Daily Archives: July 29, 2011

Structural Imbalance

There is a structural imbalance built into the United States government, and it does involve spending more money than is taken in. Here it is in a nutshell.

For decades, taxes — income taxes, corporate taxes, capital gains, and whatever other fees and revenues are in place to support the general budget of the United States — have been kept artificially low, while the General Fund has borrowed from the surplus produced by workers contributing to their own retirement through the Social Security system.

For decades, that is, the government has borrowed money from the working people of America, to pay its bills, and to hide the true scope of its annual deficits. ALL of the deficit, and then some, has come because of the imbalance between expenditures and revenues outside of the Social Security system. NONE of the deficit is due to the cost of Social Security payments to seniors.

To fix the structural imbalance, therefore, some change must be made to the relationship between money spent on things like defense, transportation, education, interest on the national debt, homeland security, housing, healthcare, and on and on, on the one hand, and taxes on the other: income taxes, corporate taxes, capital gains, etc. Either expenditures must be cut, or revenues raised in these ways, or both.

With Social Security no longer projected to produce an annual surplus, it cannot be relied on going forward to subsidize these other things; but this does not mean that it is insolvent. It has lent out huge amounts of money, and it is time to collect. That just means that more revenue must be raised from income tax, corporate taxes, capital gains, etc., so that all that money borrowed from Social Security over the years can begin to be repaid to the workers as their benefits come due.

[Edit]  One additional point deserves comment.  Every time you hear someone pointing out that “entitlements — Social Security, Medicare, Medicaid — are the big drivers of the federal deficit”, there is a bit of rhetorical sleight of hand going on.  Yes, IF we roll those three programs into an aggregate, and call the sum “entitlement spending,” then the net effect is a hit on the deficit.  But this is the same trick as was done when Social Security was brought on budget in the 1980s, with the effect of hiding the real size and source of the deficit behind the Social Security surplus.  So, Medicare and Medicaid need a better funding mechanism going forward, without question.  But to roll those two together with Social Security as if it also contributes to the problem, when it decidedly does not, is to perpetuate a deception.