Oil and the 'fiscal cliff'
Tverberg explores the connection between changes in the oil market and growing concern of the 'fiscal cliff.'
(Page 3 of 5)
Social Security is better funded, or was, until a decision was made to cut employee contributions by 2% of wages, for calendar years 2011 and 2012. This was done as an off-budget stimulus to the economy.Skip to next paragraph
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The current plan seems to be to return to the original tax rate effective January 1, 2013. This return to the original tax rate does not seem to be reflected in the White House Office of Management and Budget (OMB) figures I am showing in Figure 4. Even if this change is made, it is my understanding that there is still some need to raise Social Security taxes.
Another grouping on budget reports which has some revenue associated with it is Income Security, shown as a functional category on OMB report 11.2. This grouping seems to include the federal portion of unemployment compensation. It probably also includes Food Stamps. It too shows a shortfall.
If it were somehow possible to erase the problems with these three programs (Medicare, Social Security, and Income Security), there would still be a federal revenue shortfall, but a manageable one. In several periods, there has been a surplus on this basis (Figure 6).
We can break down the remaining federal spending (as shown in Figure 6) into some major groupings.
Health, at the bottom of Figure 7, would seem to include federal funding related to state Medicaid programs. The bulge for future years reflects the new federal healthcare program. Defense, shown in red, is very large in recent years, but is forecast to shrink in the budget forecasts of the OMB.
Net interest is reflects a netting out of interest paid and received. This is a different accounting treatment that a person sometimes sees, with Social Security being credited with some portion of interest payments. Here, all interest is in one location. Recent interest payments have been very low, thanks to the artificially low interest rates now in effect. Interest payments are forecast to more than double by 2016.
Figure 7 shows that the “All Other” category is quite small, compared to the $1 billion+ in deficit that we are facing on an ongoing basis, if funding stays as in the recent past. This would correspond roughly to federal government programs where the expenses are mostly salaries of government employees, rather than transfer payments to citizens. I calculated this amount by subtraction of the selected pieces from the total.
Federal Revenues and Outlays Compared to the Selected Wage Base
If we use the same wage base as with Figures 1 and 2, the ratios of income and disbursements to wages are as shown on Figure 8 below.
The current high outgo doesn’t look as high relative to prior years, as it does in Figure 1, but looks can be deceiving. Figure 2 near the beginning of the post shows that state and local taxes have been increasing–from roughly 20% of wages in the late 1970s to 25% (or more) now. So total taxes “feel higher,” even if the federal part doesn’t rise by much. The federal government has paid for some of this rise in state programs, through federal funding of local programs. The temptation now will be to cut back on federal funding.