Worth a Thousand Words

 

Every year the Heritage Foundation publishes its Federal Budget in Pictures. The latest version of the report has a picture in it I simply cannot get out of my head.

where-did-your-tax-dollar-go-680

You’ll note immediately that over half of federal spending is now classified as “mandatory” entitlements, meaning it is sacrosanct. In 2014 this number was 49 percent of the budget, and in 2013 it was 45 percent according to previous reports. Clearly entitlements are taking up a greater share of federal spending every year. On the other end there is debt service, which is squeezing “discretionary” spending — also known jokingly as “legitimate functions of government” — with greater force every cycle.

More troubling is the mindset behind the programs. If you combine the mandatory social safety net spending with the mostly discretionary “Income Security” spending (mostly discretionary because federal worker benefits fall in this category as well), then you find a whopping 70 percent of federal spending going directly from individual to individual. Whether it is social security or welfare, the working subsidize the non-working in our nation. We tax the labor of the willing and able to pay for the lifestyles of the incapable and unwilling, and we do so to a greater degree every year.

Unsustainable is one word often used to describe our “entitlement” programs. I’d like to offer the word immoral as a suitable replacement.

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  1. Pleated Pants Forever Inactive
    Pleated Pants Forever
    @PleatedPantsForever

    Great graphic. What is also pretty awesome is net interest is 7%. . . .when interest rates are near zero! What happens if we return to the days of 5% federal borrowing rates which we had in 2007?

    • #1
  2. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    Pleated Pants Forever:Great graphic. What is also pretty awesome is net interest is 7%. . . .when interest rates are near zero! What happens if we return to the days of 5% federal borrowing rates which we had in 2007?

    My prediction is either no military or riots when entitlements get cut by reality.

    I wonder how much the debt service factors into the fed’s interest rate calculations…

    • #2
  3. BrentB67 Inactive
    BrentB67
    @BrentB67

    Which candidates are talking seriously about this? Not pie in the sky we will grow our way out of this, etc.?

    • #3
  4. BrentB67 Inactive
    BrentB67
    @BrentB67

    The King Prawn:

    Pleated Pants Forever:Great graphic. What is also pretty awesome is net interest is 7%. . . .when interest rates are near zero! What happens if we return to the days of 5% federal borrowing rates which we had in 2007?

    My prediction is either no military or riots when entitlements get cut by reality.

    I wonder how much the debt service factors into the fed’s interest rate calculations…

    The Fed is supposed to be non-partisan, but the NY Fed desk is Very plugged into the U.S. Treasury market. I don’t think the FOMC sets rates with consideration of the debt level, but I would be shocked if it doesn’t factor into their consideration at some point.

    Additionally, most of our publicly held debt (Non Fed Balance Sheet) has a duration <7 years.

    • #4
  5. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    BrentB67:Which candidates are talking seriously about this? Not pie in the sky we will grow our way out of this, etc.?

    None. Rubio put out a proposal, but I found it to be unserious. Most rely on the magical growth fairy. Williamson wrote about it on Sunday (which cued me on the Heritage work.) I’d link/quote him, but my work computer won’t display NRO.

    • #5
  6. 9thDistrictNeighbor Member
    9thDistrictNeighbor
    @9thDistrictNeighbor

    Boy that 1 percent for K-12 education sure is wreaking havoc.

    • #6
  7. MLH Inactive
    MLH
    @MLH

    BrentB67:Which candidates are talking seriously about this? Not pie in the sky we will grow our way out of this, etc.?

    Wait. Is this a trick question?

    • #7
  8. Z in MT Member
    Z in MT
    @ZinMT

    “From each according to his ability, to each according to his need.”

    Like they used to say of GM:

    We have a pension system that also has a military.

    • #8
  9. BrentB67 Inactive
    BrentB67
    @BrentB67

    9thDistrictNeighbor:Boy that 1 percent for K-12 education sure is wreaking havoc.

    Yes, but it is just one more step that we can eliminate and return to the states.

    • #9
  10. Vance Richards Member
    Vance Richards
    @VanceRichards

    So if I am reading that right, 70% is wealth redistribution?

    • #10
  11. Pleated Pants Forever Inactive
    Pleated Pants Forever
    @PleatedPantsForever

    My prediction is, aside from a statement here or there, zero will happen until either interest rates spike and we have a debt crises or inflation gets out on control. I don’t think anyone has the wisdom to do anything outside an actual crises because they see it as political suicide. Look at Greece, they only started instituting – some – changes after events like borrowing costs skyrocketed and capital controls with $40 ATM limits were initiated. It is going to take a shock to knock most people out of their normalcy bias

    • #11
  12. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    Vance Richards:So if I am reading that right, 70% is wealth redistribution?

    Slightly less because a few federal employees (me, on occasion, for instance, actually works a little for it), but basically yes. If, and this is a really big if that has long since passed, SS actually held and grew people’s taxes and returned them it would not be a wealth transfer, but because government spent all the money and pays current recipients with current taxes it simply redistributes wealth from the working to the non-working.

    • #12
  13. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    Yes, we’re a compassionate and charitable nation, but this is neither compassion nor charity as rightly understood. Puts me in mind of this picture.

     charity

    • #13
  14. MBF Member
    MBF
    @MBF

    The candidates tried to discuss social security at the last debate, but Jake Tapper cut them off so he could move on to asking them about climate change.

    • #14
  15. BrentB67 Inactive
    BrentB67
    @BrentB67

    The King Prawn:Yes, we’re a compassionate and charitable nation, but this is neither compassion nor charity as rightly understood. Puts me in mind of this picture.

    charity

    I am trying to send this to PopeFrancis@gmail.com, but it gets kicked back. Anyone got a better addy?

    • #15
  16. MLH Inactive
    MLH
    @MLH

    Brent,

    Try yahoo.com.

    (And I just realized the implications/possible pun as I typed it.)

    • #16
  17. No Caesar Thatcher
    No Caesar
    @NoCaesar

    Pleated Pants Forever:Great graphic. What is also pretty awesome is net interest is 7%. . . .when interest rates are near zero! What happens if we return to the days of 5% federal borrowing rates which we had in 2007?

    Great point.  Are the geniuses in DC ready for 5X interest costs?  No.  And neither are Americans, thanks to great work of the “Mainstream Media”.  The Obama administration has exacerbated this problem by borrowing more than all who went before them, and because they have overly favored shorter-term debt in order to minimize interest charges now.  When (not if) interest rates rise to historical norms this will make the problem all the more immediate and the effects more catastrophic.

    • #17
  18. PHCheese Inactive
    PHCheese
    @PHCheese

    Of course SS transfers money from the working to the retired. That is why it is a retirement fund. It’s not as those that are receiving SS never contributed .

    • #18
  19. MLH Inactive
    MLH
    @MLH

    This is a real question. Please don’t laugh out loud at me.

    Might taxing some of the “security income and other benefits” be an incentive to work instead?

    • #19
  20. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    MLH:This is a real question. Please don’t laugh out loud at me.

    Might taxing some of the “security income and other benefits” be an incentive to work instead?

    Very unpopular idea. People like free stuff. The only thing they like better is more free stuff.

    • #20
  21. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    PHCheese:Of course SS transfers money from the working to the retired. That is why it is a retirement fund. It’s not as those that are receiving SSnever contributed .

    Do you also expect to get your income taxes back?

    • #21
  22. Western Chauvinist Member
    Western Chauvinist
    @WesternChauvinist

    If it makes you feel any better, a relative (who was the risk manager for the Parrish of Lafayette for decades) tells me, pre-Katrina, there were three (or maybe four) hospitals which ate up over half of Louisiana’s state budget annually in “health care for those who can’t afford insurance.”

    So, all we really need to fix this is a really, really big storm. Yeah. Sounds like a project for the feds.

    • #22
  23. Sheila S. Inactive
    Sheila S.
    @SheilaS

    I would love to see SS become means tested, but with the caveat that a person who is deemed to have too high an income to receive it should be given a lump sum refund of the funds they paid into the system. This keeps people from being forced to pay into a system which will not benefit them. I’d love to know how the numbers would work out for that. Would it actually save anything? (I am not nearly wonky enough to even know where to find the numbers to figure it out.)

    Of course, it would also be great if it was eventually phased out.

    • #23
  24. Douglas Inactive
    Douglas
    @Douglas

    Kind of appropriate that the modern dollar is a rainbow here.

    • #24
  25. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    Sheila S.:I would love to see SS become means tested, but with the caveat that a person who is deemed to have too high an income to receive it should be given a lump sum refund of the funds they paid into the system. This keeps people from being forced to pay into a system which will not benefit them. I’d love to know how the numbers would work out for that. Would it actually save anything? (I am not nearly wonky enough to even know where to find the numbers to figure it out.)

    Of course, it would also be great if it was eventually phased out.

    We’re all forced to pay into a system which only benefits all of us in non-direct ways, it’s called government.

    Any time government provides products or services that are unequal from one person to the next things go sideways. Things like military protection cannot really be experienced at different levels. Things like direct payments can, and where disparities and favoritism can raise their ugly heads, they will. I suppose the founders were extremely wise in granting to the national government only the power to do things that are true public goods and very difficult with which to play favorites. One cannot look at a program like social security and say we are truly equal before the law.

    • #25
  26. Bob Thompson Member
    Bob Thompson
    @BobThompson

    Vance Richards:So if I am reading that right, 70% is wealth redistribution?

    Isn’t a rather significant portion return of capital?

    • #26
  27. Bob Thompson Member
    Bob Thompson
    @BobThompson

    9thDistrictNeighbor:Boy that 1 percent for K-12 education sure is wreaking havoc.

    I don’t think the funding here is the real problem we get by having a Department of Education.

    • #27
  28. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    Bob Thompson:

    Vance Richards:So if I am reading that right, 70% is wealth redistribution?

    Isn’t a rather significant portion return of capital?

    No. Helvering v. Davis. Once money enters the treasury it belongs to the government to do with as they wish. It’s why the term “entitlement” is way off. No dollar collected, regardless of the name of the tax, is earmarked in any way. Once they take it you can kiss it goodbye unless government deigns to return any of it.

    • #28
  29. Pilli Inactive
    Pilli
    @Pilli

    MLH:This is a real question. Please don’t laugh out loud at me.

    Might taxing some of the “security income and other benefits” be an incentive to work instead?

    You paid that money in as taxes.  Now you are getting a smaller amount back and that will be taxed too?  Talk about negative ROI…

    The long term answer is to do away with SS altogether starting with those entering the workforce for the first time and let people invest  in retirement accounts, stocks, whatever they want.  Current SS recipients would still get their pensions but as they die off that expense will too.  People in between would get a full refund of their current balance to invest s they see fit.

    • #29
  30. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    More from Cato as to why it’s not a right, which to me makes the whole program wrong.

    • #30

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