The federal deficit for fiscal 2017 rose to $779 billion. That’s up from $620 billion for fiscal 2016. Kind of a leap, but what you would expect from a major tax cut?
Senate Majority Leader Mitch McConnell (R, Kentucky) had three words to describe the increase.
“It’s very disturbing,” he said in a Bloomberg interview.
He went on to suggest that it would require changes to programs like Medicare and Social Security.
The Senator also declared, “It’s disappointing, but it’s not a Republican problem. It’s a bipartisan problem: Unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future.”
McConnell may be right about it being a bipartisan problem, but finding the solution in Social Security cuts is looking for cash in all the wrong places.
He could find the right place by visiting the historical tables on the whitehouse.gov website. If he looked at Table 1.1 “Summary of Receipts, Outlays, and Surpluses or Deficits: 1789-2023” he would see the long history of the federal budget.
Here’s what the Senator would learn.
Social Security Isn’t the Problem
Social Security has been well sustained with the employment tax, interest on the Trust fund and taxes on benefits. It is the largest item in the “Off-Budget,” a category of government activity that is supposed to be pay-as-you-go.
Since 1937, the year Social Security was created, that part of government finance has been in deficit only five times. That’s five times in 80 years. In every other year the off budget was in surplus, taking in more than it paid out.
The surplus was enormous. If you add all the surpluses and subtract the five years of deficit, the net surplus amounts to $2.9 trillion. Most of that surplus was accumulated after the 1984 reforms. Those reforms were supposed to build the assets in the Social Security trust fund. The idea was to pay more in employment taxes to help fund the retirement of the baby boomers.
That’s the history of the employment tax. Seventy-five years of surplus, five years of deficit and a net excess of $2.9 trillion.
Is $2.9 trillion enough?
That $2.9 trillion won’t be enough. But that’s a success problem. It’s not a debt problem. We’re living longer. So we collect benefits longer. And we’re having fewer children. So there will be fewer workers to support future retirees.
The living longer part is good news. It’s a sign of the most fundamental kind of success: More life and more life per life. As a society, we’re living longer. Collectively, we’ve gained about two years in life expectancy every decade. No one wants to go back to a life expectancy at birth of 60 years.
Historically, the need for more revenue to support retirees has been met by increasing the employment tax. Readers have often suggested that the solution is to lift the wage base maximum from its current limit of $128,400 to a much higher figure. The result: More wage income would be taxed.
Whatever is done, we need to remember $2.9 trillion of today’s federal debt is surplus cash from the employment tax. It has been invested in Treasury debt. The cash has been used to cover other spending. In other words, the real deficit spending comes from somewhere else.
What’s the real source of the deficit?
If you look at the “on-budget”— what our government spends operating the government departments, defense and interest on the federal debt— you’ll see that it’s an exact reverse of the surplus for the Off-budget. In the 80 years since 1937 the On-budget has had a surplus in only 5 years. It has been in deficit 75 years.
So the problem isn’t that Social Security has run a deficit. The problem is that On budget spending has been in perpetual deficit. The employment tax surplus has been used to support it.
McConnell is right about this being a bipartisan problem
The historical truth is that politicians of both parties either lie through their teeth about government finances or are too clueless to know better. (You can choose which is worse.)
—In the Clinton years (1993-2001) Democrats claimed to have produced the first balanced budget in decades. In fact, they cited the “Unified Budget” which combines the On and Off budgets. As a result, the surplus in employment tax money was greater than the deficit in the On budget so it appeared the government was operating at a surplus.
In reality, total federal debt rose in every single year of the Clinton administration, even the two years (1999 and 2000) in which the On budget really was in surplus. Why? Because the Social Security Trust fund loaned its surplus to the Treasury, which recorded it as debt.
— In the Bush years (2001-2009) the touted, but illusory, surplus from the Clinton years was used to promote two tax cuts. Instead of “paying for themselves” the cuts drove the On budget back to large deficits that continue today.
The one thing both parties share? They lie through their teeth, but with different goals.
Related Columns:
Scott Burns, “Measuring Social Security Benefits,” 10/19/18
Scott Burns, “Social Security Reform: If You’re Under 50, Watch Out,” 12/30/16 https://scottburns.com/social-security-reform-if-youre-under-50-watch-out/
Scott Burns, “Lower wage workers also likely to lose in Social Security Reform,” 1/06/17 https://scottburns.com/lower-wage-workers-also-likely-to-lose-in-social-security-reform/
Scott Burns, “The Thinness of Wealth,” 5/24/2015 https://scottburns.com/the-thinness-of-wealth/
Sources and References:
Robert Schroeder, “McConnell calls rising budget deficit ‘very disturbing’, MarketWatch 10/16/18
Whitehouse.gov: historical tables
https://www.whitehouse.gov/omb/historical-tables/
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns, Warning flags
(c) Scott Burns, 2018