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The Real U.S. Deficit

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The Washington Post recently reported the total liability of the United States government has reached $54 trillion. This figure includes the federal deficit, as well as the unfunded portions of Medicare and Social Security. $54 trillion is a large number in both absolute and relative terms — US GDP in 2008 will come in around $14 trillion. To cover this liability we will need to make at least one of the following unsavory policy choices:

1. Print money (inflate the dollar)
2. Borrow more (upward pressure on cost of capital for everyone in the US)
3. Raise taxes

4. Cut spending

The reality is, we are going to be stuck with some of each. But the longer our country waits to address this (Presidents Clinton and Bush have done little) the more of this economic burden will be borne by our children. This sad situation should be seen for what it is — stealing from our youth to pay for our own conspicuous consumption. We all deserve blame for this and it needs to be fixed.

Its not pretty...So how does all this jive with our fine presidential candidates? John McCain has proposed a series of tax cuts including the renewal of the Bush tax cuts. The trouble with these cuts is that they are not accompanied by corresponding spending cuts. Republicans like to make the argument that tax cuts will actually increase tax base in the future. Unfortunately, the truth is likely more muddled. And since McCain appears inclined to spend more money on Iraq and national defense, a McCain administration seems destined to drive our country, and our children, deeper into debt.

Sadly, Barack Obama's economic plan is scarcely better. While Obama proposes keeping the inheritance tax and repealing the Bush tax cuts on the wealthy, his left-leaning campaign promises on social issues such as healthcare and education will likely be expensive.

Our country's best hope at this point is that McCain and Obama are simply making populist promises and when one or the other is actually president he will show much more fiscal discipline than has heretofore been exhibited on the campaign trail.

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About Jeremy Berman

  • jamminsue

    Bread and Circus or something to demonize (for example Communism and Terrorists) is/has been the program of each President, and nominee in my memory. I first voted in the 1976 Election. It seems to me this idea is how power has been kept since Roman times. Why should things be be any different now?

  • jamminsue

    PS: What an awesome pic!

  • Cannonshop

    Exactly, jamminsue. Exactly. Though I’d submit to thee that Communism doesn’t have a real good history of long-term improving people’s lives. It’s a bit too idealistic and would work pretty well for bees, but humans are apex predators and even forbidden meat or the more brutal expressions of that, they behave in predatory ways. (when you make all men equal, who keeps them that way? someone MORE equal, that’s who.)

    But “Bread and Circuses” is dead-on, especially the last forty years or so.

  • http://www.sitejabber.com Nick First

    Bread and Circuses is a great way to put it. Communism clearly isn’t a solution to anything but disabusing populaces of prosperity. However, in this new era in which developed countries no longer need to consume the majority of their income to survive, perhaps a new paradigm of voluntary moderation of consumption is at hand. But what policies might encourage this is a blog post for another day….

  • Jonathan Scanlan

    Reasonably balanced take. What I might disagree with is your tendency to see extra spending on education as a negative.

  • http://theugliestamerican.blogspot.com Andy Marsh

    I was just having a conversation with someone that works for a different company here in my building. The company he works for sells all kids of things to the military, fire and police all over the country.

    Our conversation centered on what’s happening in his company right now. You see, it’s the end of the fiscal year and the military is spending money like they’re not gonna get any more.

    Back in the day, as they say, when I was a supply PO in the USN we did it to. This is how it works in the navy, or at least how it used to work and based on my conversation, how it still works.

    Every squadron gets a budget and within those squadrons are commands that get a budget and within those commands are divisions that get a piece of that budget. If they don’t spend their piece, they get a smaller piece the following quarter. So, at the end of the quarter, they spend. they buy things that they don’t necessarily need just to make sure that their budget doesn’t at least go down. And at the end of the year it gets really silly with spending. The end of the quarter and the end of the fiscal year used to be like Xmas for us!

    As long as this kind of mentality continues within the govt, things will never change.

    And anyway, doesn’t the congress actually right the budget? Isn’t that how all that pork gets in there in the first place?

  • Cannonshop

    Yes, Andy, Congress writes the Budget-but when the man in the white house is a Republican, it’s his fault.

  • http://theugliestamerican.blogspot.com Andy Marsh

    Thanks for clearing that up for me Cannonshop. I was just a little less confused than I am now…but that’s typical for me!

  • http://www.sitejabber.com Nick First

    To clarify my stance on education – I do not see education spending as negative, but rather, I see a need for additional spending to be offset by a commensurate increase in taxes or cuts in other spending programs. In the long run, education spending can help the economy by increasing productivity.

    On the budget process – in its simplest form, it is my understand that the White House puts together the initial budget based on the demands of the various executive departments (defense, treasury, etc) which is then sent to Congress, which has its own budget process (where the pork is put in through the various committees). After Congress passes a budget it then goes back to the President for signature. More information here.

  • Cannonshop

    On budgeting: Agencies do NOT like to see their scope reduced. They will, thus, always inflate their numbers by the method that Andy describes in post #6. Additionally, each agency lobbys congress, as do the “Unions” that represent their non-military, or non-Law Enforcement, employees. “cuts” therefore, in the language of Washington D.C., are usually reductions in the rate of expansion in spending, or freezes to the funding level. This does NOT lead to balanced budgets, and it’s the job of Congress to control the purse strings-the budget game goes “The Executive proposes, Congress Disposes.”-in theory.

    In Practice, more than a little bit of Party Politics is involved, along with local earmarks and general porkiness…but ’tis Congress that is supposed to decide which, if any, of the Executive’s proposals actually get funded.

  • bliffle

    The big threat to the USA economy is the bull-headed determination of the neo-republicans to prop up the Potemkin Capitalism that they’ve instituted in this country through the past 15 years of neo-republican congressional domination and 7 years of nitwit Bush policies.

    Now that the facade of unfettered opportunism is cracking, exposing the fact that there is an Invisible Hand holding a gun to our heads while the other Invisible Hand picks our pocket on behalf of the creepy likes of AIG and cohorts, maybe people will wake up to the fact that all that brouhaha about the wonders of the Free Market were nothing but distracting lies.

    Really, all their intent was, from the beginning, was to loot the public treasury an behalf of privatized piracy.

    That’s why they needed deregulation: so that their predations could run free. So that they could freely steal business from their smaller competitors. So that they could dictate terms to their customers.

    So that their monopolies would proceed unimpeded.

    Who wanted to allow those pirates to run free?

    Every person who swore allegiance to de-regulation. Every person who alibied the excesses of the Bush corruption machine, starting with the notorious widespread corruption in Iraq and Afghanistan.

  • bliffle

    Incidentally, if one is to include the ‘unfunded liability’ of Social Security into the debt, then one must include all other unfunded liabilities as well. Anything less would be inconsistent, right? If ONLY SS liabilities are included, but others excluded, then the exercise is nothing more than to unfairly highlight SS, possibly preparatory to looting the SS Fund to finance, say, the rescue of AIG.

    Thus we will have victimized people who put their monthly portion into a fund that is subsequently looted by pirates.

    So, where should we begin with other unfunded liabilities?

    How about the unfunded liability of the Iraq occupation and exploitation? Have any of the future expenses this runaway administration has committed to been funded? No. Only this years operating costs, and even that has been taken ‘off budget’.

    How about the unfunded liability of all the contracts that the federal government has made with private contractors? All backed by “full faith and credit”, yet future costs committed to are NOT included in that debt figure. yet, they are “unfunded liabilities” just as surely as SS.

    In fact, those “unfunded Liabilities” are even more treacherous than SS because there is no paygo source for them, unlike SS which IS financed by recurring income.

    Including Social Security “unfunded liabilities” is A TRICK designed to distract your attention from other severe problems in the USA economy AND to prepare you for a big swindle: looting of SS retirement funds.

    Looting old peoples meager funds is an old trick that’s been used by crooked politicians throughout history.

    Read up on the “Bracero” activity that occured starting in 1942 and lasting about 20 years, that imported mexican workers to California to replace guys sent off to the war. The banks that issued their pay deducted “retirement” funds that they, supposedly, set aside for the mexican workers, but which they never paid!

    Don’t be fooled by talk of “unfunded liabilities” in Social Security. You are just being set up to be fleeced.

  • http://www.sitejabber.com Nick First

    The $54 trillion number covers other unfunded liabilities including Medicare, which to my knowledge, is the largest single US unfunded liability.

  • bliffle

    The FNMA liability is said to be $500trillion.

    Where is that ‘funded’?

    It looks liek an “unfunded liability” to me. What does it look like to other people?

    Where is the $85billion for AIG funded? Or is that another “unfunded liability”.

    And is that $85billion the end of the stake in AIG? What about when their “credit default swaps” (which I warned about months ago) come due?

    “credit default swaps” are even less regulated than insurance policies that they replaced. When are we oing to regulate Insurance Co.s AND decree that CDS’s are just that: insurance?

    Another thing about AIG: this is the modern ripoff Holding Company scheme whereby a holding company OWNS the operating company and rips off their profits but never coppers their losses. That’s why AIG failed: they had NO retained earnings such as any well-run company would have.

    Have you seen any proposals to BAN holding companies?

    We’ve done it before because this gag goes back hundreds, maybe thousands of years (I’m guessing that the ancient Sumerians did it).

    Holding companies were particularly flagrant in the 1880s and 1920s and we’ve gotten rid of them before. They’re a blight on the business world.

  • http://www.republicofdave.com Dave Nalle

    Bliffle. Do think for a minute. How on earth could FNMA possibly have a liability of $500 trillion? That would require it to have loaned $1.7 MILLION dollars to EVERY man woman and child in the US, or perhaps they loaned $83,000 to every man woman and child in the WORLD?

    Seems unlikely when the total value of all the privately owned real estate in the US is less than $30 trillion.

    Want to maybe rethink those figures? Or perhaps tell us what lunatic you’re getting that figure from.

    Dave

  • http://www.sitejabber.com Nick First

    The $54 trillion figure came from the Washington Post piece I linked to in my article above. But you can also read it in Forbes

  • http://www.sitejabber.com pianoman1

    Some good points. The real pork we have to tackle is in the entitlements — the earmarks and so forth while often bad, silly, and irresponsible and the other increases in spending are all peanuts in comparison to Medicare and Social Security. When you think about the real deficit, herein lies the real problem.
    Reform of these programs is key. President Bush tried and failed because it’s the sacred cow in politics. Clinton had an opportunity but squandered it. I imagine it’s most likely a Democrat would be able to reform this (in much the same way Nixon could go to China), but Senator Obama and has not shown much seriousness in dealing with these questions, nor has Senator McCain.

    That said, in another blog post, you say it would be a good idea to cut corporate taxes given current economic conditions. Then in this piece you praise Senator Obama for some of his tax increases. Herein lies a problem. Senator Obama’s tax increases would in fact affect small businesses quite a bit. Why is this?

    75 percent of individual income tax filers in the “wealthy” top 1 percent that the Democrats always blame are, in fact, small businesses.

    And why is this? Not my words. From a Wall Street Journal op-ed: “In order to avoid high corporate tax rates and the double taxation of dividends, small business owners have increasingly filed as individuals rather than corporations.”

    Of course, Senator Obama is proposing to raise both of these taxes as well.

  • Cindy D

    Nick? I am puzzled.

    The reality is, we are going to be stuck with some of each. But the longer our country waits to address this (Presidents Clinton and Bush have done little)…

    “Clinton presided over the longest period of peace-time economic expansion in American history, which included a balanced budget and a reported federal surplus.[6][7] Based on Congressional accounting rules, at the end of his presidency Clinton reported a surplus of $559 billion.

  • troll

    …in the face of the socialization of loss that we are witnessing I find it hard to sympathize with those complaining about ‘entitlements’

  • http://www.sitejabber.com Nick First

    pianoman1: you’re right that Obama and McCain’s tax packages both are mixed bags and don’t really address the real problems of Medicare (the biggest liability) and Social Security (second biggest liability). Both dwarf the amount of money spent on pork every year. The Economist wrote a balanced summary of the tax plans here.

    To your point about the taxation of small business owners, I think the answer is unclear. No one knows for sure what percent of the top income earners are legitimate small business owners. Many of these people claim to be “small business owners” on their taxes but actually have no employees so they may be simply rich people who have created a business for tax purposes – article here. Also, Obama has promised to eliminate the capital gains tax for small businesses which as a small business owner myself, I would welcome and would be more than willing to pay higher income taxes to have. Also eliminating the cap gains tax on start-ups increases the NPV of starting a company which should lead to more investment (and therefore job creation). You can read about it here.

  • http://www.sitejabber.com Nick First

    Cindy D: Clinton did well to balance the federal budget while he was in office. But to do this, he neglected Medicare and Social Security which are our nations largest liabilities. You can read about it here.

  • bliffle

    Wrong wrong wrong.

    Pianoman says: “The real pork we have to tackle is in the entitlements — the earmarks and so forth while often bad, silly, and irresponsible and the other increases in spending are all peanuts in comparison to Medicare and Social Security. When you think about the real deficit, herein lies the real problem.”

    Social Security has no deficit, in fact it’s returned a surplus every year since 1983, and that surplus is about $160billion/year currently.

  • bliffle

    SS has run a surplus every year since 1983 and accumulated a surplus of several trillion dollars.

    All the gloom-doom PROJECTIONS can be obviated with SS tax changes. There’s a pretty good bill for doing that knocking around in congress. We can pass it when we need it.

    IMO those PROJECTIONS, which are, after all guesswork, are contrived to distract attention from the REAL and measurable annual deficits incurred with tax cuts and wars over the last few years.

  • http://www.sitejabber.com Nick First

    The problem with Social Security and Medicare is not that they currently are in deficit but, rather, they have promised to pay out much more money in the future than they can afford (by some $37 trillion), given their current structure. Here is a good report.

  • bliffle

    Glad to hear someone finally stop beating the drum about SS deficits, since they don’t exist.

    Yes, in the FUTURE we will have to adjust SS tax and SS payouts, but there are already several plans in offer that will do that.

    The REAL problem is that successive administrations have been ‘borrowing’ (some say ‘stealing’) money out of the SS surplus fund for their own pet projects, like, say, expensive wars in the middle east and expensive tax gifts to their rich friends. Oh, and themselves.

    They don’t WANT to pay it back! They want to run off and pretend it’s someone elses problem. They are cowards as well as crooks.