Tax expenditures, tax cuts, and IOUs (bonds)
We have seen the argument from some commission participants (Peterson for one) that Social Security is too expensive for those who need it and pay for it because it is an ‘entitlement’. We also have read from some Congress members (Senators Kyl and McConnel) that tax cut extensions of the Bush presidency are not deficit producing and need not be part of pay go.
The Fiscal Times has an article on considerations being undertaken by the Commission for Deficit Reduction. (H/t coberly).
The main theme in this article is that the “tax expenditures” home mortgage deduction and health insurance premium deductions are actually government spending (I assume in relation to the deficit) and thereby letting these taxpayers keep their money is bad. (Because these are “tax expenditures” and not “tax cuts”?)
I see a pattern here unfolding in this series of electioneering statements. Maybe politicians can put it altogether for us before the elections so we know who should pay and who should not in a less confusing way.
Quote is below the fold, bolding is mine:
As the 18-member bipartisan panel met in public for the fifth time, it was becoming clear that the tax system is under its microscope and there are many ideas under review for the long term. The commission’s success has always hinged on whether its leaders could muster support among Republicans for changes to the tax system, and agree to major spending cuts and changes in Social Security, Medicare and other entitlement programs that dominate the budget. So far, the GOP members are still at the table.
The most obvious target is recovering the huge amounts of revenue lost to federal tax loopholes known as “tax expenditures,” which include the home mortgage interest deduction and tax-free health premiums for employees. Proponents of rolling back these breaks say they are essentially government spending via the tax code. But health care premiums and mortgage deductions have long histories and are considered untouchable by some.
Erskine Bowles, one of the commission’s co-chairmen, pointed out that these loopholes cost the Treasury as much as $1.3 trillion per year, which is larger than total tax revenue. Bowles, citing an op-ed by Reagan White House economist Martin Feldstein, suggested that tax expenditures must be part of any serious attempt to limit spending.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told the commission that the current system of tax expenditures is “one of the most detrimental things to the country.” But she also pointed out that they would be among the more difficult programs to touch.
Senate Budget Committee chairman Kent Conrad, D-N.D., who leads the commission’s working group on taxes, said that he has become convinced that more comprehensive tax reform is necessary to update a system that was built for an era in which the United States did not face global competition. “My own conclusion from this [working group review] is that we really have a tax system that is badly outdated,” he said. “It no longer relates to a world that we are in today.”
In addition to massive lost revenue through tax expenditures, the Treasury loses another $340 billion or so each year in taxes that people owe but simply do not pay, Conrad pointed out. “These are things that require a focus in our work.”
Orwellian. Ending middle class tax deductions, eliminating categories of allowable employee costs and closing loopholes are not the same as cutting spending. They are tax increases for the middle and lower classes.
They do not tax the top 2% more.
They leave general fund discretionary spending alone and take money away from personal consumption.
For example, if I paid 20,000 in mortgage interest and the deduction were eliminated I would really pay that 20 grand not claim it and pocket $3500 for my own use. The government then spends the $3500 on some profitable command industry like the war machine and my GF does without new Kalvin Kline, just like Soviet women in the 1980’s.
Similarly, if my employer has no tax incentive to pay part of my medical insurance I will suffer along with the business. Again, federal spending on its interests in eternal mobilization and my GF doing without diet Coca Cola.
And if they cut medicare and medicaid reimbursements the margiuns on nearly half the health delivered decline and who pays that? The rest of the consumers. I guess my GF does without a couple of new cashmere sweaters this year.
The problem is not so much revenue, being too low and not so much entitlements being too high.
It is expenditures for the 10 or 12% of GDP that is the discretionary/command industries which are unproductive and taking from the general public’s consumption.
They need to stop talking taxes increases and cutting human servcies while the US glibbly spends more than half the world’s arms money, and has a discretionary budget far more than any other developed country.
The third o fthe outlay, funded by borrowing are more than enough to fix the deficit problem.
And they need to consider human suffering exchanged for keeping the war machine shining and doing reallyu dumb things that make it look like they are over extended.
“A penny saved is a penny earned.”
— Poor Richard
We also have read from some Congress members (Senators Kyl and McConnel) that tax cut extensions of the Bush presidency are not deficit producing and need not be part of pay go.
Look, this is a political ploy plain and simple.
Republicans know that the stimulus is rolling off the budget and that we’re leaving Iraq. So deficits will fall.
So they want to keep the tax cuts in place so they can spend the next 30 years bullshitting the populace that tax cuts lowered the deficits.
Mendacity, not stupidity, is the order of the day at the RNC.
Let me repeat; this is nothing but a cheap political ploy. And if the Democrats allow it to happen they deserve what they get.
ilsm and I agree:
“Ending middle class tax deductions, eliminating categories of allowable employee costs and closing loopholes are not the same as cutting spending. They are tax increases for the middle and lower classes. “
And if the Dems start pushing that the campaign commercials write themselves. If your worried about losing 40 seats in the House – this would get you to lose 80. No one in their right mind is going to end the mortgage interest deduction. Not a chance. Especially right before an election during a recession…
And not-withstanding Kyle and NcConnels’s inanity, Kent Conrad is a nut. I had lots of interaction with him and his staff while in the Pentagon (on one topic – Minot AFB). They were crazies.
Yet this nut was hand-picked by Obama to be on this commission…
Coberly you may actually have something to worry about with SS ‘fixes’ if Conrad is around…
Islam will change
“these loopholes cost the Treasury as much as $1.3 trillion per year, which is larger than total tax revenue”
Something doesn’t smell right. These things are deductions against taxable income. The average effective tax rate in the US last year was around 15%. That means that there were around $8.7 Trillion in deductions. US GDP last year was around $13 Trillion. I have a hunch that the $1.3 Trillion was the total amount of the deductions, not the cost to the Treasury.
The $340 billion in taxes owed but not collected per year also sounds high. Maybe as a cumulative number, but not an incremental annual number.
I understand….that is also partly why the letting the tax cut impact expire within the ten year window made for a lower deficit projection by the CBO way back less than ten years ago.
I don’t know what the Dems will allow, nor this administration, but it would appear to be a major restructuring for sure if proposed (even a partial change?). Notice also that the drums have started that the reason for the subprime failure was gov. policies, one being 30 year fixed mortgages and one being the home mortgage deduction, luring the gullible customer and businessman into a frenzy of borrowing, and that we must sacrifice for the sake of the deficit says the beneficiary of these sacrifices.
Silly clown season is some of the hoopla…mendacity absolutely….
Fiscal Times floats notion…..hmmm.
On the thirty year fixed option you have the option to go ARM or fixed the premium for a fixed loan is essentially buying a swap on the mortgage. Perhaps it should be put together differently, i.e. you start with a 30 year arm, then can for an additional interest rate buy a fixed rate, and then for some more buy the right to prepay. Today one can see the swap costs about 140 basis points looking at rates on Yahoo. I suspect that someone will start selling the swaps if you unbundle them. (If its good enough for the big boys why not the consumer?)
If you read the article it was hard to escape the conclusion that this was a panel of irresponsible ignoramuses just talking off the top of their heads.
These people spend their lives looking for loopholes and ways to make a dime. The easiest way to make a dime is to skin it from some poor yahoo like you and me. And it’s fair too, because us poor yahoos would only spend it, or get skinned by one of their competitors. While tax cuts for the rich, as everyone knows, is the seed money that grows the economy. Their economy.
Ryan is on the Catfood Commission too isn’t he? Krugman schooled him today. The problem is a media that does not call bs when it hears/sees it and a populace that if it pays attention at all only hears soundbites and only understand what “common sense” tells them. And the sense that comes out of the Catfood Commission is extremly common as in that coming from ordinary rocks.
Whether or not Conrad is a nut he was not handpicked by Obama. The 12 Congressional members were picked by the respective Majority and Minority Leaders and in the nature of things it would have been difficult for Reid to exclude the Chair of Senate Budget. This isn’t a slam on Buff, Digby made the same mistake or regards to Paul Ryan this morning. Not only was he named by Boehner and not Obama as Ranking Member of House Budget he would have been difficult to impossible to keep off.
All traditional mortgages come with the right to pre-pay. And mostly without penalty, that is exactly what happens when you refinance or even add something to your monthly payment and there has never been a contractual barrier to that. On this one McMegan is typically McAddled.
The pre-payment penalty on a 2-28 ARM is from a financial point of view the same as paying points up front, either way you are incurring a liability to lower your initial payment, generally in hope of selling or otherwise extracting your equity within the time frame needed to justify the dollar value of he upfront points or the backend penalty. The only way you can lose is if you have a liquidity freeze immediately preceding a price collapse. Which of course is what happened in Fall 2007 as the rot from true bubble markets caused national lending to collapse taking residential housing down with it even in markets where the fundamentals were strong. Like here. I was doing property research for an investor/mortgage broker at the time and the whole business went under, our whole business model relied on access to refi’s, when the secondary lending market went down hard so did we.
I know you are an analytical person and I agree with a lot of your conclusions.
ilsm will not change.
I agree with the idea that deficits are “deferred taxes”. Which means someday taxes have to exceed outlays. Most of the debt is in the general funds where most of the deficits were hidden by top cover from SS surpluses.
Clinton saw this and worked it hard. His edict however was: “first save social security”. The Obama commission is working on “first save the rich’s tax cuts”.
That said why the only outlay that is being discussed for cut is SS flies in the face of reason.
The 21% outlay for SS is about equal to the 21% outlay for the war machine.
My thesis is that guns have ripped off butter for too long and that it is time for guns to pay for some butter.
That is not to ignore the other discretionary spending which is command economy that should yield to SS and health as well.
I am notonly concerned about guns, I see there are other discretionary items that are less important than SS, and health for ordinary people.
ilsm will not change.
All very good and well that we sound off and express our outrage over the plans made to squander our assets and pillage our savings. Our voices have no ears to hear our anger. Our words enter here and drift out to no where. The opportunity for this discussion only feeds our misunderstanding of the reality of our politics and the perversion of our economy. We speak therefore they hear? Not likely. It is a stacked deck. The two opposing ends of the political spectrum have more in common than they do differ. They are distinct only in the most superficial aspects of their ideologies. They are alike at the core of their concept of our political economy. They serve one master. We have no one to hear us in our complaints regardless of their validity. This is only an exercise in free expression in the midst of economic colonialism. it seems all to be by design.
Of course the whole issue of a two year holding period was based upon the elevator going always up. With the 10% minimum turnaround costs in real estate (commission, title insurance, appraisal fee, xyz and abc fee). You had to have 10%+ increases to make the market work. Why no one considered that what happened in the 1930s with house prices could ever happen again is one of the questions I keep wondering about. Because it happened once it is not unthinkable. If people had run 5 and 10% decreases into their models a lot of things would not have happened. But they followed the herd and engaged in wishful thinking, and self delusion (which all humans love to do, else why go on a gold rush…)
It’s like political front-running; spot a trend, pass a law before it comes to full fruition, then claim the policy is responsible for the trend.
The root of the argument here is how does one steer the economy? Tax deductions are enacted as a way to push policy into the economy, if you do believe that the economy should indeed be pushed one way or another then you either have the reward of deductions or the punishment of regulation to move it. If deductions are meant as a means to influence the economy then if they succeed many people or businesses will take advantage of the deductions, you want people to take them. Point being they are not meant to be a revenue stream. In a best case scenario they cause people to spend money on things which the government wouldn’t need to supply, so saving the government money, since otherwise what you do is enact policy that hurts tax revenues and causes fiscal distress, these savings never materialize because of the nature of bureaucracies. In this light regulation may be the preferable, although more intrusive, manner of enacting policy since regulation does increase revenue streams through enforcement fines as opposed to reducing revenue while not reducing cost.
Still we are talking about a broad gamut of policy, it may be possible to regulate health care compliance but how does one regulate the encouragement of home ownership? Leaving aside the individual arguments as to the merits of these policies. What one needs to do if one has to use tax deductions is be keenly aware that they equate to tax cuts and have an effect on fiscal health.
At this point
the only way Obama could redeem himself, is to wait for the cat food commission to issue its report, then to read the report in an address from the Oval Office and make fun of it. “I gave these guys their chance and this is what they came up with…”
Bruce–This was the President’s Commission, not the Congress’s. The President, the Speaker, and the Majority Leader all picked 6 people, total of 18. So, he undoubtedly anticipated who’d end up on the Commission, probably quite accurately. His choices do not cheer me particularly, since Rivlin is no friend of the SSA. Generally, these people are either in Peterson’s camp or are not particularly knowledgeable on SS. True, some staff come from other more moderate groups or are more favorably disposed to the concept of Social Insurance.
So, WHAT WAS HE THINKING? Nancy Ortiz
A lot has been written in the big business media about how democratic policies are driving businesses from making investments etc.
It cannot be that there is demand not being satisfied. The uncertainty in the economy is lack of demand, creditor retrenchment and too much capacity off shore. Democratic policy related to business decisions is a red herring.
But read this for better analysis.
Raise taxes and cut expenditures of a paltry third of federal spending for the profits of the socialized federal command economy which delivers the capacity to kill and blow things up and sacks the taxpayer for that unproductivity.
Instead of absolutely further crashing the real estate market by eliminating the mortgage deduction (which to me would be a good thing if phased in at about 5% per year over 20 years), I wonder how much extra revenue would be raised if we simply eliminated the capital gains preference. Tax it like ordinary income, and include SS and Medicare on all capital gains.
To me, the world is awash with capital investments, and sorely lacking in “demand”–a/k/a actual money to buy something to plow back into the economy. And the current ludicrous 15% capital gains tax is just placing money into the hands of wealthy speculators, who either buy stocks traded on national exchanges (no investment there, just speculation), bonds (no investment there in the economy), or more likely Chinese companies–some investment there, but only at the expense of everyday Americans.
And the current ludicrous 15% capital gains tax is just placing money into the hands of wealthy speculators
Yet you say that like it’s a bad thing…. 😉
To look at income tax expenditures, go to the Analytical Perspectives Budget of The U.S. Government, Fiscal Year 2009.
Look on page 298.
There, you will see that the employer exclusion for medical insurance premiums and medical care is by far the number one exclusion.
And, this excludes income and Social Security and Medicare taxes.
Deductibility of mortgage interest is second.401(k) plans comes a distant third.
In my opinion, we should eliminate the employer excxlusion for medical care.
All this does is make the insurance more affordable, particularly for upper income employees.
We are spending way too little on retirement and way too much for medical care – the ratio is about 2 to 1 in favor of medical care.
For the income tax exppenditurers, go to:
“The root of the argument here is how does one steer the economy? Tax deductions are enacted as a way to push policy into the economy,……”
That is precisley the problem, using tax code manipulations to some how affect economic performance based on an economic policy. That is exactly not what taxation is intended to do and is the very reason why taxation does not accomplish its actual goal. Taxation is not a policy tool. It is a means by which a government funds the costs of its own operations. Those operations being deemed to be in some way beneficial to the people. Manipulation of the tax codes in the name of policy is a canard, a ruse. The manipulation is only for the purpose of shifting the net burden of taxation from one group of citizens to another. And the least influencial citizens are losing that game. Our political class and the economists who claim to have expertise in these matters need only to go back and refocus on the actual purpose of a system of taxation. Any manipulation of the codes beyond that classic mission, to fund government activities, is part of the scheme to shift the burden rather than to pay the bills.
IOUs (Bonds). What is the yield to maturity on Schwarzeneggar IOUs? I bet it is the same interest rate I get on my federal income tax refunds (0% nominal / a negative real interest rate).
I guess my reaction to the Fiscal Times piece was that these wise deficit advisors labored and found a place to raise taxes: on middle and low income people. I might agree with you that we spend too much for medical care and too little for retirement, but I can’t see any rationale for raising the taxes of poorish people while not raising them on richish people.
In any case the consequences of making housing and medical care a little less affordable needs to be thought about carefully before just looking at it as another pot of money to ease Peterson’s troubled mind.
And I am not sure what you mean that “we” are spending.. 2 to 1 medical care to retirement… doesn’t match my numbers.
That is how democracy works Jack.
actually I think Jack’s point was that’s how democracy stops working. unless your point is this is what becomes of all democracies… that they stop working. in which case, are you recommending another way of running a country?
or can we count on you to accept the idea that your government, elected under democratic rules, will force you to pay taxes sometimes to do things you don’t like?
The US spends too much for war and too much for discretionary spending.
The US invests too little in the capacities for delivering a decent retirement for most of the population.
Between the military industrial complex and the discretionary suppliers around 40% of US G outlays drive about 16% of GDP.
In the UK there is little government industrial complex spending outside defence.
The US G mismanages 16% of GDP diverting investments to war and marks that should be invested to deliver a decent living to the masses.
Today there are just two militarist economies: US and Israel.
The rest of the world is investing in health and other things for the general public.
There is plenty of room to balance the budget and it is not entitlement cuts!!
Cut the cancer of war, beat the spears into plow shares.
When did that get into the Old Testamant?
Study war a lot less anyway.
You’ve got a peculiar view of democracy in action. Or should I point out that democracy in America is fast becoming a game played by the moneyed elite to the disparagement of the working class. Democracy is equality of representation not representation by purchase. Listen more to what Coberly has to say. He is less strident than am I in the face of our distorted representative Congress, but he manages to get the point across in a simple but valid manner. Your own adherence to a restrictive ideology of dollar democracy is likely at some point to come back around and bite you in the butt. If not you as an individual then likely some member of your tribe.
If you’re referring to the return on California paper you are miserably uninformed. Five year tax free yield is now about 2.1%. You can do better in corporate utilities, but with a bit more risk. Are you complaining about the return? it is indicative of the banks and the public having a reasonable degree of confidence in the ability of California to pay its debts in spite of its Governor and his musings.
i’m a bit perplexed by your several seemingly conflicting complaints here at AB. You don’t like the yields on govt bonds. You don’t like the possibility of higher taxes. You don’t like the less than reactionary rhetoric offered by many of the other commentors. What is it you do like? And most pertinent, what areas of government spending would you like to see reduced in order to reduce the need for taxation?
might be worth noting that the comments of the commissioners didn;t actually say anything. they sounded like they were saying something, but go back and look at them kind of hard and try to figure out just what, and there is nothing there.
The purpose of saying nothing in so many words, especially in the role of an advisory commission, is that it allows any and all interpretations of what it is that the commission is recommending. That allows any final decisions to be made with the confidence that the decisions were based on the findings of a commission. it makes perfectly good sense in DC.
It could be worse. The commission could have had some real expertise and made recommendations based upon what would be good for the majority of the populace. That would have completely hamstrung the decision makers in DC, interfering with their need to come up with the most politically acceptable decisions regarding the budget, taxation and government action. Politically acceptable that is to the minute, but financially powerful, people who provide the political class with the means by which they get elected.
A good source to see what employers pay for medical benefits versus retirement is through the Bureau of Labor Statistics.
This is for 2008.
If you look on page 3, you will see that health benefits cost 7.1% of total wages and retirement and savings are 3.6% opf total wages, for private industry.
Medical insurance deductuons benefit the wealthy more than the non wealthy.
Half of the taxpayers pay 4% of the income tax, so a tax deduction is a moot point.
The higher the tax bracket, the more valuable the deduction.
And, you have to itemize to get the value of the deductions, for home interest.
Medical deductions are exclusions from income, they come off the top.
I don’t have any figures mandy, buit I believe only about one-fourth of the taxpayers itemize.
I would surmise the vast najority of the itemizers are in the top 20% of income earners, $100,000 and above per household.
So, deductions and exclusions benefit the top 20% much more than the bottom 80% of households.
thanks. by “we” i take it you meant “employers.” In that case I am not sure why i should care that they take three percent of a workers wages and apply it to “pension,” and 7% and apply it to “medical insurance.” I suppose it has something to do with tax benefits, and union contracts, or those happy employees in a position to really bargain for their own wages.
In general… in general… i don’t care so much about this. I figure that it is within the normal boundaries of the wage markets, or the tax policies that a government, however misguided, may employ toward its desired ends. I get seriously concerned about Social Security which does something unique, that workers badly need, that the people trying to take it away from them tell damn lies about, and every fool in the country believes them by now.
So we may be talking about different things here. But i would be glad to listen to a case for why i should care about “deductions and exclusions.”
I wrote about deductions and exclusions, because the article refers to various revenue enhancements.
Doing away with deductions and exclusions, which benefit mainly the top 20% of households, adds to our revenue.
I am concerned that we are spendibg twice on health care versus what we are spending in retirement and saving.
Our savings rate is abysmal.
If you’re concerned about Social Security, you are probably also concerned about other retirement vehicles, such as 401(k)s.
The much lower deductions for 401(k)s versus medical expenses is startling evidence of our abysmal savungs rate.
Median household income is around $55,000.
Average family group medical premiums are around $13,000.
That’s like a second mortgage payment!
In regards to Social Security, I think it would be a great system, if earmarled revenues were dedicated to their specific purpose.
Unfortunately, taxes don’t work that way, even earmarled taxes.
I am also very uncomfortable about a government that borrows from ityself.
How can you create an asset and liabiuiity at the same time, while using the asset part now, and deferring any liability expenses for decades?
I thought God was the only one who could create something out of nothing!
So what else is new the US has always been led by the elite, the working class being inconsequential to the policy. The most that can be done is to be like the french and the soviets and replace one elite with a new one. There will always be an elite and they will always run things.
In the good old days bribes were explicit, recall the best legislature money can buy, and Rockefeller owned the PA legislature lock stock and barrel. Now at least it is done in an offhand manner.
Things have always been this way and always will, schools teach a nice fiction about democracy, but it never has and never will work that way.
Note that today you are likely talking about 401k matches as retirement savings, as defined pensions out side of state and local gov are dead. (In CA at 50 you can get 3.0% times the number of years you worked in pension, based upon final years earnings including overtime, which is infinitly better than even the old corp pensions except for top execs were)
“The root of the argument here is how does one steer the economy? Tax deductions are enacted as a way to push policy into the economy,……”
Jack: “That is precisley the problem, using tax code manipulations to some how affect economic performance based on an economic policy. That is exactly not what taxation is intended to do and is the very reason why taxation does not accomplish its actual goal.”
Indeed. People are not ruled by incentives. Nor would the effect of a tax break be certain, even if people were. Using the tax code to effect gov’t policy is at best a half measure.
Treasury has estimated unpaid taxes a number of times over the years, and most recently, amounts in excess of $300 bln per year have been the result. Not cumulative, but annual.
Back on July 20, Marty Feldstein had a piece on the WSJ OpEd page arguing the same case. He seemed to have had a slightly different view – and a fairly selective one. Feldstein named a bunch of benefits to the middle class, but not the mortgage interest exemption. He also said that only about a third of tax expenditures should be eliminated – without being all that clear about which ones should stay, or why. In any case, Feldstein is apparently not opposed to tax expenditures on principle, but only if they don’t suit him.
Point is, though, that there is what looks like a coordinated campaign underway among the usual bunch on this issue. That is not to say they are wrong in a general sense about using the tax code to buy votes, er, foster policy. The problem is rather that changes in tax expenditure may be done wrongly. Since the tax code is riddled with this stuff, and other forms of loophole, the average Jo(e) is going to have a hard time understanding who pays and who doesn’t – perfect territory for the spin machine to operate. Change to the tax code is always proposed as a way to simplify and increase fairness, but if you believe that…
Thanks for the correction. Then Reid put this nut on the commission and why teh hell is he Chief of the Senate Budget???? This guy would sign ANYTHING, I mean ANYTHING, if it got Minot another 100 maintainer jobs.
Islamw ill change
you get confused the way Peterson would like you to be confused. TheSocial Security Trust Fund is NOT an asset to government. It is a liability. The government borrowed that money from a legal entity called Social Security. It has a legal and moral obligation to pay it back. there is nothing at all strange or unusual about that. If the government borrowed money from you and gave you a savings bond to help you remember the debt, it would have to pay you back. IT is exactly the same way with social security, except “the government” created a legal entity to manage the social security fund because that had some very definitite advantages over selling individual savings bonds and managing the “insurance” with welfare as we knew it.
i agree with you that medical insurance is too expensive. but i don’t see how taking away the tax deduction for it helps anything. what you would save in taxes… your other taxes that support the government in the absence of the taxes you didn’t pay because the government gave you a deduction… would be offset by the money you’d have to find to pay the full cost of the health insurance. i don’t see a net gain either way. with the tax break, there is some pressure for business to “provide” the benefit, and that gets more people insured, and fewer people on welfare when they get sick.
i am not sure about the 401’s. I dont’ see how business can provide a “defined benefit.” that’s the job that social security does very well. a defined contribution is just wages by another name. how people work out the way they save their own money for retirement, or medical expenses, is something i think i prefer to leave up to them, and up to the markets. playing games with the tax code doesn’t seem to me to be good for people’s sanity. on the other hand, a government insurance for retirement (SS) or medical care.. does seem to me to have advantages worth the rather small loss in “pffreedom.”
SS revenues are “earmarked.” don’t let them take them away from you.
God may have created the universe out of “nothing” (whatever that is) but human beings create something out of nothing as a normal part of being human. your understanding of money… and i am not being insulting here… is just too primitive for you to see what is happening here. really, not being insulting, just begging you to think harder.
Until you can provide good third party sources which state otherwise, you are confused.
There is no such entity as dedicated taxes.
From “Research Note # 20: The Social Security Trust Funds and the Federal Budget:”
“In the Social Security Act of 1935, the income from the payroll tax was to be CREDITED to the Social Security account. Sp the payroll taxes were just CREDITS in the Social Security account on the Treasury’s ledger under the initial law.
Since the assets in the Social Security trust funds consist of Treasurty securities, this means that the taxes collected under the Social Security payroll tax are in effect being lent to the federal government TO BE EXPENDED FOR WHATEVER PRESENT PURPOSES THE GOVERNMENT REQUIRES.”
Gp to: http://www.ssa.gov/history/BudgetTreatment.html.
this is why it would do you no good if i cited “third party source.” you don’t understand what you read.
you might try to find someone with enough patience to explain to you what “credited” means.
then you might need to find someone to explain what “lent” means.
There is a distinction between the government owing me money (as poart of the public debt) for having a bond versus the government paying itself back for issuing a bond.
If you borrowed money from yourself, how much of a hurry would you be to pay yourself back?
y the way, if you do not wish to discuss my reputable third party sources, fine.
‘But without doing so, and without backing up your opinions with objective sources, your talk is cheap – the supply way, way exceeds the demand.
You mean, like, how could this ever turn out good for Obama?
1) Obama expects to lose the Congress in the midterm
2) Obama expects the Commission to return Republican red meat proposals
3) Obama waits for the Republicans to embrace the proposals and move them into lehislation
4) Obams remakes himself as a progressive in 2012 and vetoes the legislation the Republicans have passed.
5) Obama gets re-elected.
The problem is that the Democrats may not select Obama for the top of the 2012 ticket after looking at his record…
But Donny Boy, the internal accounts of any organization must be balanced and each must hold it’s own weight financially. That’s a rule of general accounting. It’s a legislated imperative in the case of the Social Security Trust Fund raltive to the general budget and Treasury. Or does the legality of the issue not hold any weight with you?
“If you borrowed money from yourself, how much of a hurry would you be to pay yourself back?”
False analogy alert!!!!
The Trust Fund did not borrow monoey from itself. The Treasury, by act of Congress, has been investing the Trust Fund assets in the safest harbor available, the US government. The Treasury has been issuing special T-Bills to account for that investment. The Trust Fund is not a tax funded asset pool. The Social Security Trust Fund is made up of the FICA contributions paid in by workers and their employers over many years. It represents the excess of those contributions after payment of benefits and is legislatively intended to be available at such times as the FICA contributions may not be sufficient to cover benefits paid in a given period.
Don, try hard to stick with the facts. Your interpretation of the process is not relevant. The legislative requirements are supposed to be the basis for all government actions.
Jack, you are correct in that assets must equal liabilities.
The asset part, the excess payroll tax “credits,” are lent to the Treasury for general operating expenses.
That is used immediately.
The liability part only appears on the books as a liability, and is not actually paid until trust fund outgo exceeds income, excluding interest.
So, the asset is used immediately and the liability may not be paid for 30 years. Now, that’s my kind of asset and liability!
Jack, the excess in the trust funds are not cash. The only way to utilize the excess “assets” is to borrow from the public, reduce spending , or increase taxes.
I wouldn’t call the excess an asset, for in order to liquidate it, an equal amount of cash must be raised elsewhere in the budget.
A real asset to me is I own stock, and i cash it in for its market price, clean and simple.
The entire trust fund, which represents the government’s future ability to pay benefits, is not cash and cannot be liquidated into cash without a corresponding expense. That is not the way to pay benefits when FICA taxes don’t cover current benefits.
In fact, it happened this year. The FICA taxes did not cover the benefits, so the government had to use the excess. How did it do that — by buying Treasury securities to make up the balance, and voila, increased the public debt.
“I wouldn’t call the excess an asset, for in order to liquidate it, an equal amount of cash must be raised elsewhere in the budget.”
And you wonj’t find any cash in your bank account, but you can access those assets on request. At that time the bank will issue to you some cash, but in larger amounts it is likely to be issued as electronic cash. It gets wired into another account. It pays a bill that way. Or you might buy some stock that same way, with electronic money. The actual cash is almost none existent excepting for some small change you may need while on the street.
The fact that the Treasury has put the Fund’s assets to other budgetary use is onlt the excuse not to pay and not to raise taxes to pay the debt, but debt it remains never the less. You may issue me some money and I then issue you a note in return. If I go bankrupt you’re screwed. The US Treasury can’t go bankrupt in this real world. It goes further into debt? So?
It goes further into debt as a result of a great many good and bad reasons. Focus on ways to repay the debt rather than screw the creditors, of which the Trust Fund is only one.
Oh, one other thing. Take a good look at that cash in your pocket. What is it about Federal Reserve Note that you don’t understand? That green stuff is only representative of your faith in the Treasury Dept, the US government and the Federal Reserve. Imagine: “Announcement from your friendly Federal Reserve. Effective tomorrow at 12:01 AM, all Federal Reserve Notes dated earlier than August 5th, 2010 are void and non-negotiable as legal tender. All such Federal Reserve Notes may be exchanged on a ten to one ratio for New Federal Reserve Notes which will forth with be legal tender for all debts, public and private. These New Treasury Notes will represent the full faith and credit of the United States of America (but they’ll be worth ten cents on the old dollar).
Absurd? No more nor less than the Treasury or the government reneging on its debt to the Trust Fund. Pay your taxes and reduce the deficit. Stop the wars of adventure and more effectively reduce the deficit. Eliminate all benefits of the Bush Tax Cuts c. 2002-2003 and effectively reduce the deficit. Retroactive the Estate Tax to some high percentage and recapture the tax due on estates of all people who died this year and further reduce the deficit. There are lots of equitable ways by which the deficit can be reduced. We just need to get ass holes like Peter Peterson and Paul Ryan out of the discussion and let a bit more validity creep in to take their place.
I agree with you there are a lot of ways to reduce our debt.
I guess that means you think that would be a good course to pursue, immediately.
The Social Security trust fund as well as the Medicare trust fund is full of liabilities, not assets.
The only way to access the asset is to lower expenses, raise taxes, or issue debt.
I think you would agree with me on that.
The bank issues me cash. I don’t have to give up anything for that, other than a lower balance in my savings account.
I didn’t have to reduce other expenses or issue debt to access my cash.
I don’t know what the bank does on its end, but as long as I get my cash, I am satisfied.
The key is that the bank and I are 2 separate entities.
The trust funds and the Treasury are 2 separate government entities, but in budget reconciliation, they are one entity.
That is what I mean by borrowing from yourself, which is a dangerous game.
It is a totally new way of financing, by internally issuing assets and liabilities which come out as a governmental wash.
It is ludicrous from a business sense, and just because it is the U.S. government doesn’t mean that our debt can continue to grow without a loss of confidence.
The sheer arrogance of that thinking is a moral hazard.
You continue to ignore the fact that congressional legislation guides the entire Social Security program. That legislation is now near eighty years on the books with some modifications over the years to strengthen the program financially. You now propose that that process and legislation be perverted to provide a means by which we can avoid focusing on the actual basis for the general budget’s deficiencies. And no, I do not agree that those deficiencies must be addressed immediately to the expense of all else. You are grinding that axe. But if the budget need be better balanced why do you continuously avoid the elephants in the room. What of the military budget? What of the inadequacy of the tax revenues while there are a small number of citizens who are benefiting to the greatest extent from our government’s activities and contributing a minimal share to those tax revenues?
You’re talking like a shill to the One Percenters and corporate welfare queens. The Tea Baggers may some day soon awaken from their rhetoric induced comas and realize that yo and your ilk are pulling the wool regarding their retirement years. As they said in another frame of reference, “Keep your government hands off of my Medicare” which will then apply also to “their Social Security.” In short you are a faker.