Comment by roymurdock | Hacker News Reader

Comment by roymurdock | Hacker News Reader

Here's a breakdown of the US 2015 combined (Federal, State, Local) government spend:

  Total Spend: 6.18tn
  Total Revenue: 6.08tn

  Healthcare: 1.32tn     (21.3%)
  Pension: 1.20tn        (19.7%)
  Education: 0.93tn      (14.8%)
  Defense: 0.80tn        (13.1%)
  Welfare: 0.50tn         (8.2%)
  Other*: 1.43tn         (23.1%)

  *Other = Protection, Transportation, General Government, Interest

Currently, social security is taking in ~$74bn less in payroll taxes than it pays out in benefits. The $2.83tn fund is invested in federal debt that pays 3.4% interest. So the interest payment (from the Federal government) of $96.2b is enough to cover the deficit.

By 2020, interest will no longer be enough to cover the deficit between revenue in from taxes and expenditures out to retirees. At that point, the SS fund will need to start redeeming treasuries for cash. The federal government will then need to issue new debt and/or raise taxes to cover SS treasury bond redemptions.

If the Federal Reserve follows through in its quest to raise interest rates and inflation, it will be relatively expensive to raise the $2.83tn in debt that we will need to fund SS through 2029, when it is projected to completely deplete its reserves of treasury notes. At this point, SS will only be able to pay out 75% of promised benefits given the current tax rate and demographic trends.

Healthcare expenses lean heavily towards the old but are funded by the working age population. What happens as the birth rate decreases and the average individual lives longer? Expenses increase for the working-age population.

I'm less concerned about spend on education (which is broken) than I am about how we plan to fund our health care and pension systems. The only feasible way I can see is through increased taxation. I just started working last year. Hell of a time to enter the work force! Overall it seems to me like we are paying an increasing amount of our federal budget on the older population than we anticipated we would need to and that we did not adequately provision for.

> If the Federal Reserve follows through in its quest to raise interest rates and inflation, it will be relatively expensive to raise the $2.83tn in debt that we will need to fund SS through 2029

The Federal Reserve is not on a "quest" to "raise interest rates and inflation", it is raising interests rates not as a goal of its own, but as a means to restrain, rather than raise, inflation. (h/t to laurencerowe for catching the dumb mistake I made earlier here by reversing the effect sought -- the correction actually makes reality farther from "raise interest rates and inflation" than my initial response.)

And even with rates much higher than any that the Fed is likely to raise them to between now and 2020, new government debt has been fairly cheap. Not as cheap as it is now, but not particularly expensive.

Further, if it is more expensive to issue new government debt, than the returns on the Trust Fund will be greater, and it will not be exhausted as soon. (In fact, the "low cost" alternative scenario -- in which Social Security is solvent as far out as projections go -- is, compared to the intermediate projection, based on higher interest rates, higher inflation, and higher employment [the latter of which is one of the factors which lead the Fed to seek higher interest rates, since balancing inflation against employment is a big part of what they do]. So the Fed being on that "quest" is, arguably, a positive sign for Social Security.)

(Anyhow, the most recent -- 2015 Trustees Report -- intermediate projection is for exhaustion of the Old Age & Survivors Trust Fund is in 2035, not 2029.)

> to maintain, rather than raise, inflation

The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

http://www.federalreserve.gov/newsevents/press/monetary/2015...

> exhaustion of the Old Age & Survivors Trust Fund is in 2035, not 2029

Social Security’s combined reserves likely will be fully depleted by 2034, according to the trustees’ intermediate forecast. The disability-insurance trust fund could run dry as soon as the end of 2016, while the old-age and survivors’ fund is expected to be depleted in 2035 – assuming it’s not tapped to backfill the disability fund. (The Congressional Budget Office, in a separate report that uses somewhat different demographic assumptions, projects that the disability fund will be exhausted in fiscal 2017 and the old-age and survivors’ fund in calendar 2031; if the funds are combined, they would be exhausted in calendar 2029.) The exact depletion dates depend, of course, on future demographic and economic trends. After the reserves are exhausted, the system still will be receiving tax revenue, but it will only be enough to pay about three-quarters of scheduled benefits – unless Congress changes the benefit formulas, raises the payroll tax, or makes other changes such as raising the cap on taxable wage income (currently $118,500).

http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-abou...

> The Federal Reserve is not on a "quest" to "raise interest rates and inflation", it is raising interests rates as a means to avoid deflation (or, phrased differently, to maintain, rather than raise, inflation.)

Raising interest rates generally lowers inflation. The Fed recently raised interest rates because it thought the danger of deflation had receded as inflation had begun to increase (though inflation remains below the 2% target.)

Healthcare spending is at least as broken as education: The US health care system is 50-100% more expensive per capita as comparable European systems, yet less capable. There's lots of savings potential here.

I'm not saying i believe it but the counterargument i've heard to this is that the US also funds the most medical research.

I havent seen anyone clearly explain how more expensive bandaids trickle down into the pockets of researchers, but nevertheless it is a common counterargument to the US spending much more than other countries on healthcare

You have a gap of .1 tn (a hundred billion dollars) of spend over revenue, implying an annual deficit of that amount.

From what I read the Federal deficit was >$400 billion in 2015 and the majority of states and municipalities seem to run either at neutral or a slight deficit.

What am I missing here or how does the math work out?

I sourced spending data from http://www.usgovernmentspending.com/ and revenue data from http://www.usgovernmentrevenue.com/. Lots of good links and transparency wrt data sourcing (mostly from gov) and calculations of totals.

In 2015 Federal spend was 3.8t and revenue was 3.2t, so there was a gap of -600bn there as you mentioned. States ran a surplus of 200bn and local ran a deficit of -400bn. Intergovernmental transfers amounted to 600bn. So the total deficit was -200bn (the top level numbers are rounded to one decimal place).

The consensus is that Social Security is fixable, mostly. You wouldn't need to pay too much more into it in some manner to make it sustainable. They may need to raise the age again, but since none of the hard decisions have to be made for 10-15 years down the line, no one is making them.

Healthcare is one of the bigger problems. Maybe the ACA will "bend the curve" enough to make it more sustainable. If not, then more cost cuts or higher wage taxes are the future for that. At least the issue is looking better now than it was 5-10 years ago.

None of these are as important as making sure we don't end up in some kind of $1-2Tn war or wreck the environment enough with global warming that we have major infrastructure and agriculture issues.

> Expenses increase for the working-age population.

This only happens when your tax policy is setup to fund welfare through the working poor. As an economy as a whole the US has doubled in inflation adjusted wealth in just over ten year (since 2003) and through a recession. It is obvious that the overhead of welfare has not in any way stymied US economic growth, which simply means if the tax burden of the elderly is too great upon the working poor then you are taxing the wrong source of income to fund your retirement program.

Only $74bn short? That works out to $232/yr each, or an extra $20 per citizen per month.

That doesn't sound like all that much to spend to ensure Social Security stays available.

I think if you told people "we need to raise revenue through taxes 1.6% to ensure Social Security stays solvent for all working adults", most reasonable people would agree to that. At least, I would hope most people would think that's fairly reasonable.

They'll say "I don't trust the government to spend that money properly. Take $232/yr away from some entitlement program that services people who aren't directly related to me."

Is "they" a large enough voting cohort for it to matter?

Yes, I think you'll find that the majority of U.S. citizens will vote down a tax increase, even if the intentions are good.

I think you underestimate the size of the 55+ voting cohort. Taxes are going up, no matter what.

Federal Debt is $59K per person. http://www.bloomberg.com/visual-data/best-and-worst//most-go...

So that's about $120K per taxpayer.

It takes a long time to pay that kind of debt down on stagnant wages.

It's more than the annual GDP and one of the worst in the world: https://en.wikipedia.org/wiki/List_of_countries_by_public_de...

The right alternative to raising taxes might be to moderate spending and trying to pay down the debt. We need to not leave the kids with a bum debt.

Do what other civilized nations do.. Control drug prices and rein in military spending.

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