European-style austerity: Obama’s new ‘balanced’ debt plan is 73% tax hikes

White House Flickr stream

White House Flickr stream

President Obama’s opening bid in budget talks with congressional Republicans is a reheating of his 80-page deficit reduction package from September 2011. The president calls it a “balanced” plan. Well, here it is:

Now, according to Obama’s math, his “balanced” plan cuts the projected cumulative debt by $4.4 trillion over ten years with 36% of the reduction coming from $1.6 trillion in tax increases — 80% from wealthier Americans, 20% from business. So, basically, $2 in spending cuts for each $1 in tax hikes. “Balanced.”

But once you begin to dig into the numbers, the plan doesn’t look balanced at all. As the bipartisan Committee for a Responsible Federal Budget noted back then:

The Administration claims that the plan would save about $4.4 trillion in total (including interest savings, war savings, and the costs of the jobs proposals). However … counting the war savings is counting a policy that is already in place and is thus a gimmick to be avoided. Taking out the war savings and savings from the discretionary cuts in the Budget Control Act leads to total savings of less than $2 trillion.

Of the supposed savings, then, $1.6 trillion comes from tax hikes and $577 billion comes from spending cuts, not counting saved interest. So 73% of the savings comes from taxes, 27% from spending cuts. That’s $3 of tax hikes for every $1 of spending cuts.

Even if you include interest savings, 60% of the debt reduction comes from tax hikes. Obama is making the exact mistake Europe is making by employing a tax-hike heavy version of fiscal austerity. Indeed, a 2010 analysis by AEI scholars found that successful fiscal consolidations are heavy on spending cuts, light on tax hikes. Even Bill Clinton’s debt reduction plan was 2-1 in favor of spending cuts. The Obama plan is dangerously unbalanced, especially given the weak economic recovery.

106 thoughts on “European-style austerity: Obama’s new ‘balanced’ debt plan is 73% tax hikes

  1. You lost.

    And the only thing that will satisfy your paymasters is no taxes on themselves, and hikes for everyone else.

    “Elections have consequences.” – Bill Kristol

    • “Elections have consequences.”

      Yes they do, as the initial layoffs demonstrate.

      Yes, we lost – but so will you. And you’ll have no idea what’s happening.

      • Republicans to the country:

        “yeah we lost and now we’re going to make you regret it”

        “upping the ante from “gridlock” to “slash and burn”.

        • Democrats to the Country –

          “we have no idea what to do about the debt and spending except to raise both or ask for tax increases on rich people because class warfare works great with our followers.”

          The democrats have learned nothing from Bush’s terms in office and nothing form Obama’s first abysmal term in office – well nothing besides ignoring your problems through class warfare pandering is easier than admitting that our govt spends too much!

        • You haven’t seen the long list of companies that have recently announced layoffs? There is also a list of companies that plan on cutting back on worker hours so that they get below the Obamacare radar. Do a quick internet search to see.

  2. taxes at the rates under Clinton and Reagan are not unreasonable at all and they were adequate to pay for spending.

    the rates that are advocated now – are so much lower that there is no real way to balance the budget without essentially wiping out virtually all entitlements AND cutting national defense.

    if you want to have a Defense that is bigger than the next 10 countries combined – it’s going to cost you a significant portion of your GDP. There is no way around that reality.

    Obama is advocating a tax structure very similar to what existed under Reagan and Clinton.

    Ronald Reagan would be tossed out of the Republican Party now days.

      • we spend more than the 10 next countries in the world COMBINED INCLUDING England, France, Russia and China.

        If you think that not a LOT, then you are stupid.

        What determines the right amount to spend on Defense?

        We spend 1.3 trillion right now on defense. We currently take in – in tax revenues 1.3 trillion.

        measure that. what does that mean?

        • Larry, you’re an idiot.

          “we spend more than the 10 next countries in the world COMBINED INCLUDING England, France, Russia and China.”

          What’s your point, other than to display your ignorance?

          What do you mean we spend more – do we have the same interests as each of those countries, or is it all of those countries?

          What does a main battle tank cost in each of those places, compared to the US?

          Are you one of those dimbulbs who thinks that the US can retain its superpower status without military credibility, or one of the utter fools who thinks that a world without the US as a superpower will be all unicorns and rainbows?

          Are you trying to argue that the miniscule percentage we spend on defense is bankrupting us, while the huge percentage we spend on entitlements isn’t?

          You are simply another liberal idiot, with no facts and no argument.

          • @alanstorm – I’m am in favor of the strongest military in the world, bar none but I also think we need to look at how much we are taking in – in taxes verses how much we are spending for national defense.

            What percent of our tax revenues do you think should be committed to Defense?

            That’s a real question with real consequences.

            Can we afford to spend 90% of our tax revenues on Defense?

          • Larry, do you comprehend the fact that we could spend ZERO DOLLARS on defense next year and we would still have a $700 billion dollar deficit?

            Defense can definitely stand to have some money cut – but to pretend that it’s the only problem – or even the PRIMARY problem, is intellectual dishonesty at it’s finest.

          • ” Larry, do you comprehend the fact that we could spend ZERO DOLLARS on defense next year and we would still have a $700 billion dollar deficit?”

            I do and that’s totally unrealistic – I agree but how do we dig ourselves out of this hole if we won’t even take a hard look at how much we are actually taking in – in tax revenues and compare it to what we are spending?

            We keep hearing about a percent of GDP. That’s totally bogus when you’re actually spending virtually all your revenues already just on DOD.

            when you look at this in terms of how many we take -in – in revenues – you realize why we can’t begin to fix things if we refuse to compare actual revenues with our actual expenditures.

          • You do realize Larry, when you make up bogus stats, people don’t just assume they are correct. Especially when they are as ludacris as what you are saying.

            So you are saying 90% of our incoming funds are spent on defense?

            So by that statement you are saying we spend approximately 9:1 ratio of Defense vs Welfare, Section 8 housing, Food stamps, Medicare, Medicaid…..want to recant that a tad so you don’t sound like a complete moron? actually never mind, keep rolling….it’s entertaining all of us.

          • ” So by that statement you are saying we spend approximately 9:1 ratio of Defense vs Welfare,”

            when did I say that?

          • “Are you trying to argue that the miniscule percentage we spend on defense is bankrupting us, while the huge percentage we spend on entitlements isn’t?”

            Check. Your. Numbers.

      • I’m up for that! Clinton was spending 18% of GDP his last yr in office. Paul Ryan’s plan, for all the shit he took from clowns like Larry, only brought spending down to around 20% over time.

        • you cannot spend “intelligently” according to GDP if you end up spending 90% of your total tax revenues on Defense.

          that’s the problem with the GDP metric.

          • “you cannot spend “intelligently” according to GDP if you end up spending 90% of your total tax revenues on Defense.”

            Well, good thing then that’s just another bullshit stat you made up. Total revenues for 2012 are $2.9 trillion. We can slice into your gravy train, too, Larry.

          • No Paul. You need to subtract the FICA revenues – they’re dedicated to the purpose for which they were created.

            you need to focus on the income tax revenues which is what funds DOD and national security.

    • Was spending under Clinton and Reagan unreasonable? How about we return to Clinton era spending if we’re going to return to Clinton era taxes?

      • ” return to Clinton era spending if we’re going to return to Clinton era taxes?”

        what’s the big argument against that?

        I think we need to think about how much money we take in – in taxes verses how much we spend – not only on DOD but national security overall.

        Measuring according to GDP is not near as succinct as measuring against what you actually receive in revenues.

        • “I think we need to think about how much money we take in – in taxes verses how much we spend – not only on DOD but national security overall.”

          100 million people on the dole and of course Larry wants to focus on cutting US Marines.

          • re: 100 million on the Dole – is a lie

            unless you want to include military retirees in that count

            but the germane point here is that we spend according to how much revenue we take in and we have yet to really decide what percent of our tax revenues should go to “marines’ so I ask you Paul – how much of what we take in – should go to National Defense?

            give me a number.

    • LarryG – why the focus on the defense spending and not entitlements like Medicare / SSI / welfare? Defense generally amounts to about 25% of annual federal spending and the entitlements listed above together reach around 60% or more per year.

      In addition – comparing tax rates under Clinton and Bush bring up two issues – first correlation does not equal causation. The economies were different then, oil prices were different, our labor force was bigger at various times back then than it is today, and many other items of difference. The second issue is that our spending is through the roof now compared to then – I don’t care about “adjusted dollars” – I am talking about the 11 Trillion we have added to our debt since 2001 – that is the reason why taxes are not enough. We have a spending issue and not a revenue one

      • @zjsky “why only defense spending”?

        I favor BOTH non-FICA entitlements AND defense spending as measured against what we take in – in income taxes.

        that’s a much more sane measure of spending than GDP.

        when you look at spending relative to how much we take in – in taxes – you develop much more relevant appreciation for the spending vs the taxes.

        And that’s why I ask how much, what percentage of our tax revenues should be devoted to DOD/National Defense.

        We can and should answer that same question for entitlements.

        I agree.

        but you cannot spend 1.3 trillion on National Defense when you are only taking in 1.3 trillion in income taxes.

        the math does not work.

      • @zjsky: Larry and Benji are fixated with the military. They have sophisticated reasons for it, although none of them make any sense to a sentient human.

    • First, no one is suggesting Clinton’s tax rates, since that would mean letting all the Bush tax rates expire and not just those for the top 2%. Second, this doesn’t count Obamacare taxes. Third, it doesn’t count Obama’s proposal to eliminate the social security cap on payroll taxes. Fourth, you don’t know what you’re talking about.

      • ” If you want Clinton-Reagan era tax rates then how about Clinton-Reagan era govt expenditure rates to go along with it”

        as long as we take in enough taxes to pay for DOD and our other bills…

        you have to match your revenues to your expenditures – no matter what the partisan arguments are about policy issues.

      • Judge,

        Be careful what you offer. During the Reagan/Bush years, government spending less social security and medicare,averaged 15.9% of GDP. During Obama’s years, government spending less social security and medicare averaged 15.9%. If you want Clinton level spending then you want Clinton level defense spending – 3.3% of GDP.

    • Would gladly go back to the tax rate under Clinton providing government spending was at the same level – $1.7 trillion vs $3.7 today. After adjusting for inflation government spending is still out of control and is 100% of the problem. Lets face it niether party is capable of cutting anything therefore the discussion always go back to revenue in the form of higher taxes, fees, etc.

    • there are no health savings. the omb just doubled the projected cost of the ACA and most government entities spell well above the projections.

  3. “re: 100 million on the Dole – is a lie

    unless you want to include military retirees in that count”

    1 in 3 Americans are not military retirees. Your hero Obama made a career as a community organizer representing welfare bums. As President, he’s actively expanded food stamps and gutted the welfare reform he’s always opposed. I agree we need to tighten the belts at the Pentagon, but after the shiftless get a kick in the ass first.

    • re: the “shiftless”

      Paul – you still did not address the fact that we take in about 1.3 trillion in taxes and we spend about 1.3 trillion on National Defense.

      what percent of tax revenues do you think should be spent on National Defense?

      re: the “shiftless”.. People who paid into social security – which includes the military by the way – earned that entitlement.

      Calling people who paid into social security their whole life and now collect it as “shiftless” is …. mindless…

      why was it okay for people who received social security under Reagan and Clinton but not now?

  4. “No Paul. You need to subtract the FICA revenues – they’re dedicated to the purpose for which they were created.”

    Funny how those revenues just happen to be the same ones that sustain your gravy train. FICA is just an accounting gimmick, as I’ve told you many times. It all comes out of the same pocket and gets poured into the same rat hole. You can and should take your hits too, Larry. You have a lifetime of voting for the bums that got us into this mess. It doesn’t need to come 100% out of our hides.

    • re: FICA and the same pocket.

      only in your addled brain guy.

      Anyone who works can see those FICA deductions on their paycheck and they expect to get it back when they retire.

      Not one elected politician has proposed that we appropriated FICA taxes to spend on DOD or other things.

      Not One.

      Not One AEI blog post writer has advocated that.

      this is why you are considered a whacko guy.

      there is no one in any position of responsibility who would support your view.

      • “Anyone who works can see those FICA deductions on their paycheck and they expect to get it back when they retire.”

        I work and see ALL the deductions on my paycheck.

        “this is why you are considered a whacko guy.”

        Ha, was there a poll taken somewhere I’m unaware of?

        “there is no one in any position of responsibility who would support your view.”

        Au Contraire. Bill Clinton raised Social Security taxes. Ain’t no reason why it can’t be done again for all the “shared sacrifice” reasons your hero Obama likes to jabber about. But you’re not up for that. You want to pummel the rest of us so you can continue to spout your ignorance on blogs in your jammies all day long.

        • re: raising social security taxes

          indeed to deal with the downstream demographics issues

          but are you suggesting we increase FICA taxes to pay for something other than Social Security?

          if that is what you are suggesting can you show me a single elected official who supports that?

          could you show me an AEI blog author who has supported that?

          • “indeed to deal with the downstream demographics issues.”

            No, to raise more revenue, moron.

            “if that is what you are suggesting can you show me a single elected official who supports that?”

            Um, again, Bill Clinton did it. Play the shell game all you like, the intention and effect was to reduce Social Security. A “tax” on SS is really just a reduction in the benefit, getting us closer to having our books in balance.

            Ok, now I’ll leave you to your “ain’t gonna never ever happen” b.s. you always fall back on when you lose an argument.

          • re: Bill Clinton increased FICA taxes to pay for general revenue spending?


            I don’t think so guy.

            every penny of FICA taxes, by law, cannot be spend on anything other than SS and Medicare Part A.

            that’s the way it works.

            not a single elected official that I know of has ever proposed that we increase FICA to pay for general revenue spending.

  5. “you still did not address the fact that we take in about 1.3 trillion in taxes and we spend about 1.3 trillion on National Defense.”

    Because it’s not a fact. As I pointed out, we took in about $2.9 trillion this yr. You just think you should be exempted from the pain you want to rain down on the rest of us so you can continue to catch some z’s in your ez chair while the rest of us shoulder the load.

    “what percent of tax revenues do you think should be spent on National Defense?”

    Ah, who knows? I was a medic in the military, but I’m in no way an expert on military threats and appropriations and neither are you. I do think we have to make do with a smaller defense budget because of budget constraints.
    However, we need to cut the fat first.

    “Calling people who paid into social security their whole life and now collect it as “shiftless” is …. mindless…”

    I didn’t call all Social Security recipients shiftless. I called a large % of people who receive welfare shiftless. You? Shiftless.

  6. Oh, and one other thing I forgot to mention, Lar:
    It’s often overlooked how Obama has crushed BOTH sides of the ledger. Take away his idiotic wars on capitalism and fossil fuels and revenues would be higher.

    • ” Take away his idiotic wars on capitalism and fossil fuels and revenues would be higher.”

      more right wing echo chamber drivel?

      did you notice that revenues plummeted before he took office?

      • “more right wing echo chamber drivel?”

        No, just the facts. You were unaware of Obama’s promise to bankrupt the coal industry until I linked the Youtube video of his interview where he made it. It’s not surprising you’re unaware of his wrecking ball agenda.

        “did you notice that revenues plummeted before he took office?”

        Yes. So? He’s been in office for 4 yrs injecting poison in the name of social justice.

        • got any answer on how much of our tax revenues to spend on National Defense?

          I acknowledge your right wing blather…for what it is – just right wing blather with no real facts to support it…

          but what’s the answer of how much we should spend based on how much we take in -in revenues?

          I’ll take an answer that specifies both entitlements and national security.

          50-50? 75-25?

    • re: “one more thing”

      and you are evading the question about how much of our tax revenues should be spent on National Security.

      give me a number.

      • I can’t help but notice that the Constitution specified national defense as a priority whereas much of the spending in government is on non-defense items.
        Higher tax rates were manageable when the world economies were recovering from WWII or still stuck in communist economies. Clinton’s luxury tax decimated domestic industries involved in boat and aircraft manufacturing.His agreement with the Gingrich congress to reduce capital gains increased growth and revenues leading to surplus when combined with welfare reform and the balanced budget agreement.
        Left wing blather is about to cause all those youngsters who voted for Obama to enter into endentured servitude over debt payments.We are entering an era of progressive totalitarianismas this administration rewrites laws and precedent in bankruptcy, executive agency appointments, and executive application of police powers.

        • re: ” I can’t help but notice that the Constitution specified national defense as a priority whereas much of the spending in government is on non-defense items.”

          I did not see the “priority” part but let’s assume so.

          What percent of our tax revenues should be spend on Defense?

          give me a number.

  7. “and you are evading the question about how much of our tax revenues should be spent on National Security.

    give me a number.”

    No, I’m not evading. I’m honestly not sure. I certainly don’t expect an informed opinion from you, so I won’t even ask what you think.

  8. This is a silly argument. If the deficit whiners are going to use projections that assume continued spending on the wars then it is completely legitimate to count ending the wars as savings. You can’t have it both ways. You can’t use those projections to complain about exploding future deficits and then say that the savings against the same baseline “aren’t real” .

  9. Larry. It does not matter if a congressman has specifically written a law to appropriate FICA funds. They have been going into the same pot for years. We have been running a surplus in social security and Medicare for years. The money has not been saved or returned, it has been “lent” to the general fund and an IOU was written to FICA. This is really just the same thing, as in order to pays back the money, then the revenue will have to be found from somewhere, either decreased spending, borrowing or taxes. There is no black box with trillions of social security surpluses as it has been spent. Medicare and social security are really just welfare for our senior citizens. Not passing judgment on it, just stating facts. Yes they have paid into it, but the money was paid out as it came in, and the excess was spent on other things. Private sector annuity manager would be going to jail for this. Everyone that has been paying in has been scammed.

    • re: same pot.

      simply not true.

      FICA taxes go into the trust fund but then they come right back out to pay benefits in roughly a one to one basis.

      what’s left in there is a temporary surplus that does get spent for other things but it gets paid back in full.

      the point here is the only money you have to spend is primary from income taxes and that’s about 1.3 trillion.

      you can argue all kinds of distractions but the basic truth is that you have 1.3-1.5 trillion and that’s it.

      Until we see any elected – not a one. say or do otherwise… that’s the simple truth.

  10. Correct me if I’m wrong, but it looks like PBO is including $447 billion in new spending on his “American Jobs Act”, as well as project $257 billion health saving? Am I reading that right? The former is just more wasteful spending, the latter is a pipe dream. The Central Government will sure not save money on health care.

  11. never mind what party you belong to , i dont really care.
    if you take all the money earned above 100 thousand gross income at 100 percent tax rate in 2007 before everything started falling including income falling and you will get 2.2 trillion in revenue according to the irs website.
    this means we cant tax our way out of debt because the federal budget is already way over 2.2 trillion
    the wealthy are leaving and this is getting worse.
    we are the only industrialized nation without a national sales tax,
    japan reluctantly started a 5 percent sales tax along with income tax because they have no choice.
    i left america as a single middle aged man when my my combined total taxes were more than fifty percent and worked in china teaching english and now i work in canada ,
    i have no problem with fifty percent if you spend it wisely and show me what im paying for but that will never happen , so im gone and many others are leaving to.
    socialism does not work because people move and leave and you lose the productive and best workers and all you have left is silver spoon rich and the poor.
    reality sucks , hope you get out of your bubble soon ,if you get a national sales tax , i will be glad to come home but im not working half a year for these corrupt politicians of the oligopoly of incestuous jackasses and elephants

  12. You count the war savings because – duh – that’s money that WON’T be spent. Had John McCain been elected President, you can be sure we’d still be spending that $$ and if Romney had bee elected, I’m quite sure the neo-cons would have convinced him to be at war somewhere.

    Saying the war savings can’t be counted is like saying we don’t have to count the Bush tax cuts expiring as increased revenue because they were scheduled to expire. So – they still get counted as new revenue!

  13. Larry, both sides need to be honest with the figures and priorities of the country going forward. Yes you are rig about our defense spending. It is way too high for what we are bringing in in tax revenues. It is also too high relative to potential threats. We have no real national threats in terms of another country that could attack and invade us. We could markedly cut back our military to a more “defensive” position. This would decrease our ability to project force. But that may force the rest of NATO to finally step up to the plate in terms of their obligations for their own self defense. In terms of raw numbers, i would guess that cutting the defense budget by 1/3 would not result in mexico or canada begin invasion planning. However, to say that FICA not a significant source of revenue of government expenditures in addition to what it owes beneficiaries is assets in Medicare and social security trust funds (I.e. money at was not paid out to beneficiaries, but was instead loaned to the government for other uses) now total almost 3trillion dollars. Again. It is gone, not saved and has been used as just another revenue stream by Congress.

    • James – I congratulate you on your rational approach to DOD. I’m not in favor of cutting DOD so deep that it harms it’s mission but I do ask what is a reasonable number.

      But James, you are wrong about FICA and the trust fund.

      the govt has over 100 trust funds., The gas tax is an example.

      when we collect gas taxes – they go into a trust fund – and are immediately exchanged for treasury notes – and yes the govt takes that money and spends it.

      but a little later, when they need that money for a highway, they redeem the notes for cash and pay for a highway.

      over the long run..there may be a balance (owed) in the trust fund but the money largely flows THROUGH IT.

      the very same thing happens with FICA taxes.

      they get put into a trust fund, converted to treasury notes – and on the very same time – older notes from prior deposits are redeemed for cash and delivered to beneficiaries who receive Social Security.

      It’s a flow through system.

      there is more of a balance remaining in the trust fund because SS rates went up in anticipation of future demographic changes.

      but as I said – the trust fund is simply a checking account and there are over 100 of them and they all work the same way.

      you may find this useful:

      what I suggest to you is that organizations like AEI and CATO and others have purposely confused this issue to serve their larger purposes of being opposed to the CONCEPT of social security entitlements.

      check out the FAQ and you’ll get a better appreciation of how things work. Basically FICA taxes are collected, spent a short time in a temporary holding account – called a trust fund – and then redeemed and sent to recipients.

      that’s the way it works. scouts honor.

      • I agree with those who commented that “Larry is an idiot”.

        There is NFW that there is ANY money in an FICA trust fund at present. The balance is ZERO. It’s all diverted into general revenue and has been for many years.

        Wake up, dude. No one would be complaining that SS is in trouble if your fantasy were true.

  14. Larry, you are right in FICA functions as a flow rough checking account, however, you kind of brushed over the most important point. Other parts of government draw on the account via the issuance of treasuries. As you mention when it comes time for social security to redeem these for cash, then the general fund is obligated to make these whole. This works for a solvent government, but as you, and many others have me tinned, our government is not solvent by a long shot on the other expenditures. I.e. the bank has loaned your checking account to a deadbeat who has little chance of paying back the loan. He is obligated to, but can he is the question. In order to renew these intergovernmental loans, there will need to be increased revenue through taxes, decreased expenditures elsewhere, or debasing of the currency through creation of money. These are all the same options the federal government would have to explore if there was not a thn dime in the trust fund. So, again. The money has been spent by the other parts of government, on things both democrats and republicans like. Everyone has some blame here. But it is crucially important that we come to grips with the actual problem.

    • re: the money has been spent.

      no. FICA goes into the trust fund and comes out the other side in the same dollar amount and then goes to beneficiaries.

      it works EXACTLY the same way as if FICA went DIRECTLY to beneficiaries.

      it’s nothing more than a temporary loan to the treasury and immediately paid back.

      ALL trust funds WORK this way.

      using your logic.. our gas taxes should not be spent on bridges and highways until we co-opt the gas tax to pay for other spending.

      you really do need to read the FAQ I sent you and understand the difference between earmarked entitlements and other entitlements.

      If we killed the trust fund idea tomorrow – FICA taxes would still be collected and paid to beneficiaries.

      you are getting diverted by this corrupt argument about trust funds.

  15. It sadly appears Freedom is no longer a Sell in America .
    While Trashing Capitalism and personal success is part of the Culture of total dependance on a Govt,
    Yet they can’t get Electricity restored in a Sky Raise in MidTown Manhattan 19 days later or even save 4 Embassy Officials in Libya our Govt. well knew were not safe 6 months earlier . While we have a Platoon of Marines in most foreign embassies in Europe ?
    If High taxes were the Answers Europe would be totally Solvent . Not only are Europe’s Individual taxes
    {all pay }far higher than America , they have a VAT Tax of 21 % and pay double for gas, electricity , energy and 15-20 % more or Food and 20-24 % more for Property taxes .Plus three counties have a CO2 2.5 Tax .
    Europe just yesterday declared they were back in a recession .The last one was 2009 .
    While Obama wants to “”Copy “” Europe Radical Socialism along with equally union power total controls .
    There is a long saying … something when you win you really do lose .
    The Art of War

  16. No it is not immediately paid back. There is a 3 trillion dollar trust fund/account deficit that the federal government owes FICA. Yes, if it went away tomorrow, it would not matter to beneficiaries, as they are only being paid with current and future dollars. Past dollars are gone. Your description of the accounts works if the accounts are in relative balance and are moving in each direction. Unfortunately, FICA fnds have, until only recently, moved to the general fund. Again, where do you think the funds that are supposed to go to FICA are going to come from when they try to cash in the interdepartmental treasuries.

    • It’s immediate pay back for the FICA money going in – then taken right back out and spent for benefits.

      the balance of the trust fund is IOUs – yes.

      the “past dollars” are not gone but even if you believe that what about the CURRENT FICA taxes being collected and then spent immediately for benefits?

      you are following this corrupt propaganda line guy.

      Not a single elected official anywhere in the Congress subscribes to what you are saying.

      not a one.

      Do you work? Do you get a paycheck? do you see the two blocks for FICA?

      that money gets collected from your paycheck and gets spent for benefits.

      the amount of time it spends as treasury notes is hours.

      here’s another link for you:


      we’re getting to the point here where you either know the truth but refuse to acknowledge it or you can’t read.

      no elected official subscribes to the narrative you are reciting. – none.

      what’s the purpose of continuing to say this when it’s

      1. – demonstrably not true by multiple credible sources
      2. – no elected official advocating doing what you are

  17. To call the savings from winding down the wars a “gimmick” is moving the goalposts. Economists say we need to cut $4 trillion from deficits through 2020, and Obama’s plan does this, with the ratio of nearly 2:1 that Pethokoukis correctly notes. The savings from winding down the wars is still savings.

  18. Larry, as per the GAO report you linked. Pay special attention to the last line re. Redemption of monies owed to a fund by the Treasury. This is the point I have been making to you, which you do not seem to grasp. This can only be paid if there rip undos available to do it. The rest of the government is in massive debt.

    A1.12 When an earmarked fund invests in U.S. Treasury securities, it has “lent” money to the general fund of the Treasury. The value of the securities held is recorded as “debt held by government accounts” and represents debt owed by one part of the government to another.13 In many ways, the special U.S. Treasury securities held by government accounts are indistinguishable from the marketable government debt sold to the public. A maturity date is set, interest is accrued at established market rates, and the securities count as part of the overall federal debt. These securities, however, are not traded in the financial markets. They can only be redeemed by the Treasury Department. The interest they earn is simply credited to the fund accounts in the form of additional Treasury securities.
    Debt held by government accounts represents over a third of gross federal debt and like publicly held debt is guaranteed for principal and interest by the full faith and credit of the United States government. At the end of fiscal year 2000, debt held by government accounts was about $2.2 trillion. This debt does not appear on the government’s consolidated financial statements because it represents internal debt—amounts that one part of the government owes to another part of the government. However, it does constitute a liability for the Treasury since the Treasury must pay back the debt held by government accounts when these accounts need to redeem their securities to be able to make their expenditures. When this happens, Treasury would have to obtain cash to finance the government’s spending either through increased taxes, spending cuts, increased borrowing from the public, retiring less debt (if the unified budget is in surplus), or some combination thereof.

    • James – this is no different than the govt redeeming treasury notes they sell to the public – and the Chinese.

      they spent the money.. if the Chinese redeem their notes, the govt has to pay it or else they’ll not be able to sell any more …. people will not buy them.

      You’re essentially advocating defaulting on treasury notes because we have a deficit.

      I tell you again that not a single elected official holds your view – not the most fiscally conservative of the elected. None.

      you’re swallowed the propaganda guy.

      treasury notes are sold to the public – and redeemed and they are sold to Social Security -and redeemed.

      you seem to think that’s a nefarious scheme.

      it’s not.

      it was designed to work that way – ON PURPOSE.

      the govt is in deficit and yes.they have to sell treasury notes to pay for expenses.

      that’s true.

      but they can also do that internally.

      they can borrow money from the gas tax fund – for a while – but then when the highway people want it back for a bridge – the govt then has to sell more notes to the public to pay that money back.

      No elected official – not a one – advocates taking the gas tax money and spending it to buy down debt instead of building roads and bridges – not a one … guy,.

      you’re bought this propaganda from AEI and others and it’s simply not the truth.

  19. Defense spending is the only expenditure that is included in calculating a nations GDP. It is actually a good thing. Entitlements are known as transfer payements and are not calculated in GDP…so the more entitlement programs you have, the worse off the GDP is. Again, Defense spending boosts GDP/growth.

    And to those libies who think otherwise, please learn about macroeconomics before attempting to argue.

    -The Economist

    • re: defense spending increases GDP…


      does that mean we can rescue the economy by providing defense jobs for all the unemployed?



    • It’s too bad that someone publishing a comment under the moniker “The Economist” seems to claim some authority over something so simple … but the comment is so obviously incorrect, it could not have come from the newspaper of the same name.

      GDP is designed to measure income and expenditures for final goods and services. The federal Government consumes, invests, and transfers funds to the Household sector for them to consume (mostly) and invest in turn.

      Transfer payments are included in GDP as Personal Income, and the spending facilitated by those payments is included in Personal Consumption.

      It is incorrect to say that only defense is included in GDP. Another example of non-defense government spending would be government construction investment in highways, ports, buildings like courthouses etc.

  20. Larry, i am not suggesting we default on the debt. What I am saying is that we have been running a needless surplus for FICA for years. If we were not going to pay it out to beneficiaries, then we should not have been collecting it. As the excess can only go to other government expenditures, after first being laundered through treasuries.

    Yes of course we are a obligated to pay back the Chinese or whoever else has bought our treasuries. And the federal government has obligation to pay off the internally issued, non tradable treasuries. And if the risk of default goes up, then the cost to sell the treasuries to the public, or other countries will rise as well in the context of higher interest rates.

    If they borrow money from the gas fund and use it for another purpose. Then the money is gone. They then have to try to create more money by selling more bonds I.e. borrowing it, getting it through taxes, or from another part of the government. Once it has been spen, it is gone. Regardless of how good the project is deemed.

    This is not AEI propaganda, this is simple accounting. You cannot spend the same money twice. Did you read the section I copied and pasted for you? You were badgering people to come up with a number for defense cuts, how about coming up with a way to redeem supposed assets that the Treasury owes the social security program, that does not involve doing the same things they would have to do if there was no trust fund at all? Come on.

    • James if you feel this way – then you should advocate repeal of the trust fund system itself and have FICA go immediately to benefits (and have it’s own internal fund) and the same deal for the 100 other govt trust funds including the gas tax.

      You’re objecting to a system that was set up that way on purpose – so that the govt COULD borrow internally from it’s own earmarked fund accumulations – temporarily before it had to sell more treasury notes publically to cover the spending.

      Essentially you’re advocating stealing funds from other functions that are separately funded by dedicated taxes.

      AEI advocates for doing this – not directly but by their claim that the trust funds have been “stolen” and can’t be paid back.

      That’s simply not the truth in terms of how the govt set the trust funds up – by law.

      and what they are suggesting is not allowed – by law.

      and no elected official that I know of agrees to do this.

      re: the budget

      I was not “badgering”.

      I was pointing out just how bogus it is to look at ANY spending as a percentage of GDP when the real bottom line is how much money we are actually taking in – in revenues.

      that’s the real bottom line.. not the GDP percent.

      and what I was asking – was – WHAT PERCENT of spending from our revenues should be spent for DOD (and entitlements) because the current GDP narrative is basically meaningless when you take a look at our actual revenues.

      We cannot “fix” the deficit by appropriating the Social Security trust fund. We can stave off more deficit spending for a couple of years but after that, after the trust fund would be exhausted, you’re back to the same problem that we are simply spending more than we are taking in – in revenues.

      this is not rocket science. It’s not complicated.

      but it’s the truth… and reality.

      you do not get this from the AEI tomes on this. you basically get a war between the entitlements and defense spending by playing with GDP percentages rather than taking the hard look at the actual revenues.

  21. You may not understand my point. I am most definitely not advocating taking FICA revenues and putting them in the general fund. I am stating that they are already doing that look at your own GAO report you linked. All money comes into the treasury, and is then credited to agencies based upon their expenditures. This is where the account balance results. Yes there are funds that are earmarked for social security, but they come I through the treasury, and are then distributed.

    Where are you going to get the money to pay future retirees Larry? Because, for the last time. There is no store of money in the trust fund. It is dependent upon future revenues to pay it, just as the money we owe the Chinese, as you referenced.

    • James – “where are you going to get the money”.

      right now FICA generates 819 billion dollars a year and virtually all of it pays SS/MedA benefits and every year coming up another 820+ billion will be collected and paid out as benefits.

      do you understand THAT?

      the money comes from FICA and gets spent on SS/MedA – continuously … day in, day out.


      just to make sure here

      are you talking about how it CURRENTLY works or are you talking about some future alternative scheme?

  22. Section A19
    As with all other money collected by the government, the general fund of the Treasury receives the actual earmarked taxes and fees paid by the public. Treasury then credits these collections as assets (often in the form of Treasury securities) to the appropriate fund accounts.

    I most definitely understand how it works. It is a revolving door system and the current receipts and the obligations are in near balance. However, that is a relatively recent development. For years, more money has been collected in recites than had been obligated to be paid AR that time. Therefore, the credit accumulated with the a treasury.

    • re: credit accumulated.

      we agree…

      so you AGREE that FICA continues and will continue to pay benefits?

      and you are only focused on the accumulated money in the trust fund – (which has already been spent) and what to do about it?


          • @James – you are aware that Medicare Part B also has a trust fund – right?

            and you realize that Part B premiums that people pay go into that trust fund and then are paid out as benefits?


            did you know that 75% of Medicare Part B is funded directly from general revenues?

            that’s right – the 75% is put into the same trust fund with the premiums and if money accumulates faster than benefits are paid out.. they take out special treasury notes.

            so the money that the govt puts into the Part B trust fund is BORROWED money by selling US treasuries to the public. Then that money is put into the Part B trust fund where it usually goes directly to pay for claims but if there is a temporary balance.. it’s loaned BACK to the govt for a few hours or days and then reclaimed and spent.

            In terms of unfunded liabilities Medicare Part B (and D) are huge immediate problems with the very same demographic trend that social security has – except in this case there is no FICA to pay for it and it comes directly out of the treasury – tax revenues and money by selling treasury notes.

            And there are other trust funds that work the same way.

            DOD has trust funds for civilian pensions and health care as does the military for it’s active duty and retired.

            all of them are trust funds and all of them get funded from a combination of employee share contributions and government “contributions” which come from the general revenues.

            these several funds – work the same way as the SS trust funds.

            the money goes in .. if there is a temporary surplus the money gets traded for treasury notes – and when the bills come in the treasury notes are redeemed and the bills paid.

            What AEI does not tell you when it talks about Social Security and the trust fund and the “unfunded liabilities” is that DOD also has the very same unfunded liabilities for it’s own civilian and military retirees.

            AEI likes to talk about “entitlements” as if they are separate from DOD and nothing could be further from the truth.

            DOD is up to it’s eyeballs in unfunded liabilities for it’s active duty and retired work force ( which is almost twice as large as active duty – and growing – with the same demographic trends as SS and Medicare).

            What you get from AEI on this is basically sound bites about specific areas while ignoring other similar areas that DOD has because their goal is to spin a narrative that we have a problem of entitlements vs DOD spending.

            DOD has entitlements too – a LOT!

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