[Op-ed] The US is bankrupt

[SirNitram]

The roadmap relies on the assumption that all tax cuts included do NOT effect how much tax revenue you take in for two decades. Which is bullshit.

Acutally, no -- it's probably closer to the truth than you think. US Government revenues since the "modern" era began with the end of the Korean War in 1952 have consistently stayed within the bracket of 15-20% of GDP; even as the top rate dropped from 92% to today's 35%.

Moving the rate from 2008's 17.48% to something resembling 2000's 20.35% via going back to Clinton era top taxation rates of 39.5% and hoping the economy booms won't bring in enough revenue to cover the huge hole that entitlement programs are going to be falling into in the next couple of decades. Doubling taxes up to near their 1970s levels won't bring in much money either, given that 1970s tax revenues amounted to 16-20% of GDP too.

So spending cuts are inevitable in entitlement programs to get things in line. It's just a matter of how bad things get before people bite the bullet and cut back on those. But there will be much screaming beforehand...

'No, really, ignoring the drop in tax revenue is gonna work fiiiine. And I will immediately reject ideas of cutting military or intelligence spending, despite the mounds of data that the int industry is bloasted, and I will ignore the idea of simply not renewing the Bush tax cuts, since they've already failed to extend them this year, twice.'

Shep, stop drinking the kool-aid.

[Samuel]

So, what's the problem with SS/Medicare/Medicaid? Are we wasting too much money to get necessary benefits to these people? What's the proper course to take with social services?

Seriously guys what's the argument here, do we need to change the program to better serve society, or are you literally arguing that we need to get ready to toss grandma out on the street?

I'm gonna keep posting this until someone responds with "no there's a better way that takes care of grandma and doesn't bankrupt us" or "yes we literally cannot afford to take care of old people and cripples".

No, there is a better way- cut other programs or raise taxes.

[J]

So, what's the problem with SS/Medicare/Medicaid? Are we wasting too much money to get necessary benefits to these people? What's the proper course to take with social services?

The problem with SS/Medicare/Medicaid as with the rest of our financial issues goes back quite a few years. The short version is they've been underfunded for some time and had their funds raided by the government to make the budgets appear better than they actually are. This has left them with a funds shortage so they're unable to cover the benefits & payouts which are currently being promised. To cover future obligations on a sustainable basis, they'll require a larger slice of the tax pie (so higher taxes and cutbacks elsewhere), reduced benefits payouts, and a more efficient organizational system. Then we need to make sure the government can't steal nor borrow from the social services trust funds.

EDIT: How far would single-payer healthcare go towards resolving this, considering that theoretically if implemented correctly, we could save literally hundreds of billions of dollars a year in eliminated 'administrative costs' alone?

It would help a lot but it's not a "silver bullet" solution by itself. It's part of the solution but other measures & reform will have to be carried out at the same time. For instance, though Canada does have a fairly efficient single-payer universal healthcare system the costs have been rising significantly in recent years and are eating up a larger portion of our budget. It looks to be manageable for now but I admit I haven't read any reports nor analysis on its long term viability so I can't tell you if it will still be around in 50 years.

[Broomstick]

Well I guess in that respect a big question becomes "what constitutes necessary services?" Do we need to make cash payments to retirees as in Social Security? Does everyone need to collect?

Well, for starters, raising the retirement age to 70 or 75 would go a LONG way to solving the money problem for social security.

[Broomstick]

I sometimes think we should hand church and community groups retiree-care responsibilities, under strict state-enforced standards. Those groups are predominantly local and therefore hypothetically more responsive to local needs, they are constituted as community organizations to start with, and it's about time they began earning their tax exemptions by doing something of some actual utility to the nation.

So... hand it over to the churches? Seriously? Won't that fuck up the atheists? You'd be making church (or other religious) membership de facto mandatory for all but the wealthy.

[Starglider]

'No, really, ignoring the drop in tax revenue is gonna work fiiiine. And I will immediately reject ideas of cutting military or intelligence spending, despite the mounds of data that the int industry is bloasted, and I will ignore the idea of simply not renewing the Bush tax cuts, since they've already failed to extend them this year, twice.'

Shep, stop drinking the kool-aid.

You completely missed Shep's point (as usual). Your argument is a strawman; he didn't object to those things. His points are that (a) increasing taxes in the US past the current level has historically shown declining returns, (b) you're unlikely to get Federal government revenue over 25% of GDP with any remotely sane tax structure (note that you have to leave something for state and local government too), and (c) 25% of GDP still wouldn't be enough to dig the US out of the hole it's in. Cutting military spending is fine, but cutting the US defense budget to zero would only reduce this year's deficit by 50%, so obviously even extensive military cuts can only be a minor part of the solution.

[LMSx]

EDIT: How far would single-payer healthcare go towards resolving this, considering that theoretically if implemented correctly, we could save literally hundreds of billions of dollars a year in eliminated 'administrative costs' alone?

Atul Gawande has a great 2009 article that everyone should read in The New Yorker (caution: New Yorker length!) about how America's awful return on our medical costs:

Most Americans would be delighted to have the quality of care found in places like Rochester, Minnesota, or Seattle, Washington, or Durham, North Carolina—all of which have world-class hospitals and costs that fall below the national average. If we brought the cost curve in the expensive places down to their level, Medicare’s problems (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved. The difficulty is how to go about it. Physicians in places like McAllen behave differently from others. The $2.4-trillion question is why. Unless we figure it out, health reform will fail.

Even in the fucked-up private/public system the US had prior to the 2010 ACA law, we've seen areas attain tremendous quality of care combined with sustainably lower costs. If a single-payer system had the specific ability to start cultivating those sorts of innovations nation-wide, then I can see that being advantageous, but the specific examples of Rochester or Seattle suggest even a system with private actors, properly nurtured, can succeed. But can that happen? And would those who prefer to take on the unpopular task of abolishing Medicare without assuming specific responsibility for doing so even allow that to happen?

[SirNitram]

'No, really, ignoring the drop in tax revenue is gonna work fiiiine. And I will immediately reject ideas of cutting military or intelligence spending, despite the mounds of data that the int industry is bloasted, and I will ignore the idea of simply not renewing the Bush tax cuts, since they've already failed to extend them this year, twice.'

Shep, stop drinking the kool-aid.

You completely missed Shep's point (as usual). Your argument is a strawman; he didn't object to those things. His points are that (a) increasing taxes in the US past the current level has historically shown declining returns, (b) you're unlikely to get Federal government revenue over 25% of GDP with any remotely sane tax structure (note that you have to leave something for state and local government too), and (c) 25% of GDP still wouldn't be enough to dig the US out of the hole it's in. Cutting military spending is fine, but cutting the US defense budget to zero would only reduce this year's deficit by 50%, so obviously even extensive military cuts can only be a minor part of the solution.

Please show evidence for (a). And his reply was calling the roadmap accurate after I showed the inherent dishonesty of it. As for national bankruptcy.. Well, surprisingly, Spain and Argentina are still here.

[LMSx]

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Interesting. Over what time period is the author talking about? After all, the scale of adjustment intuitively would be different if we were trying to reduce costs to a certain level by 2011 vs. by 2075. (Link: google "IMF july 2010 selected issues paper")

7. The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates (Table 2). Using the same discount rate (3 percent) used by the Trustees of the Social Security Administration (2009) in their own Social Security-specific fiscal gap analysis and by CBO (2010e), and the infinite horizon definition, the U.S. fiscal gap is about 14 percent of the present discounted value of U.S. GDP under the Staff’s Scenario. This implies that closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP, that is to say that fiscal revenues and spending would need to change so that the primary balance predicted under that scenario improves by this amount every year into the indefinite future starting next year.2 Using the Alternative Scenario the fiscal gap increases to about 141⁄2 percent of the present discounted value of GDP (owing to the assumption that tax cuts are made permanent).
8. The fiscal gap under a finite horizon definition, or a larger discount factor, is smaller (but still sizeable) (Tables 2 and 3). Using a 6 percent discount factor reduces the gap to 73⁄4 to 81⁄2 percent of GDP.3 Targeting a return to the 2008 federal debt-to-GDP ratio by 2083 under the Alternative Scenario, for example, implies a fiscal gap of about
81⁄2 percent of GDP.4
9. The main drivers of the fiscal gap are rising healthcare costs that under current law will boost mandatory spending to above 18 percent of GDP by 2050.5 Since the federal government has historically collected about 18.4 percent of GDP in tax revenues, this means that mandatory programs may absorb all federal revenues sometime around 2050, or as early as 2026 when the cost of servicing the debt is added. As a result, future entitlement reforms will be necessary to restore fiscal sustainability.

Infinite? Well, any driver over a long enough projection is going to crash. Trying to plan for the heat death of the universe sounds awfully sketchy, and a Factcheck.org report from 2005 on Social Security suggests that skepticism could have merit: (I just realized this was actually also Surlethe's link!)

The Infinite Horizon – Is it useful?

Contrary to the technical panel’s endorsement, the American Academy of Actuaries, a nonpartisan organization that sets standards of practice for actuaries in the US , disputes the value of the infinite horizon projection. In fact, they said it probably would mislead anyone lacking technical expertise and that it provides “little if any useful information” about the system’s long-term finances. In a December 2003 letter to the Social Security Advisory Board, the Academy wrote:

American Academy of Actuaries: …The new measures of the unfunded obligations included in the 2003 report provide little if any useful information about the program’s long-range finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic, and actuarial aspects of the program’s finances into believing that the program is in far worse financial condition than is actually indicated.

The Academy states that there is already much uncertainty using 75-year projections, and that extending estimates into the infinite future only increases that uncertainty, producing results that "are of limited value to policymakers.” They point out that changes which took place over the last 75 years were unforeseeable to actuaries in 1928, such as the Great Depression or the baby boom, and therefore have no reason to expect that unforeseeable changes will not occur in the future.

Demographic and economic assumptions have always been a controversial issue among demographers predicting the long-term sustainability of Social Security. Significant advances in life expectancy have taken place over the last century, which exert more pressure on the system's finances as people live longer lives. Whether future mortality rates will continue to slow or increase with medical technology, the Academy of Actuaries argues that the inconsistencies which arise from such long-range assumptions are "inevitable" when making projections over the course of infinity. For this reason, they conclude that the infinite-horizon measurement is a “detriment” to the Trustees Report. They write:

American Academy of Actuaries: Thus, we believe that including these values in the Trustees Report is unnecessary and is, on balance, a detriment to the Trustees’ charge to provide a meaningful and balanced presentation of the financial status of the program.

One final note: The Trustees and actuaries give the $10.4-trillion figure and others what is called "present value," a theoretical lump-sum figure that takes into account expected future inflation and interest rates. Otherwise, any continuing deficit projected into the infinite future would automatically become an infinitely large sum.

p.53 of the IMF report also goes on to note that its dismal report is specifically counting on existing cost-cutting aspects of the new health care law being repealed, and adds this caveat:

These assumptions have a potentially large effect on the size of the fiscal gap because the full implementation of such policies—according to OMB estimates— could reduce the fiscal gap by some 2 to 3 percentage points of GDP. However, they reflect a view, incorporated in CBO’s Alternative Long-Term Scenario, that changes to the current law are likely to occur or that some provisions of law may be difficult to maintain for a long period.

In spite of admirable and successful efforts by Democratic politicians to enact responsible long-term legislation, in other words.....

It's a little hard to untangle, exactly, but there's also a "2 3/4 of GDP adjustment on taxes AND Medicare cap" which (I think) involves that much increase in tax revenue and lops off 40% of the projected gap over the infinite horizon. Keeping the existing 2010 health care cost controls and adding this sounds like the metaphorical low-hanging fruit that if applied to the ~8% 75 year deficit gap, would make the scale of our "crisis" even smaller. The more you peer into the OP's figures, the less impressive this "effective" bankruptcy declared by the IMF sounds.

One more thing about Table 3- the "infinite horizon" specifies full repayment of the debt. Full repayment of the debt? Who gives a shit about that? That's an admirable long term goal, but on top of everything else, declaring that we are bankrupt now because over an infinite horizon the cuts necessary to completely repay our debt are steep smacks of dishonest accounting.

[LMSx]

Just a side note: the IMF says

it has been argued that when fiscal pressures are concentrated in the long run, as in the United States, using the infinite horizon definition is preferable because finite horizon measures of the gap can underestimate the necessary adjustment (see Gokhale and Smetters, 2006).

Their citation appears to be to quite an interesting source- this team of Gokhale and Smetters released a paper in 2003, for example, that used this sort of infinite horizon accounting:
Link

What made the report such a hot item was the outsized estimates it produced for the long-term federal deficit and the method it used to arrive at the portion that derived from Social Security and Medicare. The CBO’s most recent estimate had the entire federal debt growing to $3.8 trillion by 2008. Gokhale and Smetters brushed this aside, calculating that the federal budget’s 2004 “fiscal imbalance” came to $44.2 trillion in 2003 dollars, and that this would rise to $54 trillion by 2008 if steps weren’t taken immediately to correct it. Of that, Medicare would account for $36.6 trillion and Social Security for $7 trillion. The rest of the federal budget would account for “only” $500 billion.

The World GDP as of 2009, according to the CIA Factbook, is $58 trillion.

[aerius]

Their citation appears to be to quite an interesting source- this team of Gokhale and Smetters released a paper in 2003, for example, that used this sort of infinite horizon accounting:
Link

That was a pretty damn good prediction. The unfunded liabilities as of 2008 is generally accepted to be $53 trillion or so. They would've nailed the budget deficit too if it weren't for all the bailout and stimulus spending.

[LMSx]

Their citation appears to be to quite an interesting source- this team of Gokhale and Smetters released a paper in 2003, for example, that used this sort of infinite horizon accounting:
Link

That was a pretty damn good prediction. The unfunded liabilities as of 2008 is generally accepted to be $53 trillion or so. They would've nailed the budget deficit too if it weren't for all the bailout and stimulus spending.

It would have taken a $53 trillion surplus in 2008 in order for us to be on sound financial footing?

[Elfdart]

Well I guess in that respect a big question becomes "what constitutes necessary services?" Do we need to make cash payments to retirees as in Social Security? Does everyone need to collect?

Well, for starters, raising the retirement age to 70 or 75 would go a LONG way to solving the money problem for social security.

If you really want to fix Social Security, just lift the cap on taxable earnings so everyone pays at the same rate.

Anyway, the idea that "OH NOES! SOSHUL SECURITY IS GOING BROOOOOOOOOKE!" is pure bullshit:



One minor quibble with Sam Seder's presentation is that Dubya didn't start calling for the gutting of SS in 2005. In fact, he started in 1978 when he first ran for Congress. It was bullshit then and it's bullshit now.

[MKSheppard]

'No, really, ignoring the drop in tax revenue is gonna work fiiiine.

In 1969; the median average household (we can call that the middle class for convience) made $37,559 and was taxed at 45%. At the same time, the highest median tax rate was 77%. Government revenue of 18.98% of the GDP.

In 1999 the median average household (again middle class) made $50,046; and was taxed at 28%. At the same time, the highest median tax rate was 39.6% Government revenue was 19.54% of the GDP.

You can see how the government in 1969; with a tax rate 1.6 times that of 1999 on the middle class, and 1.94 times that on the richest, brought in 0.56% LESS revenue as a percentage of GDP.

In fact, if you don't believe me; look at THIS graph. You can see how US Government revenues fall in the nice 15% to 20% band overall.

Then compare that earlier graph with THIS one.

But lets humor you. Lets say that we double tax rates across the board and raise the percentage of GDP collected as taxes to 20.79% of GDP which is the biggest we ever got it to, in 1976.

You would only raise $3,033.261 billion; and outlays are $3,518 billion for FY09; still leaving you a nice $484 billion in the hole.

The biggest slices of the Federal budget outlays are as of 2009:

Defense: 782B (23%)
Social Security: 678B (20%)
Medicare/Medicaid: 676B (19%)
Other Mandatory: 607B (17%)
Other Discretionary: 437B (12%)
Interest on Debt: 187B (5%)
TARP: 151B (4%)

You would have to cut the Military budget by 61%; in order to even BRING us close to a balanced budget.

This tactic would only push off the reckoning by 25 years, due to the looming Medicare/Social Security bomb. Right now, both are in the red, paying out more than they take in.

Now; normally....this would not be a problem; since both programs (SS/Medicaid) have trust funds intended to cover precisely this kind of stuff.

But there's just one catch.

There ARE no assets left. The trust funds got raided years ago to fund government operations.

So money has to be taken from the general government fund in order to meet Social Security costs (otherwise people see their checks stop or cut in amounts).

How bad will it get?

LINK

You can see the projections leading to nice deficits of $300B by 2020; and then $700B~ by 2035 (Holy christ batman!!!).

So spending cuts are inevitable, unless you want the government to simply become "those guys who pay out entitlement program checks" with nothing left over for national parks, industrial regulation, etc.

Now; you can take your strawman about military spending and shove it up your ass.

I am not opposed to military budget cuts -- we can do with a smaller Army and Marine Corps, and some decrease in the size of the USAF and USN; as long as we reduce forces intelligently (e.g. get rid of fighter wings with 200 F-16s in them and use half of the money saved to pay for more F-22s or F-35s for the remaining fighter wings to increase lethality).

But why is it that the military is always the first (and in many cases only) case that idiots like you look when the U.S. Federal budget needs to be cut?

If the MIC is bloated, then so is the Government Agency/Regulatory complex.

For fuck's sake, the Federal Register in for the last ten years has averaged about 70,000 pages a year.

Companies have to basically hire services who do nothing but read the FR every day to find things that would impact that sector's operations.

Cut down on the god damn regulation spam and hire more enforcement personnel to inspect and audit company sites instead of writing regulations.

[SirNitram]

Well, not who I asked for the proof of a max tax rate, but I think we need to get off the 'just cutting the military'. And I love the reflexive slur 'idiots like you'. Like I said, the real bloat is the Intelligence apparatus. Plus, I'm not proposing a return to 45%. Restore the Clinton era rate. Finally, get us our of the recession. This is devastating the federal receipts. Finally, the 'social security bomb' relies on the idea that it's load of treasury bonds aren't there, ticking over with huge amounts of interest, and that projecting more than ten years is.. Well, how can you?

As for 'cut down the regulation spam'.. Reagan did that. The debt only increased.

[Kanastrous]

I sometimes think we should hand church and community groups retiree-care responsibilities, under strict state-enforced standards. Those groups are predominantly local and therefore hypothetically more responsive to local needs, they are constituted as community organizations to start with, and it's about time they began earning their tax exemptions by doing something of some actual utility to the nation.

So... hand it over to the churches? Seriously? Won't that fuck up the atheists? You'd be making church (or other religious) membership de facto mandatory for all but the wealthy.

You know, I had been thinking of ways to make it work...and it won't. Possibly them most Village Idiottm-worthy idea I think I've yet posted. Gotta cut back on the animal tranquilizers.

[montypython]

Some interesting food for thought:

Former Reagan Budget Director David Stockman: 'The GOP Destroyed U.S. Economy'

Sure, lots of people say that. But not all of them were Ronald Reagan's budget director. Now mind you, Stockman's hardly a liberal -- he's bemoaning the fact that Republicans haven't managed to slash social spending and entitlement programs, but he's saying that as long as we have these programs, the only honest thing to do is raise taxes, not cut them:

ARROYO GRANDE, Calif. (MarketWatch) -- "How my G.O.P. destroyed the U.S. economy." Yes, that is exactly what David Stockman, President Ronald Reagan's director of the Office of Management and Budget, wrote in a recent New York Times op-ed piece, "Four Deformations of the Apocalypse."

Get it? Not "destroying." The GOP has already "destroyed" the U.S. economy, setting up an "American Apocalypse."

Stockman rushes into the ring swinging like a boxer: "If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation's public debt ... will soon reach $18 trillion." It screams "out for austerity and sacrifice." But instead, the GOP insists "that the nation's wealthiest taxpayers be spared even a three-percentage-point rate increase."

Stockman says "the second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40% of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970." Who's to blame? Not big-spending Dems, says Stockman, but "from the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts."

Finally, thanks to Republican policies that let us "live beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore," while at home "high-value jobs in goods production ... trade, transportation, information technology and the professions shrunk by 12% to 68 million from 77 million."

As the apocalypse draws near, Stockman sees a class-rebellion, a new revolution, a war against greed and the wealthy. Soon. The trigger will be the growing gap between economic classes: No wonder "that during the last bubble (from 2002 to 2006) the top 1% of Americans -- paid mainly from the Wall Street casino -- received two-thirds of the gain in national income, while the bottom 90% -- mainly dependent on Main Street's shrinking economy -- got only 12%. This growing wealth gap is not the market's fault. It's the decaying fruit of bad economic policy."

Get it? The decaying fruit of the GOP's bad economic policies is destroying our economy.

article link

[Aaron]

Well, not who I asked for the proof of a max tax rate, but I think we need to get off the 'just cutting the military'. And I love the reflexive slur 'idiots like you'. Like I said, the real bloat is the Intelligence apparatus. Plus, I'm not proposing a return to 45%. Restore the Clinton era rate. Finally, get us our of the recession. This is devastating the federal receipts. Finally, the 'social security bomb' relies on the idea that it's load of treasury bonds aren't there, ticking over with huge amounts of interest, and that projecting more than ten years is.. Well, how can you?

As for 'cut down the regulation spam'.. Reagan did that. The debt only increased.

Note that he said "increase enforcement" as well. He has a point that all the regulation in the world won't help if you don't bother to do anything with it.