Hacker News Reader

Comment by nostromo | Hacker News Reader

> You pay taxes that are not much higher than in the US and actually get things in return

This is what bothers me the most about the U.S. Federal Government. Most of the things I enjoy in the U.S. are provided by my city, county and state. Things like courts and fire protection and cops and roads and schools and water and sewage systems and electricity and parks.

And what's amazing about all that is I don't pay very much for it. States and cities seem to be able to really stretch our tax dollars.

I pay a lot more into the federal government and in return I get interstates (which are awesome) and the TSA at airports and borders. Other than that, I don't really have many tangible interactions with the federal government at all. This was made very obvious during the shutdown, which I wouldn't have noticed if I hadn't been reading the news. It seems to be largely a money pit.

View on HN

The top programs the Federal Government pays for are Social Security, Medicare and Medicaid, and the military. Everything else is in the small single digit percentages.

If you're not fighting a war or retired, it's not a surprise that you don't see much direct benefit from federal spending.

State operations like schools, streets and roads, airports, transit, and police are much more visible in daily life. Still, state budgets are supplemented with grants from the federal government, too.

But the big point here is that retirement and health care and war are the biggest federal operations. And, to reference op, you don't get much benefit of that living overseas.

--- Incidentally, the TSA is paid for by air ticket taxes and the interstates were paid for mostly by federal gas taxes and maintained by state taxes. Only new highway construction is paid for out of federal income taxes since the gas tax became unpopular in Congress in the 1990s and was allowed to drop too low to pay for highway grants so it was replaced with income tax money. So even your visible federal tax benefit examples aren't really paid out of federal income tax.

Social Security and Medicare are not entitlement programs. They are insurance programs that are largely acutuarily sound. They should not be considered government expenditures as they are funded by the users of the insurance programs.

They are entitlement programs. Current taxpayers pay for current beneficiaries, and it has been that way since the programs were founded. Who do you think paid for the first recipients of social security?

> Who do you think paid for the first recipients of social security?

I didn't know this was the case. Why would they start paying out as soon as they started collecting? It makes no sense to me.

When you strip away the financial facade, what remains is current workers providing surplus output for retirees to consume.

That's true, but it's also true of any savings scheme, and any scheme where retirees exist, public or private.

Yes, the differences between them being how much they provision. Social Security allots more of the surplus to retirees than the previous status quo.

They actually didn't intend to; it was supposed to have around a decade of money paid in before any started going out. Also, though, remember that it didn't cover the same people it covers now.

Can we go back to a scheme where we have a decade of money paid in? I'd happily pay a little more if it helps end the endless name calling and what not.

It's heading that way right now, although the baby boomers will presumably reverse that fairly soon. Here's a table from 1937 to 2013:

http://www.ssa.gov/oact/STATS/table4a1.html

I found it interesting that the system looks to be in far better shape today than it has been for many decades. In the early ears, assets outweighed expenditures by a huge amount, sometimes by more than a factor of 10. As you move down the table, this stops, and in the 1970s it hits a 1:1 ratio of yearly expenditures to assets, then shoots way past. In 1983, the trust fund had under $20 billion in assets but the program spent $153 billion! That's clearly a program where current taxpayers are paying for current retirees, rather than the savings program it's painted as.

By the late 80s, things start looking much better, as income substantially outweighs expenditures. In 2001, the trust fund exceeded $1 trillion while expenditures were at a considerably more modest $378 billion. The 2013 figure has about $2.7 trillion in the trust fund, with expenditures of about $679 billion. Not a factor of 10, but certainly far better than the 60s, 70s, or 80s.

I knew that SS was in better shape than many people say, but I had no idea that it used to be so much worse. The picture painted by the naysayers is one of a long slide towards disaster, whereas it looks like the program is currently doing great. Future demographic shifts will certainly hurt a lot, but compared to the years when the trust fund was essentially nonexistent there's almost nothing to worry about.

I don't think that is correct for social security.

I just started taking social security (yes, I am an old programmer :-) and unless I live a very long time I will never get back all that I have paid into social security, if you take I to account what I put in and earn a small amount of interest on the money (which is not so small with compounding).

Medicare is more of a government handout - I agree with you there.

I imagine the first recipients of Social Security paid for themselves.

This page has the story of the first SS beneficiary:

http://www.ssa.gov/history/imf.html

This wasn't until 1940, even though the program began three years before.

As far as I know, SS benefits are and always have been determined by what you pay in, from the beginning. Do you have information to the contrary?

The distinction is meaningless. It is always the case that the currently economically active part of the population pays for those who aren't active. [1]

If you prefer thinking in monetary terms (as most people do), think about somebody who has a retirement savings account. Their money comes out of payments that firms make (in the form of interest on bonds, or in the form of dividends etc.). This is money that could otherwise have gone to the employees of those firms.

To get an even clearer picture, think about it in real terms. Retirees use up real resources and services that are generated by the currently working population. So the current workers provide for the current beneficiaries, plain and simple. The movements of money that are used to reflect the movements of real resources is really just a thin layer on top, and it would be wise not to focus too much on the cosmetics of that thin layer.

[1] Mostly children and retirees and, if you allow yourself to be honest about the reality of capitalism, the rich and powerful.

In effect they hit the budget, as they only "invest" in US government securities. Now that SOcial Security doesn't have a surplus, it is drawing off of debt service payments paid by the treasury.

It's an entitlement program masquerading as an investment program, largely by design, as the high payroll taxes that accompany the program are meant to provide it political legitimacy.

To pick a nit, people in the armed services don't get benefits, they get compensation. The beneficiaries of the armed forces are the ones not fighting.

You also leave off debt service, which is approaching the military budget in size.

That aside, I agree with what you wrote.

>You also leave off debt service, which is approaching the military budget in size.

There's a lot of FUD and wrong opinions approaching the national debt, and people don't think about it correctly.

Very briefly, I'll make one point to bring some of this to light: 40% of the national debt is owned by the government.

* 16% by social security (so this portion isn't debt service, it's SS funding) * 13% by other government entities (likewise funding these agencies) * 12% by the Federal Reserve (whose profits are remitted to the Treasury, this money is free)

Another 25% of the debt is owned by Americans in some form or another.

For comparison, the two largest foreign debt holders are China and Japan each with about 7%.

I fail to see why that's better.

If default is the worst case scenario, defaulting on foreign banks seems preferable to defaulting on your retirees. The same is true for money printing, as retirees are harmed greatly by inflation.

If you owe debts to other countries you have to pay that money outside the system. So it takes a certain percentage of production (GDP) and pays the benefit of that production to people in other countries. Japan has a much bigger debt problem than the USA in percentage terms. Nearly all their debt is owed to those in Japan so when it is paid it merely redistributes wealth (rather than losing it to those overseas).

While inflation can allow you to payoff debt with less valuable $ and thus reduce the value of what is given to other countries (also to retirees and other holders of government debt but for the matter of losing wealth to other countries that isn't a factor). But markets adjust and unless you have now paid off all your debt and owe nothing you have to borrow again, and lenders will demand larger interest payments to make up for the risk of your debasing the currency to pay them back worthless dollars. So while this can maybe work in the short term if you fool the markets it most likely doesn't work in the long term for the USA.

I would say it is probably true defaulting on foreign banks would be preferable but it isn't that neat. The USA would default to everybody and it would be chaos (because of the central role of the USA - different than if some minor economic power defaults). The USA owes lots to foreigners and those in the USA and while spreading the costs of default overseas sounds better really it would be so catastrophic I doubt it matters. Debasing the currency through inflation is what would happen instead in the case of the USA. Which would have bad costs to the USA and to those holding USA government debt.

>Everything else is in the small single digit percentages.

What is aggravating is that this is where they want to make the most cuts. Not to defense or large social programs. 2 or 3 billion to NASA will make huge progress for our country and technology, and it is a drop in the pond for the government. Yet, that is where they want to make cuts.

But it isn't that simple. State budgets are partly funded by federal taxes. Just skimming this abstract from the CBO report[0], in 2011, 25% of state and local government expenses were covered by federal grants amounting to over half a trillion dollars.

[0] https://www.cbo.gov/publication/43967

Sure, I'm simplifying, but I think my point stands.

Federal tax as percent of GDP: 19% [1]

State and local tax as percent of GDP: 9% [2]

So, even if we bump up state and local expenditures to 11.25%, it still seems like we're getting a better deal from local governance.

1) http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...

2) http://www.ncsl.org/documents/fiscal/TaxesandtheEconomy.pdf (a little out of date...)

As explained in other comments, Federal Govt is basically a giant insurance company with an army.

This is an over simplification as some States pay more in taxes then they get in return via various federal pay outs.

Some states get less in payouts than their _residents_ pay in taxes. But the state budgets are still larger with the federal payouts than they would be with only the state taxes.

The federal government spends mostly on SS, Medicare/Medicaid, and military.

https://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_F...

Presumably if the fed wasn't paying for social security and medicare/medicaid, your state would have to, or you'd have bands of sick and elderly wandering the streets like so many zombies. If the fed wasn't paying for the military, I guess your state could also do this, lest the Brits march in and put us all under the rule of the king again.

Bear with me as I don't live in the US but doesn't some money taxed by the federal entity trickle down to the states somehow ?

edit: What's the state/federal taxes ratio ?

Yes, but only if you live in a poorer state. Every state I've lived in has been one of the rich states that gives more money to the federal government than it receives in services.

But that does not mean that federal taxes do not enhance the state budget. That just means your federal taxes amount to more than the assistance your state gets. So your state budget is still enhanced by federal grants, over what it would have been.

To answer your first question: yes. However, the amount varies greatly by state and changes year to year. Many of the programs for which states receive federal money are temporary in nature. Others, like federal subsidies for state Medicaid programs, are more permanent in nature. The actual ratio is going to be very uneven throughout the country.

The ratio is different for every state and every tax bracket, but in California, on a married developers salary with a house, we pay something like 17.5% Fed, 9.3% state, and local (property tax) is 1.4376% of the value of your home, which on my salary is something like 5%.

So for us, income and property tax add up to almost 32% of our income.

Home ownership is the big wildcard in that calculation. You could pay nothing to your locality (other than sales taxes) if you don't own a home and instead pay a higher percentage to the feds.*

* - of course, someone owns the home and is paying property taxes, but your personal tax bill doesn't reflect that.

See a sibling comment. It does work like that. There an interesting power division between fed, state and local.

Fed usually use the "carrot" approach to distributing some taxes. So instead of "forcing" states to comply say to set a speed limit. They'll just withhold the funds for road repair and maintenance if speed limit is not set according to some standards. Perhaps the same goes for other things welfare money, drinking age, etc.

Some people are fiercely in favour of more state control (almost down to a religious type conviction). I never really got that. I came from Europe and when I think of "government" I think of one government entity. It operates at multiple levels but it is more or the same entity. And basic things like traffic laws, gun laws, sales taxes, etc are uniform.

Because in theory you have more control over your state and (even more) your local authorities. This is a consequence of simple voting power theory - and extending the notion of 'control' beyond single votes to activism, letter-writing, pamphleteering, etc. (In practice it doesn't work that way because no one seems to care that much about the local authorities, probably because it's more exciting to keep people excited about people in power at higher levels).

Europe will come to understand that philosophy as it merges to become the EU. Already the EU is an overcomplicated mess where the dynamics of agency are unclear. It will get worse as the EU claims more power over the member states.

> Europe will come to understand that philosophy as it merges to become the EU

I'm not sure that is very likely. France for example is 65 million people, so around 1/5th of the US. That is not a very large difference, and that's twice the size of the largest US state.

With anywhere between 1 and 11 million inhabitants, French régions are actually close to US states, yet since 1789, there have been little will to delegate more power to the régions (or the smaller départements).

Some people like having a central government that ensures equality between all parts of the territory. On the other hand we might have more little overseas régions that might have a hard time fending for themselves if the central state didn't allocate more money to them without asking the other régions' opinion.

I'm not sure about your comparison. 315M is a lot closer to 500M than it is to 65M. And as far as land mass and GDP go, the US is bigger than the whole of Europe. The EU is newer and so it's hard to say if it will ever get the teeth the US federal government has, but it should be noted that State's Rights are enshrined in the US Constitution, so philosophically it's closer to the EU than to French régions. There no is question of delegating power to states, it's a question of states ceding power to the federal government.

Well, have you thought about Kant's theory that larger Republics are actually more stable? In practice that has seemed to work out.

I agree, as a foreigner living in the US, it's baffling how different each state is in regards to law/budgets/etc.

What do you think of the EU? Is it a reasonable level of state control? Would you expand it's reach?

US States are European Countries. The demographics are similar. State/Municipal governments are far more integrated than state/Federal, much like the EU/Country divide.

Don't forget a massive amount of military spending, which trickles down to the local communities in the form of reckless and unnecessary police militarization.

Also: FDA, EPA, FCC, FBI, CIA, and tons of other TLD agencies that keep the country running in the long run.

Norway population is 5 million so it makes sense not to have federal/state divided governance like in US.

Some would argue (not myself, just pointing it out), that every one of your interactions is made in freedom, which is made possible by a very large military spend.

Except that many other countries have freedom but don't spend anywhere near as much (absolute or per capita) on defence.

Foreign countries might or might not have freedom if the US were not subsidizing their security with expensive US military operations around the world.

Some say the US screwed up so much under Bush it would have been better to loose the world without American protection, and Bush did do a terrible job. But we don't know either way.

In any case, many other countries would pay more for military operations if the US paid less.

The flip side of that is that the USA has heavily subsidized the defenses of Europe and the rest of the world.

Not that they've asked for it - but it's difficult to conceive that Europe would have escaped Hitler or the USSR's aggressions without a lot of military spending on their behalf by the USA.

Conversely, it's difficult to conceive that the United States would have gained independence over the UK without a lot of military spending on their behalf and direct military actions by the French.

Well, by the Bourbon monarchy in France.

What does that have to do with current US defense spending?

Or was it just some kind of one-upmanship?

What does WW2 have to do with current defence spending?

A lot, actually. Most of the European countries were so badly in debt at the end of it that it laid the foundations for the US's expanded sphere of influence, particularly as regards the Middle East and East Asia. It was also the first time that the United States had united completely with one global objective and accomplished it. It created a Global Bipolar system which ended up with unipolarity after the fall of the Soviet Union.

Plus, it created the military industrial complex.

So...a lot.

US subsidizes the defense budgets of Norway and Saudi Arabia alike.

Sure, some of these countries have great freedom, but I'm not convinced whether US military subsidy protects freedom or just the status quo.

I don't see how the US military expenditure helps American freedom. Not only is it used to restrict freedoms of some other countries (admittedly sometimes it's restricting the freedom of governments that seek to restrict the freedom of their people, which could arguably be a good thing, but this isn't always the case), but hand-me-downs to the police are used to restrict the freedom of Americans themselves.

Don't forget: Eternal war is expensive.

you get war and war and more war!

You also get an awesome army that kicks asses around the world, isn't that cool? ;)

Reply on news.ycombinator.com