  Period.  Social Security is not in crisis.

3) The reason politicians want to “fix” Social Security is to increase the SS surplus, so they can use it for other things.

4) Medicare has more serious issues.  However the simplest way to fix healthcare in the US is to move single payer, which would reduce healthcare per person by one-third.  It has worked for every other country in the history of the world that has done it.  It will work for the US.  Since we’ve admitted now that everyone deserves health care, and since it’s cheaper, and better, why not use the next round of healthcare to fix Medicare by fixing health care?

Global Military Spending 2008

Global Military Spending 2008

The unspoken entitlement is the US military.  The US spends about half the entire world’s military budget.  There is, actually, no one in the world who can invade or seriously threaten the US in any fashion. (Is Canada going to invade?  Mexico?) You can easily slash the military budget in half and still be so far ahead of any possible combination of enemies that it isn’t even close.

And yes, taxes are going to need to go up.  Here’s a simple fix—tax all income over 5 million at 90%.  It won’t hurt the economy (the best economy in America’s history was back when marginal tax rates were this high in the 50′s and 60′s).  It will mean that the rich, who got almost the entire bailout and whose irresponsibility threw the US into its worst economic crisis since the Great Depression will pay for it.

Oh, and change the estate tax to tax 80% of all inheritances over 5 million, too.  Remember, dead people don’t need money and 5 million tax free for choosing your parents right is enough of a head start.

There are plenty of other ways to raise money and cut costs.  For example, you can put  a tax on buying and selling derivatives or you can slap on a carbon tax or you can reform corporate taxes so corporations making billions don’t pay no taxes.

Finally, the bottom line is this.  The US owes its money in dollars.  The US can print money.  The US is not going to run out of money(pdf).  There may be some inflation but anyone who tries to tell you that the US won’t have enough money to pay SS or Medicare is simply lying to you.

17 Responses
  1. April 29, 2010

    I absolutely hate seeing government spending charts with SS included (and to a lesser extent Medicare). Neither of those are funded through income taxes, and they’re off budget items. Congress doesn’t debate each year how much money SS will get.

    And i know why the charts always include them. If they didn’t, it would be painfully obvious that we spend a disproportionate amount of our budget on the military (not even counting bringing all the stuff the DoD hides in other departments to light).

    Maybe we should start by teaching the American people that the “entitlement” programs are not connected to our income taxes…or our deficit…and start producing budget charts that show the real income/spending of the US.

  2. Ian Welsh permalink*
    April 29, 2010

    I considered using a “discretionary spending” chart, but didn’t for simplicities sake.

  3. Albatross permalink
    April 29, 2010

    Once again Ian chooses to ignore the dire threat posed to America by the ruthless Canadians poised on our northern border. With a population of 33 million, they could easily overthrow our nation by individually conquering and controlling only a dozen Americans apiece. With obesity rates a third lower than ours it would be simple for most Canadians to run down and subjugate Americans using only a glazed donut bait and a taser.

    But WHY would he do this? Why does Ian hate America so? This reporter has discovered that DESPITE an ethnic name suggesting that he is from Wales, Ian Welsh is ACTUALLY a Canadian!

    Bent on conquest, Ian Welsh seeks to mislead and confuse Americans with his misleading moniker and a blizzard of economic statistics suggesting that America’s bus has gone off the cliff, and the cliff itself is on fire. But the joke’s on you, Ian Welsh! Americans can’t UNDERSTAND economics, and most of them don’t know that Wales isn’t in Canada, so your efforts fail!

    We’ll be ready for your invading forces, and have carefully stocked up on donuts of our own in order to resist your bait. Do your worst!

    P.S. But if you DO conquer America, can you arrange for Tessa Virtue to subjugate me? Kthxbye

  4. Ian Welsh permalink*
    April 29, 2010

    Well, as I’ve mentioned to my US “friends” on occasion, 9/11 proved that we could destroy the entire US air force, on the ground, and obtain total air supremacy, since we had armed fighters over our cities long before you even had unarmed fighters over yours. Don’t think Canadian Secret High Command hasn’t factored that into our plans for the benevolent Canadian dictatorship.

  5. April 29, 2010

    Re: Single payer

    Removing the for-profit insurance companies from the equation would lower health care costs by about a third, even if there were no other savings.

  6. beowulf permalink
    April 29, 2010

    Eugene Levy spilled the years ago Ian, we’re on to you.
    http://en.wikipedia.org/wiki/The_Canadian_Conspiracy

    As for tax policy, we could raise more revenue (and cause less public outcry by appearing so confiscatory) if we just eliminated the loopholes and widened the tax base at the existing rates. The biggest one is unrealized capital gains.
    Two supply side economists, Art Laffer and Stephen Moore, propose in a new book (Return to Prosperity) that the US start taxing unrealized capital gains as part of a flat tax reform.

    Since 85% of household wealth is held by the top 20% of wealth (400,000 and up in net assets) and half of that is held by the top 1% families in wealth holdings ($6 million and up in net assets), you only reduce the tax revenue by 15% if you exempt the first $400k in annual capital appreciation from taxation. I believe Laffer and Moore suggested 5 year averaging of capital gains to smooth out steep drops and increases, but to use one year’s numbers— in 2009, total household wealth increased $4.9 trillion, if we tax only the top quintile of wealth holders, that leaves $4.16 trillion, whether you tax unrealized gains at the current 15% capital gains rate or at the 35% rate for ordinary income, you’d have raised $624 billion or $1.5 trillion respectively. Either way, its a river of money and you haven’t raised marginal tax rates a single point.

  7. April 29, 2010

    I’m still laughing at the thought of Ian being bent on conquest.

  8. April 29, 2010

    ‘The reason politicians want to “fix” Social Security is to increase the SS surplus, so they can use it for other things.’

    I quibble. The trust fund will not be depleted before 2037, but the moment SS draws on the trust fund at all, every single penny drawn has to come from general tax revenue – the trust fund has to be paid back.

    There is no “surplus”, there is only a government liability that Obama et.al. seek to wipe out in a limited, tailor-made default, by reducing benefits and increasing payments.

    Yes, nominally the trust fund will increase again, but if they do not intend to honor those IOUs now (by ending the Bush tax cuts, and taxing the wealthy to reclaim the monies expended under Bush), there is no prospect of them honoring the IOUs in a decade or two.

    What is amazing is that Greenspan has already played this card, yet Obama will likely get away with playing it again. There is no limit to the stupidity of the American electorate, which has learned nothing in 30 years of being looted.

  9. April 29, 2010

    “Congress doesn’t debate each year how much money SS will get.”

    But they do. It is a debate by omission – if Congress does not plan for increasing tax revenue to repay the monies that were borrowed from the trust fund to finance excessive security spending and giveaways to the wealthy and the bondholders, then Congress is – quite intentionally – setting the stage for a targeted default on trust fund obligations to become inevitable.

    It is a de facto default if you postpone repayment indefinitely, it just is not obvious until the indeterminate payback day arrives.

  10. hipparchia permalink
    April 30, 2010

    i’ve been hoping for ,i>years that canada would invade the us and mexico… one ginormous country from pole to equator, and it would have both single payer and mexican food.

  11. Ian Welsh permalink*
    April 30, 2010

    lol Hipparchia. Though I’ve never been able to stand refried beans. [shudder].

    Really, the hard blue states should just separate, and apply to join as provinces. But we ain’t taking the rest. [shudder]

  12. April 30, 2010

    b.,

    I understand and that’s a huge problem that needs to be addressed since politicians keep telling Americans that SS is in trouble but not telling them that it’s in trouble because the politicians went and frittered away the collective savings of a generation.

    But, the conversation needs to start with separating SS from the yearly budget. That should be obvious since anyone who gets a paycheck can see that the monies are collected differently…but this being the US, it isn’t. The political meme that SS is creating a deficit that must be addressed has to be killed.

    And then we replace it with the meme that every politician over the last 30 years or so has effectively stolen the savings of hard-working Americans.

    I’ve dreamed of Michigan becoming a Canadian province for so long…

  13. beowulf permalink
    April 30, 2010

    Lex,

    Medicare is both on-budget and off-budget. Part A (hospital coverage) is off-budget in that it has a dedicated funding source so Congress doesn’t have to make annual appropriations. However Part B (providers) and Part D (drugs) are funded by recipients (25%) and general revenue appropriations (75%). Part C (Medicare Advantage) is funded out of the Part A and B trust funds (I forget if D has its own trust fund or just comes out of Part B’s).

    As a consequence, doctors are at risk every year of Congress cutting their reimbursement rates, hospitals are not. It’d be better if Medicare (ideally, of course, “Medicare for All”) had a dedicated funding source for everything. My vote would drop the Part A payroll tax and fund the whole shebang through a bank transaction tax.
    http://www.ianwelsh.net/taxing-the-poor-to-bail-out-the-rich/#comment-6463

  14. April 30, 2010

    Thanks, beowulf. I didn’t fully understand who Medicare is funded; i’m glad that i do…and didn’t even have to look it up.

    However, i guess i do need to look up the breakdown between the two parts in order to see the proportions i’m looking for, i.e. what percentage of our budget (and hence deficit) is actually falls into the DoD’s clutches.

  15. beowulf permalink
    May 1, 2010

    You’re welcome.

    “what percentage of our budget (and hence deficit) is actually falls into the DoD’s clutches.”

    The U.S. Department of Defense budget accounted in fiscal year 2010 for about 19% of the United States federal budgeted expenditures and 28% of estimated tax revenues. Including non-DOD expenditures, defense spending was approximately 25–29% of budgeted expenditures and 38–44% of estimated tax revenues. According to the Congressional Budget Office, defense spending grew 9% annually on average from fiscal year 2000–2009.
    http://en.wikipedia.org/wiki/Military_budget_of_the_United_States#Military_budget_and_total_US_federal_spending

  16. May 1, 2010

    Lex,

    I have no objection to any more emphasis that SS is not welfare, is pre-paid, and is neither part of the deficit nor part of the discretionary budget. But frankly, all those facts are known, and nothing on Earth will make them any more relevant to corrupt politicians and an electorate that demands to “keep the government out of Medicare” but cannot muster the energy to keep their government out of Social Security, despite their parents’, their children’s, and their own benefits depending on paying attention.

    In a related note:
    http://fdlaction.firedoglake.com/2010/04/30/the-progressive-movement-is-officially-dead/

    I have stopped reading TPM a long time ago, but maybe there is a die-hard who wants to start a bamboozlement watch on the Bamboozlement Watch, just for the record. Has Digby taken a break from republican spin deconstruction and Peterson refutations yet to take a look at the front porch of the Democrit House, where Durbin, Reid, Oszag, Obama are setting up her retirement for barbeque?

    For all their flaws, I am beginning to see the tea party movement to be intellectually and motivationally superior to the so-called career progressives and organized liber. Whatever the deficiencies of strident voices like Cockburn, Floyd, Silber, no decent man can do much wrong by directing scorn and loathing towards career politicians, presidents, and careerist judges.

  17. May 2, 2010

    Yes, yes, and yes!

    Maybe the country can pick itself up off the floor from the freaking crack party we had while W was in office (and that to some extent Obama has tried to keep going) and return to it’s senses.

    But then again maybe not. Sometimes it seems we’re the horse you can lead to water, but you’ve got to beat it with a 2×4 to get it to drink – even when it’s dying of thirst.

    And we haven’t been beat up enough – yet.

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