The Federal Budget And Why The US Is In Trouble

[Alan]

"Could easily" is a very long way from "typically does". Coming up with $100,000 of personal exemptions and sched A deductions on an AGI of$350k would not be easy to do.

We can be mislead by the ability and tolerance on the part of board members to have very high incomes with a very moderate life style. Most families burn money, and it takes earning a lot to be able to burn enough to come up with deductions like you mention-except once in a blue moon.

A married couple earning $150k each at comoanies similar to those DW and I worked can quickly rack up a lot of deductions.

Off the top of their paychecks before taxes comes $33k for 401k, $44k if they are both over 50. Limits for defined contribution plans and SEPIRAs are similar.

$5k for pre-tax payment of company Group Health insurance.

stick another $5k into an FSA.

That's now already down to $250k taxable.

Now start on the typical deductions.

personal exemptions $6.8k for husband and wife only
State income taxes ~$10k or equivalent sum in Properrty taxes & sales taxes for those States with no income tax
Mortgage interest ~$10k on a $250k mortgage at 4.5%
Charitible deductions
etc etc.


This is just a quick a work-up based on a working couple but high spenders with 2 mortgages or a large mortgage and some dependents can get pretty close to $100k in deductions fairly easily.

 

[lets-retire]

Until we stop the extreme waste that exists within our government the deficit problem will not be fixed.

Example: DH works for an IT-based megacorp. He was in Hilton Head SC this week presenting to a federal govt agency that had brought all of their IT managers to Hilton Head for a week of 'stragety meetings'.

Their 'strategy meetings' included a round of golf every day and lavish dinners every night.

Both DH and I work for an IT megacorp. We have more than $30 billion in cash, yet we are not allowed to travel for any reason unless the customer is paying for it. This has been the policy for the last three years. So, why does the government still have boondoggles using taxpayer money when private companies have tightened their belts??

How can we fix this serious issue? The government had to borrow the money to allow this boondoggle!

And the answer should be, VOTE, but ya know what, the issues are so deep and so ingrained that voting doesn't seem to be able to fix the major issues anymore because the government would rather ensure being voted back in than fixing the country's problems.

I'll get off my soapbox now. When I found out where DH was this week and who had brought him there I was enraged.

There is definitely a lot of government waste. The agency the DW works for has essentially the same functions as another government agency. The only difference is the product is a bit different and the target consumer is a bit different. There is no reason at all why the DW's agency couldn't be absorbed by the other agency. The amount of work her agency does is minimal. If the other agency had to hire people it would not be a one for one hire. Many in her agency would be able to be let go. It will never happen though, because her agency serves the poor. The cries would be that the politicians are trying to hurt the poor and they don't care, when in reality all the DW's agency does is bring more misery and hardship to the poor.

My agency just installed a multi-million dollar piece of equipment. The end result, due to poor design, was a decrease in national security and an increase in manpower requirements. Although the increase in manpower requirements does not really effect the cost (we were at work anyway). It simply moved resources from assisting other work groups and receiving more training and experience, to working on this piece of equipment.

 

[DallasGuy]

SS may be 22% of the budget, but for now and at least the next 7 years or so, the money that has already been collected and is in the SS trust fund plus each year's revenue is adequate to pay for all benefits. The fact that the government spent that money on something else and now has to pull the money out of general revenues is not the fault of the people who contributed. According to the SS Trustee's 2010 report, in 2018 the DI part of the fund will be exhausted and the main portion will run out in 2036. From 2037 until 2084, income from the SS tax will fund 75% of annual benefits. For SS, the bottom line is that the only reason it's such a large percent of the budget is that it was spent - but not on SS. How is it fair to cut SS when the money for it was already collected and should be available?

Medicare is a bit more complex, but here is a quote from the same report:
"The projected date of HI Trust Fund exhaustion is 2029, 12 years later than in last year’s report, at which time dedicated revenues would be sufficient to pay 85 percent of HI costs. The share of HI expenditures that can be financed with HI dedicated revenues is projected to decline slowly to 76 percent in 2045 and then to rise slowly, reaching 89 percent in 2084."

Given the fact that the money has been paid in for these benefits and has been spent by politicians, how is it fair or reasonable to cut these benefits until money from general revenues is actually needed? What is happening now is that the IOUs given to SS and Medicare are coming due and it appears on the budget. But NO actual money for these programs would have been needed from general revenues had the money not been stolen by politicians of both parties.

I am tired of hearing misinformation that gives the impression that both funds are broke and our FITs are paying for them - that's only the case because our elected thieves stole the money .

+1

 

[DallasGuy]

Is there any chance that we could ever have a balanced budget amendment (or something like an amendment that limits the deficit to 10% (or some percentage) of the total budget)?

It seems to me that unless there is a law that actually forces our governement to balance the budget, it will never happen...the political will or realistic political compromise needed is just not there.

 

[TromboneAl]

Thanks to all posters above. Obviously, I did not follow this industry, using no nat gas myself, and am the last to know!

I'm a producer myself.

 

[TromboneAl]

To put our federal budget and deficit problems in terms we can more easily understand, it is the equivalent of a family that spends 160K a year, but has an income of 100K a year. The husband and wife argue for weeks about what they are going to do to right the ship and they manage to come up with a reduction of 2K, leaving them still spending 158K a year on their 100K salary.

Can we take a second to examine whether this is a true picture of the current situation? I agree with the numbers, but perhaps comparing a country of 300 million to a single family is an oversimplification. For example, government revenue might vary more. Perhaps some recent expenses are non-recurring.

From:

Federal Spending Is Growing Faster Than Federal Revenue

 

[Texas Proud]

Can we take a second to examine whether this is a true picture of the current situation? I agree with the numbers, but perhaps comparing a country of 300 million to a single family is an oversimplification. For example, government revenue might vary more. Perhaps some recent expenses are non-recurring.

From:

Federal Spending Is Growing Faster Than Federal Revenue

View attachment 11608

But even taking out the non-recurring, spending is going up a lot faster than the country can afford... using your link... graph 3 shows federal spending up 242% while household income was up only 29%....

And why do we have trillion dollar defecits listed for the next decade This is not stimulus, the wars etc. etc... it is spending that we do not have the revenue...


I do like the various graphs... and it does appear that revenue will come roaring back if the economy recovers... but still we have a huge defecit...

 

[haha]

A married couple earning $150k each at comoanies similar to those DW and I worked can quickly rack up a lot of deductions.

Off the top of their paychecks before taxes comes $33k for 401k, $44k if they are both over 50. Limits for defined contribution plans and SEPIRAs are similar.

$5k for pre-tax payment of company Group Health insurance.

stick another $5k into an FSA.

That's now already down to $250k taxable.

Now start on the typical deductions.

personal exemptions $6.8k for husband and wife only
State income taxes ~$10k or equivalent sum in Properrty taxes & sales taxes for those States with no income tax
Mortgage interest ~$10k on a $250k mortgage at 4.5%
Charitible deductions
etc etc.


This is just a quick a work-up based on a working couple but high spenders with 2 mortgages or a large mortgage and some dependents can get pretty close to $100k in deductions fairly easily.

Yes, I see. My problem is that I never had jobs with these sorts of benefits, and when I worked for myself, hi-deferral options like solo 401-ks did not exist. Also, I never had a big house.

Ha

 

[MasterBlaster]

Alan:

The scenario you paint isn't quite as good as you indicate.

With income phase-outs and the Alternative Minimum Tax. The deductions you refer to can (sometimes) go away. Also mortgage interest is capped .

deductions get phased out above a MAGI of $156k.

If you make the kind of money you indicate then expect to pay some big part of your income in taxes.

If your income is larger then the bite gets progressively larger.

 

[Animorph]

I'd like to see SS pay for itself and only itself. Same with Medicare. Argue about levels of care or efficiency or benefit cuts, but don't use the money for something else and don't use general tax funds for these purposes. And since the govt. has been spending excess SS dollars, be sure they are paid back. SS itself has no big deficit currently. It's just that it doesn't have excess $ to use elsewhere now.

I don't mind having the government in some reasonable amount of debt. Sure, my kids are going to have to pay it. But didn't they start off with roadways, bridges, buildings, and plenty of other stuff that still works OK that they otherwise wouldn't have to pay for? That kind of debt is OK. Going into debt to pay operating expenses as well is not OK. Just like any of us. Would be kind of neat if we could let them pay off their own educations though...

 

[GregLee]

I'd like to see SS pay for itself and only itself. Same with Medicare. Argue about levels of care or efficiency or benefit cuts, but don't use the money for something else and don't use general tax funds for these purposes.

That's sort of interesting, for those of us interested in Animorph's opinions. But if you want us to agree, shouldn't you be telling us why SS should pay only for itself?

 

[haha]

Would be kind of neat if we could let them pay off their own educations though...

We can't?

Ha

 

[lets-retire]

That's sort of interesting, for those of us interested in Animorph's opinions. But if you want us to agree, shouldn't you be telling us why SS should pay only for itself?

Because the money is taken from our paychecks for the specific reason to pay for SS. If it was taken from our paychecks to pay for other government programs, then it would be income tax withholding, not SS withholding.

 

[donheff]

Because the money is taken from our paychecks for the specific reason to pay for SS. If it was taken from our paychecks to pay for other government programs, then it would be income tax withholding, not SS withholding.

And, if we decide to treat the borrowed trust funds as gone and cut SS benefits to match the current output with the currrent payroll tax input (the original structure of SS) we are in effect retroactively converting the extra withholding we made to income taxes. Since payroll taxes applied to only the first $100K or so, conversion to an income tax would be an extremely regressive way to go.

 

[GregLee]

Because the money is taken from our paychecks for the specific reason to pay for SS.

If the reason is the only problem, then that is easy to fix. Wherever the reason for SS tax is mentioned, that will be amended to say "for SS and other purposes". Maybe I don't properly appreciate the problem, but it seems to me to be merely nominal.

 

[donheff]

If the reason is the only problem, then that is easy to fix. Wherever the reason for SS tax is mentioned, that will be amended to say "for SS and other purposes". Maybe I don't properly appreciate the problem, but it seems to me to be merely nominal.

You would apply that to the trust fund? So you are OK with a retroactive 14% retroactive increase of your income tax (including the employer portion) on earnings up to $106K? I suppose you also support a tax cut for earnings over $200K? -- about the same thing.

Edit: this would be a boondoggle for me. I don't qualify for SS and never paid into it. If you and all other SS payroll tax payers have the trust fund treated as never existing you get a retroactive boost in your income tax and I get a relative windfall. Thank you for your generosity.

 

[GregLee]

You would apply that to the trust fund? So you are OK with a retroactive 14% retroactive increase of your income tax (including the employer portion) on earnings up to $106K? I suppose you also support a tax cut for earnings over $200K? -- about the same thing.

Sure, so long as the amounts of contributions/taxes and benefits aren't changed. Why should I care whether my payments to the government are called "SS tax", "SS-etc. tax", "income tax", or whatever?

 

[FinanceDude]

Based on S&P's gloomy outlook for the future, I hope Congress decides to do something. On the same day Paul Ryan was in Wisconsin educating constituents on his plan, they had an interview with Herb Kohl, Senator from Wisconsin, who announced that Ryan's plan was "going to go nowhere" in the Senate..........

 

[Independent]

If the reason is the only problem, then that is easy to fix. Wherever the reason for SS tax is mentioned, that will be amended to say "for SS and other purposes". Maybe I don't properly appreciate the problem, but it seems to me to be merely nominal.

I like the idea of dedicated taxes for political understanding rather than economics. Sure, we could use a regressive payroll tax to pay for general gov't, we did that for 26 years, but I think it's bad policy.

Dedicated taxes help voters understand where gov't is spending their money. This much goes for SS benefits (which voters love), this much for Medicare benefits (which voters love), this much for road construction (the 18.6 cent gasoline tax). Dedicated taxes force voters to face the cost/benefit tradeoffs of gov't programs.

In another thread, I provided my plan for balancing the budget and it relies heavily on dedicated taxes http://www.early-retirement.org/for...udget-reduce-the-deficit-specifics-55630.html

The problem with our current system is that we've hidden the dedicated SS and Medicare taxes by pretending employers pay for half of them, and we use General Fund taxes to subsidize Medicare and we used to use SS taxes to subsidize the GF. I agree with Animorph that we should clean this up.

 

[donheff]

Sure, so long as the amounts of contributions/taxes and benefits aren't changed. Why should I care whether my payments to the government are called "SS tax", "SS-etc. tax", "income tax", or whatever?

But that is just the point. If the ostensible amounts in the Trust Fund must be dedicated to the SS benefits of those that paid in you will get your full benefits and all tax payers will pay what it takes for the Treasury to make good on it's borrowing. If the Fund is treated as not dedicated to SS, you will probably take a cut in benefits along with everyone else going forward since there will be insufficient funds to pay your SS. Conversely (and to be fair in the discussion) if the funds are dedicated to their stated purpose someone will have to pay back the debt. But in the later case, the payback will be distributed across the entire tax paying public (which IMHO is as it should be since it is paying back the Bush tax cuts, the unfunded wars etc). In your approach, you and other SS payroll tax payers give up the debt owed to you by the rest of the tax payers (including the rich) who borrowed the funds from you in the first place. It is kind of like investing in Treasuries and then volunteering to forgo getting paid back.

 

[ziggy29]

While I'd prefer to see a balanced budget over the current mess, I think the quest for a "balanced" budget is somewhat overrated. The most important thing is that the debt not keep increasing as a percentage of GDP (or other appropriate measure of national economic activity). Even if the absolute dollar value of the debt keeps rising year after year, ***if*** it rose more slowly than the value of all economic activity then our ability to service and finance it actually improves.

Having said that, we're nowhere near that. We refuse to make the tough decisions on taxes and spending so we kick the can down the road a few years, apparently hoping a new economic era similar to the post-WW2 boom is just around the corner and will magically make everything better. But it doesn't come, and it keeps getting worse as a result. The longer we put off making the hard choices, the worse things will get and the more painful the "fix" will eventually be.

 

[donheff]

I don't know, maybe I am crazy. Here I am hoping the Democrats fight the Ryan plan but in that case the conservatives might refuse to raise the debt ceiling leading to a financial crisis and consequent trashing of my portfolio. On the other hand, if the Ryan plan was simply adopted lock stock and barrel, the conservatives will raise the debt ceiling so no international financial crisis and my portfolio fares well; Medicare and probably Obamacare get trashed, but I can just stick with the Federal health care program; we can forget the Trust fund and cut everybody's Social Security but my Fed pension will undoubtedly be left alone. Everything is good for me just as it was under the Bush tax cuts while DW and I were at our earnings peak. It always seems that I personally do well when I don't get things the way I want.

Of course there are the kids to worry about.

 

[FinanceDude]

I don't know, maybe I am crazy. Here I am hoping the Democrats fight the Ryan plan but in that case the conservatives might refuse to raise the debt ceiling leading to a financial crisis and consequent trashing of my portfolio. On the other hand, if the Ryan plan was simply adopted lock stock and barrel, the conservatives will raise the debt ceiling so no international financial crisis and my portfolio fares well; Medicare and probably Obamacare get trashed, but I can just stick with the Federal health care program; we can forget the Trust fund and cut everybody's Social Security but my Fed pension will undoubtedly be left alone. Everything is good for me just as it was under the Bush tax cuts while DW and I were at our earnings peak. It always seems that I personally do well when I don't get things the way I want.

Of course there are the kids to worry about.

Ryan's plan is far from perfect, but it is a plan. However, it will go nowhere because all politicians are concerned about reelection. Ryan himself may lose his Congress seat because he is taking a stand. I think its time for someone on the other side of the aisle to take a stand with a plan of their own. Until that happens, nothing will get done...........

 

[GregLee]

But that is just the point. If the ostensible amounts in the Trust Fund must be dedicated to the SS benefits of those that paid in you will get your full benefits and all tax payers will pay what it takes for the Treasury to make good on it's borrowing.

I don't see how that follows. If we make the rule that Trust Fund can't be borrowed against, so long as the government continues to spend those moneys, it will just have to call them something else. If the excess spending eventually makes it impossible for the government to keep its promises, the amount supposedly in the Trust Fund is not going to assure future SS benefits. How could it possibly? The Trust Fund is not like a piggy bank. It's the federal spending that's the problem, not how it shows up in the budget.

 

[donheff]

I don't see how that follows. If we make the rule that Trust Fund can't be borrowed against, so long as the government continues to spend those moneys, it will just have to call them something else. If the excess spending eventually makes it impossible for the government to keep its promises, the amount supposedly in the Trust Fund is not going to assure future SS benefits. How could it possibly? The Trust Fund is not like a piggy bank. It's the federal spending that's the problem, not how it shows up in the budget.

We actually agree on the larger issue -- unfunded spending is the problem. I just disagree that the Trust fund should be viewed as a fiction. That simply retroactively shifts 2.6 trillion of the costs to pay off the deficit onto the low end of the tax base rather than more progressively dealing with it (at least potentially - lots of current proposals are not progressive). As I said, it doesn't really affect me directly -- I always seem to personally do well with regressive taxing and have no personal stake in SS. Heck, the way things are going the so called "death tax" will probably be permanently tossed and I will profit once again. Everything is good