You did spend that!? More economics.By: Stephen Marsh
As we get into the campaign season, I thought I’d reprise some more basic economics and accounting. Just so you know what you spent (through your tax dollars) …
63% or so of the budget, about 2/3rds, goes out the door without any voting at all by congress. Social Security, Medicare, Medicaid, Food Stamps, Farm Subsidies — all on autopilot. That means that in 2009, every dollar of tax money had already been spent before Congress did anything. They needed debt for everything they wanted to spend. The tax revenue only covered the autopilot expenses.
For most American families, the share of income they pay in income taxes has been dropping for more than three decades. In 1981, the very middle of the middle class paid 19.2% of their income before deductions. In 2007, that number was 14.3%. As of 2011, it was 12.4%. 46% of Americans do not pay any income tax at all.
Those numbers, of course, misrepresent the tax bite of payroll and other federal taxes for Social Security and Medicare. (After all, if you want to count that spending in the spending column, the taxes used to collect money for them should be included in the tax column).
Federal payroll, including the military, runs about $435 billion a year. 64% of the 4.4 million employees are either military or civilians working in the military. $2.3 trillion went to benefits (Social Security, Medicare,, Medicaid). $230 billion in grants to state governments (schools, sewage treatment). At least we get a lot of bang for the buck, so to speak, in that we spend as much on our military as the next 17 largest spenders combined. 20% of the budget on military, with about 5% of the budget (about 20% of the military budget) on foreign wars. $700 billion a year.
25% of the budget goes to health care — which is why health care is such a tempting political target. In 1981 it was 9.5%. By 2011 it was about 25%. By 2021 it is expected to reach 32%. About half of that is for treatment of non-compliant diabetics and “frequent fliers” (people who end up in the ER about once or twice a month with health problems caused by failure to comply with medical advice). Non-compliant patients consume about 10% of your tax money at work. It is soon to become 20% (it is a large part of the growth part of federal medical expense).
Oh, and both President Obama and Mr. Ryan proposed taking about 700 billion from Medicare. The President for his health care plan, Mr. Ryan for spending that money instead by rebating it to Medicare recipients to use on their own health care insurance. Both claim that they were just trying to improve the delivery of health care services and both claim that they weren’t really taking money away from Medicare, or trying to, just improving delivery.
So. Where does that lead us?
Well, before I get there, here are two more interesting observations.
On social security, which was generally 15% of your income, if you averaged $30K per year over your working life, that’s close to $180,000 invested in Social Security. If you calculate the future value of your monthly investment in social security ($375/month, including both your and your employer’s contributions) atr 1% interest rate compounded monthly, after 40 years of working you’d have more than $1.3+ million dollars saved. Upon retirement, if you took out only 3% per year, you’d receive $39,318 per year, or $3,277 per month. That’s almost three times more than today’s average Social Security benefit of $1,230 per month, according to the Social Security Administration.
Why don’t I share in any of the outrage those numbers are supposed to generate? Because the money was spent in efforts to expand the economy — stimulus plans.
Though that does lead me to the second observation.
Most stimulus plans are net negative.
To quote an excerpt from an analysis of the last stimulus plan.
The CBO estimated that an increase in the GDP of between 1.4 percent and 3.8 percent by the end of 2009, between 1.1 percent and 3.3 percent by the end of 2010, between 0.4 percent and 1.3 percent by the end of 2011, and a decrease of between zero and 0.2 percent beyond 2014 . (As an aside, that number was eventually revised to a net negative 2014 and beyond).
What a stimulus plan does is create benefits now at the expense of losses in the future. Much like going out to dinner on a credit card, creates fun now at future expense (when you have to pay the card off). Much of what is going on now is political effort to avoid having to experience the “pain later” part of prior and current administrations stimulus and other efforts.
Ok, where does that lead us?
- Everyone is trying to change Medicare. They have to, otherwise it eventually swallows the budget.
- Eisenhower’s warnings about the Military-Industrial Complex, how it would lead to an overlarge military, and related spending, and George Washington’s warnings about how too much military would lead to the desire to use it and entanglement in foreign wars? Those remain valid concerns.
- In many ways the federal government has become a vehicle for administering retirement benefits. Social Security and Medicare payments (and the related taxes) are the core of what the government is doing — that 63% of the budget — as other programs (such as farm subsidies) continue to shrink.
But that is how you are spending your money, your tax dollars.
So, how do you think you would budget things?