Yet another scary study on how poor Americans are...

[Texas Proud]

I'm not sure where the numbers you quote are coming from. I see outlays rising from $3.812T in 2011 to $4.467T in 2016. That is a compound growth rate of 3.2%. As a percentage of GDP spending declines from 25.3% in 2011 to 22.6% 1n 2016.

It does look like spending increases more in the back half of the forecast and less in the earlier part. My guess is that spending growth is slow the next couple of years as we spend less on things like unemployment insurance. Spend grows more quickly from 2014-2016 because of SS and Medicare. But that's just a guess, I'd have to dig in to the details to know for sure.

PS Spending does generally grow by more than inflation. We have a growing population.

Fixed my other post so it is easier to read...

The problem is that 2011 (as mentioned) should not be the base year to compare... there is a lot of spending that should not happen again...

I just used the table that you linked and did a year over year comparison.. IOW, 2014 is 5.44% over 2013, 2015 is 5.28% over 2014..

IF you take that table and do a year over year comparison over the many years given... the high percentages are in the last few years and the next few... it was not nearly that high previously...


Edit to add.... I looked and I am wrong... there has been many times the % has been high....

 

[donheff]

I think G4G's CBO baseline chart is helpful for understanding the situation. I agree that savings (including entitlement reforms) AND taxes are needed to achieve an acceptable result. Unfortunately, that baseline projection assumes the Bush tax cuts will expire as scheduled -- all of them, not just those affecting $250K+. Nobody is talking about taxes at that level. Those levels seemed fine in the late 90s (they were low historically) but now the expectation that taxes must not go up (except possibly for the rich) has become so ingrained that no one is looking to a return to 90s levels.

 

[MichaelB]

Agreed. But dealing with long-term issues over the long-term doesn't require spending cuts or tax hikes now, now, now. I think we could go a long way toward financial stability by simply phasing in entitlement reforms over the next couple of decades. Add in some reasonable agreement about spending levels and tax rates to be implemented over the intermediate term and we're done.

G4G, I'm not really arguing with you. My concern is the US economy spends more time at 8%+ unemployment, and as a result both spending and revenues fail to close as needed and projected.

 

[Gone4Good]

G4G, I'm not really arguing with you. My concern is the US economy spends more time at 8%+ unemployment, and as a result both spending and revenues fail to close as needed and projected.

That is, indeed, a concern. But I'm not sure how 'austerity now' helps. I'd feel a lot more comfortable pursuing such a program if we saw that similar attempts were delivering results elsewhere. But they're not. The borrowing rates for Italy, Portugal, Greece, and Spain are all higher now than they were before austerity plans were implemented. Unemployment continues to rise in all of these countries, devouring much of the projected savings. The austerity plans of the UK are coming up very short as their economy slows. There is good reason to think that we'd face similar results here - increased unemployment with little to show for it in the way of improved fiscal sustainability.

Historically where 'austerity' has been effective is when it is coupled with extremely loose monetary policy and large currency devaluations. The thrust of weak money helps offset the drag of fiscal consolidation. We don't really have that option in the current environment as monetary policy is already doing all it can. So what I think we'll get from austerity in the current economic environment is fiscal drag that is ultimately self defeating to our budget balancing goals (leaving the country poorer and with a deteriorating productive capacity, to boot).

Better, in my view, to adopt long-run tax, spending, and entitlement policies that move us to balance over time but don't put undue pressure on the economy today. Entitlement reform seems to give you the greatest bang for your buck here. Policies that raise the retirement age, slow the growth of SS benefits, means-test benefits, slowly increase deductibles in Medicare, etc, etc, all have tremendous impact on our long-run fiscal path but don't hurt today's economy at all. That is where our focus should be.

 

[ItDontMeanAThing]

Agreed. And there are limits, as we've already established. But we're not near those limits in any practical sense. So the challenge isn't that we're running up against objective borrowing limits in the near, or even intermediate term. It's that we may run up against limits to market credulity . . . that market participants begin to fear that the US is really a Banana Republic and is incapeable of governing itself.

I think the challenge is self imposed austerity before the limit is reached in a way that the market and the people accept. Austerity can and usually does cause short term damage to an economy, but the evidence comes from countries on the brink, so how applicable is it?

The raise taxes vs raise revenue has been discussed in context of the Laffer curve. I thought economists had long since agreed that there is a tax rate vs revenue tradeoff and so the only thing to consider is where an economy is on the curve.

So the question is, what would forestall that?
1) Long-term budget agreement that cuts spending and raises taxes over the intermediate term
2) Long-term entitlement reform that slows entitlement growth

1) I have no idea where we are on the Laffer curve but I know we need to raise revenue.

2) Intermediate and Long-term entitlement reform that reduces entitlements.

Cutting spending and raising taxes in a recession are textbook examples of what not to do. But our system of government is designed to make the ship of state respond very slowly to steering. We're on course for big cuts to entitlements in the intermediate and long term and short term cuts in everything else. It will be painful in the short run but far less so than the pain of becoming another economic basket case on life support.

 

[MichaelB]

That is, indeed, a concern. But I'm not sure how 'austerity now' helps.

Saint Augustine, perhaps?

I'd feel a lot more comfortable pursuing such a program if we saw that similar attempts were delivering results elsewhere. But they're not. The borrowing rates for Italy, Portugal, Greece, and Spain are all higher now than they were before austerity plans were implemented. Unemployment continues to rise in all of these countries, devouring much of the projected savings.

Maybe the problem is not excess of austerity but lack of credibility.

The austerity plans of the UK are coming up very short as their economy slows. There is good reason to think that we'd face similar results here - increased unemployment with little to show for it in the way of improved fiscal sustainability.

It is far too early to judge the UK effort.

Better, in my view, to adopt long-run tax, spending, and entitlement policies that move us to balance over time but don't put undue pressure on the economy today. Entitlement reform seems to give you the greatest bang for your buck here. Policies that raise the retirement age, slow the growth of SS benefits, means-test benefits, slowly increase deductibles in Medicare, etc, etc, all have tremendous impact on our long-run fiscal path but don't hurt today's economy at all. That is where our focus should be.

Cutting back on spending and raising taxes now shows commitment and helps establish credibility. Before the recession employment was at 4.5% but there was a deficit. This means that fiscal imbalance is not the result of a poor economy, although that is a contributing factor. There is no need to choose between reducing spending now or later: both need to be done.

We also have a trade deficit. That means too much of our economy is not productive enough. The cost of labor needs to come down to a more competitive level. Deficit spending impedes this.

We are putting off reform, saying it will be easier and less painful in the future. That argument will always be present; it will always be less painful in the future. It’s time to begin.

 

[Gone4Good]

Cutting back on spending and raising taxes now shows commitment and helps establish credibility.

Agree with most everything you say . . . credibility, trade imbalances, structural federal deficit, and all that.

I do think, however, that serious entitlement reform is credible. Entitlement programs are hard to change. A reduction in future benefits is very credible and goes a long way to showing seriousness, and a long way to tackling the biggest part of the problem.

Spending and taxes are more difficult to put off because budgets are done each year and future Congresses can always undo what previous Congresses proposed (but future Congresses can always undo spending cuts and tax increases as well). I think subtle, mechanical approaches can work well here . . . like removing, or reducing, the inflation adjustment to the tax brackets so that revenues, and effective tax rates, gradually increase over time without any need for Congressional action. Spending caps are probably less effective, and less credible, but should be tried.

There are a thousand credible ways to tackle our fiscal imbalances that don't require massive budget cuts immediately.

 

[brianinsf]

Ok, this is the wrong weekend to brig this up but, the other big elephant in the room is the two wars and one Nato action we are currently engaged in. We have spent almost 1.2 Trillion spent on the two wars (source: costofwar.com). Until we get that spending under control we have no chance on the budget.

 

[GregLee]

If the rest of the world were properly grateful for these police actions, they'd chip in and help pay for them, in the future.

 

[Independent]

I've been reading along. Lots of good stuff here, I'll just chime in.

1. Much of our current deficit is caused by the bad economy. Just getting unemployment down to historic levels would probably reduce the deficit by half.

2. But there's no guarantee that unemployment will go down. We could be in for a long stagnation. That would be very bad. We don't want "austerity now" because we want to get a recovery going.

3. Our biggest budget issue long term is medical costs. It's not just gov't, the official budget projections assume that all medical costs in the US grow faster than the GDP. Since we already spend a much higher percent of GDP on medical than any other rich country, there ought to be some savings here.

4. If we want to use gov't to continue to provide income and medical care to old people, gov't spending will have to go up faster than GDP just because of demographics. If we want to keep spending close to level we'll have to increase the start age for both Social Security and Medicare.

5. We're way over on the left of the Laffer curve for most tax rates. If we chose to raise rates, we will raise revenue.

This is a good source of "official" data. Note that they've already done ratios to GDP for many items. Historical Tables | The White House

 

[segfault]

'We have a family that is spending $38,200 per year. The family's income is $21,700 per year. The family adds $16,500 in credit card debt every year in order to pay its bills. After a long and difficult debate among family members, keeping in mind that it was not going to be possible to borrow $16,500 every year forever, the parents and children agreed that a $380/year premium cable subscription could be terminated. So now the family will have to borrow only $16,120 per year.' "

What amazing progress! I think the family should go out and treat themselves to a nice meal at a fancy restaurant to celebrate. Should only cost a couple hundred bucks.

 

[swampwiz]

From you and me maybe but what about the changes in bankruptcy that protect credit cards? I haven't paid close attention since I am not a candidate for bankruptcy but CC companies (and the outfits they hand over deadbeats to) can follow you for life now, can't they?

No, unsecured debt can be wiped out in Chapter 7. Last year I wiped out $140K in unsecured debt, mostly CC's (a very good feeling doing it, BTW! ) With that said, Chapter 7 is only available to folks who have an income below the median in their state.

 

[swampwiz]

5. We're way over on the left of the Laffer curve for most tax rates. If we chose to raise rates, we will raise revenue.

Do you consider yourself a Marxist?

 

[73ss454]

No, unsecured debt can be wiped out in Chapter 7. Last year I wiped out $140K in unsecured debt, mostly CC's (a very good feeling doing it, BTW! ) With that said, Chapter 7 is only available to folks who have an income below the median in their state.

What do you mean you wiped it out, where did it go?

 

[REWahoo]

I hear hoof prints ...

 

[stoutboy]

This explains even more clearly how the great majority of Americans are on the road to neo-serfdom:

It's the Inequality, Stupid | Mother Jones

 

[WilliamG]

What do you mean you wiped it out, where did it go?

Someone else.

 

[DblDoc]

i hear hoof prints ...

dd

 

[73ss454]

‪Kicked in the head by a horse‬‏ - YouTube

 

[Mulligan]

Kicked in the head by a horse ‏ - YouTube

I don't know much about the thread, but I loved that you tube link. If I was that horse, I wouldn't have regretted giving him what he deserved!

 

[swampwiz]

What do you mean you wiped it out, where did it go?

It was discharged.

 

[73ss454]

It was discharged.

Oh, discharged as in the rest of us are paying for it?

 

[wolfbay]

Oh, discharged as in the rest of us are paying for it?

Looking back on this unfolding fiasco, letting the banksters get away Scott free and even piling on bonuses may be a seminal event. In other times bankruptcy was thought of as shameful and not a cause for celebration. Moral hazzard is everywhere. We need to cut spending but how can you ask any average citizen to sacrifice to help to pay for the too big to fail?

 

[swampwiz]

Oh, discharged as in the rest of us are paying for it?

What are you trying to say? The only entities "paying" for the discharge are the shareholders of the banks. I don't know how much you have invested in these particular banks, but as a general equity investor in the S&P 500, my discharge made my return on that investment lower, so I'm paying for it as much as you (presuming you & I have the same overall investment amount in the general stock market.)

Now, if you are trying to say that my default ill make a difference in the actuarial calculation about how risky a person in my FICO score tranche is, my response is that there are so many incalculable factors that go into this, that my action is basically a stochastic blip that should have been expected by the actuarial experts at the bank. I should not be held to blame for their miscalculation.

 

[DoraM]

What are you trying to say? The only entities "paying" for the discharge are the shareholders of the banks. I don't know how much you have invested in these particular banks, but as a general equity investor in the S&P 500, my discharge made my return on that investment lower, so I'm paying for it as much as you (presuming you & I have the same overall investment amount in the general stock market.)

Now, if you are trying to say that my default ill make a difference in the actuarial calculation about how risky a person in my FICO score tranche is, my response is that there are so many incalculable factors that go into this, that my action is basically a stochastic blip that should have been expected by the actuarial experts at the bank. I should not be held to blame for their miscalculation.

Did you give back the stuff that you bought with the discharged debt?