Our Looming Budget Disaster

[BigRob]

The United States has a major looming budget problem. When you look at the Federal Budget there are really two different sections. There is "mandatory" spending and there is "discretionary" spending.

Mandatory spending (which does not include debt service) is a few line items that consume the lion's share of the budget. These include Social Security, Medicare, Medicaid, Veteran's retirement and a few other smaller programs - however the bulk of this spending is on Social Security, Medicare, and Medicaid. Those three account for just under $30 trillion of the $34 trillion that we are going to spend on these mandatory programs between FY 2018 and FY 2017.

Discretionary spending is basically everything else. It includes the Department of Defense, Education spending, foreign aid, science, etc etc etc....

To put into perspective how these programs are consuming the Federal budget, and ultimately going to crowd out almost the entirety of discretionary spending it is important to look at the trend: (Data is from the OMB and the CBO)

1966: 67% of the federal budget was discretionary spending
1986: 44% of the federal budget was discretionary spending
2006: 38% of the federal budget was discretionary spending
2016: 31% of the federal budget was discretionary spending

In fact, according to the CBO, by 2040, mandatory spending will consume 81% of the federal budget. Bear in mind that this mandatory spending does not include debt service. It is important to note here that the assumptions that the CBO made to even arrive at this conclusion. For example, they estimate that revenue will rise to 18.4% of GDP by 2027 - which is important to note as this is a full percentage point above the 50 year historical average of 17.4%.

Going by the CBO baseline, in 2027, net interest payments on our debt will actually cost more per year (roughly $800 billion) than the Department of Defense and more than Medicaid. This is all on top of the over $5 trillion that we are going to spend in the next decade to service our debt. Bear in mind as well that the CBO has also already estimated that over the next decade, policies already in place are going to add an additional $10 trillion in debt held by the public - meaning by 2027, if nothing changes, we are looking at an over $30 trillion national debt - and meaning from a political point of view for Republicans upset that "President Obama added $9 trillion to the debt", we are on track to add at least $10 trillion over a decade before we have done anything. And of course this doesn't fully account for rising interest rates.

The data above makes one thing clear - we have a looming problem in Washington. If we take no action (spending cuts, tax hikes etc) it is basically a certainty that we will be looking at a federal government that literally has no money to spend on anything outside mandatory spending on entitlements and servicing debt.

I know that programs like social security, medicare, and medicaid are a "third rail" and unfortunately seemingly off limits for reform, but when addressing spending issues of this magnitude does it not make sense to address what consumes 2/3rds (and growing) of your current budget?

 

[dogtowner]

Third rail or not, entitlements will be changing. As you point out, this cannot be avoided. And it will start with Medicare and Medicaid. AMA will scream bloody murder but they killed their golden goose by their own hand.

 

[BigRob]

Third rail or not, entitlements will be changing. As you point out, this cannot be avoided. And it will start with Medicare and Medicaid. AMA will scream bloody murder but they killed their golden goose by their own hand.

Yes - I fully expect that ultimately people will pay into these systems their entire working life and then ultimately be means tested out of them, with an asset level that is set pretty low on who does not qualify. But one thing is for certain - changes are going to come.

 

[dogtowner]

Yes - I fully expect that ultimately people will pay into these systems their entire working life and then ultimately be means tested out of them, with an asset level that is set pretty low on who does not qualify. But one thing is for certain - changes are going to come.

They will start with passing off the smallest volume that costs the most. That's m eans testing.
When that's not nearly enough and can't be avoided they will push back on the AMA and make substantive cuts to the medis. They are trying to play with them now by trying to veer payment to be outcome based but that's just an AMA diversion to kick the can down the road a little longer.
Real change there is much harder and far more painful to all concerned.

 

[PLC1]

The United States has a major looming budget problem. When you look at the Federal Budget there are really two different sections. There is "mandatory" spending and there is "discretionary" spending.

Mandatory spending (which does not include debt service) is a few line items that consume the lion's share of the budget. These include Social Security, Medicare, Medicaid, Veteran's retirement and a few other smaller programs - however the bulk of this spending is on Social Security, Medicare, and Medicaid. Those three account for just under $30 trillion of the $34 trillion that we are going to spend on these mandatory programs between FY 2018 and FY 2017.

Discretionary spending is basically everything else. It includes the Department of Defense, Education spending, foreign aid, science, etc etc etc....

To put into perspective how these programs are consuming the Federal budget, and ultimately going to crowd out almost the entirety of discretionary spending it is important to look at the trend: (Data is from the OMB and the CBO)

1966: 67% of the federal budget was discretionary spending
1986: 44% of the federal budget was discretionary spending
2006: 38% of the federal budget was discretionary spending
2016: 31% of the federal budget was discretionary spending

In fact, according to the CBO, by 2040, mandatory spending will consume 81% of the federal budget. Bear in mind that this mandatory spending does not include debt service. It is important to note here that the assumptions that the CBO made to even arrive at this conclusion. For example, they estimate that revenue will rise to 18.4% of GDP by 2027 - which is important to note as this is a full percentage point above the 50 year historical average of 17.4%.

Going by the CBO baseline, in 2027, net interest payments on our debt will actually cost more per year (roughly $800 billion) than the Department of Defense and more than Medicaid. This is all on top of the over $5 trillion that we are going to spend in the next decade to service our debt. Bear in mind as well that the CBO has also already estimated that over the next decade, policies already in place are going to add an additional $10 trillion in debt held by the public - meaning by 2027, if nothing changes, we are looking at an over $30 trillion national debt - and meaning from a political point of view for Republicans upset that "President Obama added $9 trillion to the debt", we are on track to add at least $10 trillion over a decade before we have done anything. And of course this doesn't fully account for rising interest rates.

The data above makes one thing clear - we have a looming problem in Washington. If we take no action (spending cuts, tax hikes etc) it is basically a certainty that we will be looking at a federal government that literally has no money to spend on anything outside mandatory spending on entitlements and servicing debt.

I know that programs like social security, medicare, and medicaid are a "third rail" and unfortunately seemingly off limits for reform, but when addressing spending issues of this magnitude does it not make sense to address what consumes 2/3rds (and growing) of your current budget?

While your conclusion about a looming budget disaster may prove correct, your figures are highly suspect. 34 trillion from ... oh, wait. It says between 2018 and 2017. That must mean 2027, unless time has suddenly started going backward. That figure must be for a decade, with projected increases built in.

Medicare, Medicaid, SS spending for per year is more in the area of two trillion, not 34 trillion, which is still a lot of course, but it is also offset by payroll taxes.

and the problem with "reforming" those programs is that there are millions of seniors who depend on them, and who paid for them over a lifetime. When someone starts wanting to reform them, which often means ending them or cutting them way back without adjusting payroll taxes, then those seniors get nervous and then they go to the polls and vote against the reformers.

Medicare in particular, an expensive program that is getting costlier all the time due to increases in medical costs and in the numbers of seniors is essential to anyone not a billionaire. No one is wanting to sell health insurance to seniors. Without Medicare, most would not have access to health care.

 

[BigRob]

While your conclusion about a looming budget disaster may prove correct, your figures are highly suspect. 34 trillion from ... oh, wait. It says between 2018 and 2017. That must mean 2027, unless time has suddenly started going backward. That figure must be for a decade, with projected increases built in.

Yes, I meant 2027. And the $34 trillion figure comes directly from this CBO report: The Budget and Economic Outlook 2017 - 2027

*Table 1-2 on page 96 if you are curious.

Medicare, Medicaid, SS spending for per year is more in the area of two trillion, not 34 trillion, which is still a lot of course, but it is also offset by payroll taxes.

Yes - but the trend is not in dispute. "Mandatory" spending is crowding out "discretionary" spending more and more every year. That is not in dispute.

and the problem with "reforming" those programs is that there are millions of seniors who depend on them, and who paid for them over a lifetime. When someone starts wanting to reform them, which often means ending them or cutting them way back without adjusting payroll taxes, then those seniors get nervous and then they go to the polls and vote against the reformers.

Medicare in particular, an expensive program that is getting costlier all the time due to increases in medical costs and in the numbers of seniors is essential to anyone not a billionaire. No one is wanting to sell health insurance to seniors. Without Medicare, most would not have access to health care.

Agreed - and hence why mandatory spending is going to crowd of the entire discretionary budget (or make the entire discretionary budget be fueled by debt) possibly as soon as 2040. Something has to give.

 

[PLC1]

Yes, I meant 2027. And the $34 trillion figure comes directly from this CBO report: The Budget and Economic Outlook 2017 - 2027

*Table 1-2 on page 96 if you are curious.



Yes - but the trend is not in dispute. "Mandatory" spending is crowding out "discretionary" spending more and more every year. That is not in dispute.



Agreed - and hence why mandatory spending is going to crowd of the entire discretionary budget (or make the entire discretionary budget be fueled by debt) possibly as soon as 2040. Something has to give.

Agreed that something has to be done fairly soon.

How much faith do you have in Congress to come up with a practical solution to the problem?

 

[Openmind]

Yes, I meant 2027. And the $34 trillion figure comes directly from this CBO report: The Budget and Economic Outlook 2017 - 2027

*Table 1-2 on page 96 if you are curious.



Yes - but the trend is not in dispute. "Mandatory" spending is crowding out "discretionary" spending more and more every year. That is not in dispute.



Agreed - and hence why mandatory spending is going to crowd of the entire discretionary budget (or make the entire discretionary budget be fueled by debt) possibly as soon as 2040. Something has to give.

Why do you keep on placing social security as influencing the budget deficit, when it is self-sustaining. . .at least prior to the government stealing the reserves to balance the federal budget!

 

[dogtowner]

Why do you keep on placing social security as influencing the budget deficit, when it is self-sustaining. . .at least prior to the government stealing the reserves to balance the federal budget!

There were never reserves. The "surplus" always went to special tbills which went straight to the general fund. All there ever were was a growing stack of IOUs.
And the surplus ceased to be. We're running at a deficit now and they measure the rate of deficit growth over 75 years to try and blow smoke.
https://www.ssa.gov/policy/trust-funds-summary.html

 

[PLC1]

There were never reserves. The "surplus" always went to special tbills which went straight to the general fund. All there ever were was a growing stack of IOUs.
And the surplus ceased to be. We're running at a deficit now and they measure the rate of deficit growth over 75 years to try and blow smoke.
https://www.ssa.gov/policy/trust-funds-summary.html

So, it's time to pay back those IORs, right?

 

[dogtowner]

So, it's time to pay back those IORs, right?

We've been doing for a few years now.

 

[Openmind]

Yes, the money from the social security trust fund is "invested" in US bonds. . .and that money is then used as part of the budget spending. Therefore, the social security trust fund is part of the deficit (growing!) that we are all worried about (well, it seems that, now that President Obama is no longer in the White House, the GOP is no longer worried about adding to that deficit. . .on the contrary, as we have witnessed with this latest monstrosity that is the "tax bill!").

So. . .this is the reason WHY the GOP wants to kill social security. By doing so, it would resolve a part of their problem with the growing deficit. . .by cancelling that debt to the social security fund!

And yet, there is a very simple way to make social security solvent for every: increase the 6.2% contribution on the first $127,000 annual earning by allowing a "donut hole" for earning between $127,000 and $500,000 or even $1 million earning, but then reinstating the 6.2% contribution to ALL earning above that loophole.

After all, those high earners have just received a HUGE tax break, why not counterbalance that huge tax break by additional contributions to the social security tax fund?

Why is it that half of American workers must pay their social security contribution for the whole 12 months of the year, while others only pay their contribution for a few days each year?

And, no. . .the excuse that those making over $1 million a year do not need social security and thus do not benefit from the additional contribution is a moot point! Obviously, those making less than $100,000 a years do not benefit for the huge new tax cuts the same way as those who will save millions in tax each year either! And yet, that horrible tax break for the wealthy has been voted in by the GOP!

 

[dogtowner]

Yes, the money from the social security trust fund is "invested" in US bonds. . .and that money is then used as part of the budget spending. Therefore, the social security trust fund is part of the deficit (growing!) that we are all worried about (well, it seems that, now that President Obama is no longer in the White House, the GOP is no longer worried about adding to that deficit. . .on the contrary, as we have witnessed with this latest monstrosity that is the "tax bill!").

So. . .this is the reason WHY the GOP wants to kill social security. By doing so, it would resolve a part of their problem with the growing deficit. . .by cancelling that debt to the social security fund!

And yet, there is a very simple way to make social security solvent for every: increase the 6.2% contribution on the first $127,000 annual earning by allowing a "donut hole" for earning between $127,000 and $500,000 or even $1 million earning, but then reinstating the 6.2% contribution to ALL earning above that loophole.

After all, those high earners have just received a HUGE tax break, why not counterbalance that huge tax break by additional contributions to the social security tax fund?

Why is it that half of American workers must pay their social security contribution for the whole 12 months of the year, while others only pay their contribution for a few days each year?

And, no. . .the excuse that those making over $1 million a year do not need social security and thus do not benefit from the additional contribution is a moot point! Obviously, those making less than $100,000 a years do not benefit for the huge new tax cuts the same way as those who will save millions in tax each year either! And yet, that horrible tax break for the wealthy has been voted in by the GOP!

Why should they pay more when they get no additional benefit ? The problem was giving full benefits to those who didn't contribute. These vote buying freebies are not free and should be recinded.

 

[PLC1]

We've been doing for a few years now.

Not yet, but soon:

Right now, Social Security has plenty of assets. For much of its history, Social Security was a strictly pay-as-you-go system, with current tax receipts funding current benefits. That changed in 1983, when Congress (as part of a comprehensive overhaul of the program) raised the payroll taxes that provide the bulk of Social Security’s revenue, to build up a cushion for the coming onslaught of Baby Boomer retirees. For nearly three decades, the system took in far more revenue than it paid out in benefits; the surplus was invested in special non-tradeable Treasury bonds, with interest credited to the system’s two trust funds (one for old-age and survivors’ benefits, the other for disability payments). As of July 31, those trust funds together held $2.83 trillion in Treasuries. (Some people characterize that as the government “borrowing from” or “raiding” Social Security, but the system is in essentially the same position as any other investor who buys Treasuries.)

4But since 2010, Social Security’s cash expenses have exceeded its cash receipts. Negative cash flow last year was about $74 billion, according to the latest trustees’ report, and this year the gap is projected to be around $84 billion. While the credited interest on all those Treasuries is still more than enough to cover the shortfall, that will only be true until 2020. After that, Social Security will begin redeeming its hoard of Treasuries for cash to continue paying benefits – as was the plan all along.

Those treasury bonds will start being cashed in in two more years, then, and then the self described "conservatives" will holler, wail, and moan about the terrible expense and want to cut back or end SS, probably while continuing the payroll tax that pays for it.


link

 

[Old_Trapper70]

This is what the people were talking of when the Repugnant ones were passing their "tax plan", and ignoring the Democrats, and the common person. And that is that the "entitlements" would be used to pay for the breaks given to the wealthy. Of course, the Repugnant ones, and their ignorant followers, said "oh no, that will not happen", and it was a lie. For them it is close to being a crime that people get old, and retire, get disabled (even in wars they promote), or generally are born with medical/mental problems that need the cooperation of society ass a whole.

Get over it folks. The 1% need to be taken care of even as others need to die, or suffer.