State of the Union and debt ceiling math

Print More

Last week’s State of the Union dust-up, with both the president and congressional Republicans pledging their undying fealty to the sanctity of Social Security and Medicare, motivated me to check the numbers. Apparently, Washington, D.C., calculators contain different logic chips than the ones used by the rest of us.

Here’s a link to the president’s fiscal 2023 budget. Flip to page 121 and you’ll find this table:

Geoff Rosenberger

The math is straightforward. Social Security represents 23 percent of budgeted Fiscal 2023 federal expenditures and Medicare a further 15 percent. So, Social Security and Medicare together comprise 38 percent of total 2023 federal expenditures, which are budgeted at $1.176 trillion more than projected revenue. To bring things into balance, either tax revenue would need to expand by 26 percent or spending would need to be cut by 21 percent. Or some combination of the two.

But, with Social Security and Medicare off the spending-cut table, all other federal expenditures need to fall by 33 percent to reach balance. Of course, Medicaid is probably just as sacrosanct as Social Security and Medicare. Given the recent debt ceiling drama around the risk of a federal debt default, interest expense, which will be rising steadily in the years to come, is untouchable as well. Including these two line items in the “do not touch” column increases the protected expenditure total to $3.1 trillion, thereby quarantining 54 percent of total spending. That means spending on everything else—defense, national parks, education, transportation, welfare etc.—would need to be cut by 45 percent to bring the budget into balance. Washington may not be a finely tuned machine, but I doubt there’s enough “waste, fraud and abuse” available to cover that tab.

So, why not just have the rich “pay their fair share”? Here’s a link to the IRS’ Statistics of Income Report on Individual Tax Returns for the 2020 tax year. On page 47 you’ll find the table below and you’ll see that individual taxpayers with incomes of $500,000 and above paid $753 billion or 44 percent of all personal income tax collected that year. Double their tax payments—under the tenuous assumption that they’ll continue to work just as hard for a significantly lower share of the total income created—and we’re still well short of covering the deficit. Admittedly, these are 2020 numbers. Tax collections in 2023 are likely to be somewhat higher. But high enough to reach balance? Not likely.

Geoff Rosenberger is retired co-founder of Clover Capital Management Inc. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected]

22 thoughts on “State of the Union and debt ceiling math

  1. Yes, either federal spending must be cut dramatically (unlikely) or taxes must go up (and not just on the wealthy and corporations, though curtailing their abusive tax avoidance schemes would help immensely). In fact, the overall US tax burden is far less than almost any other developed country. (See ). But how do we bite the bullet when politicians know that the path to reelection is to promise the public plenty of goodies with no pain? A good first step would be a bipartisan commission to stabilize the finances of Social Security and Medicare. And yes, that will require tax increases, along with some curtailment of benefit growth.

  2. That’s correct. And since there is no cash to fund those IOU’s to the Trust Fund, where do you think the Treasury Department gets the actual cash that goes to actually pay the beneficiaries? It borrows the money in the public markets, which drives the deficit.

    The Congressional Budget Office published it’s most recent budget outlook yesterday. It’s prominently featured on the CBO website. You should read it — every American should read it. It is an incredibly sobering assessment. The CBO’s updated projection is for FICA revenue this fiscal year to total $1.56 trillion. Social Security and Medicare benefit payments, the two programs funded by those FICA payroll taxes, are now projected to total $2.12 trillion. How do you think that $600 billion shortfall gets made up? The Treasury goes out and borrows the money. That shows up in the deficit totals.

    You’re fundamental premise is that FICA runs a surplus or at least breaks even. It doesn’t. It did for 3/4 of a century. But unfortunately for all of us, those days are now behind us.

  3. Effective tax rates – income and inheritance – are at historical lows for the wealthy. Did people not work hard previously? And, by the way, the highest income earners have never taken such a large share of all the income earned. So, yes, let’s increase the tax burden on the highest earners. And, while we’re at it, let’s end the era of anonymously held corporations that hide income and wealth.

    • The sincerity question of deficit hawks just got an exclamation point as 70 Republicans have just sponsered legislation to extend the Trump tax cuts for ten years, which adds $3 trillion to the deficit over that time. Most are the same people demanding deficit reduction.
      The Zombie economics of Laffer, trickle down, supply side tax cuts for the wealthy, which have always failed to reduce deficits since Reagan, continues. It should be very clear that attacks on Social Security and Medicare, now under the cover of “deficit spending”, are the same opposition to these programs as “socialist”, that the GOP has been doing since the 1930s on Social Security, and on Medicare since Harry Truman.

  4. Presuming your numbers are correct , a couple of observations; During the last attempt at Social Security reform in 2005, Sen Schumer then was emphatic that the SS trust fund was sound and the program didn’t need reform. (This of course gave the impression that there’s a fund backing all of the monthly checks. ) There is a Trust Fund (on paper) , one might ask ‘ where’s the money’ ? (I think the answer is obvious) . Also you wisely mention Medicaid, if programs like this are not on a sound fiscal footing, why were they expanded for Obamacare, and the current admin has further expanded them. Then if a State like Florida decides not to participate in Medicaid expansion ( because “free” Federal Funds taper off in ~10yrs) they are ridiculed and accused of crushing health care for the poor (even though it could be argued that Florida is wise not to add this future entitlement load to their balanced budget)

    • Social Security is off budget and now in a legislative lockbox, and officially not part of the deficit. Cutting benefits would only increase the money in SS. The amount Congress borrows from the fund is replaced with Treasury Notes, which does raise the deficit like any other debt. These notes cannot be defaulted on unless we also wish to default on debt held by other countries(China,Japan) which would have international financial system negative and serious repercussions. Universal government health care cuts costs about in half, at least for the 32 democracies, out of 33, that have it. That takes care of Medicare/Medicaid.

      • Actually, Social Security is very much a part of the deficit calculation, as demonstrated in every OMB and CBO publication.

      • Thank you for making my point, as you stated, the money in the SS Trust Fund has been spent, and replaced with Treasury notes (equivalent to fancy IOUs). If I had a savings account, and you borrowed my money from it and spent it, then left IOUs in its place, I wouldn’t characterize the savings account as a “Trust Fund”. Presently, Treasury Notes are probably some of the best debt in the world (for return of capital), however they were downgraded by S&P circa 2015, and this debt continually increases as a percent of GDP. Given that situation, I don’t think I would go around like Sen Schumer did saying emphatically the SS Trust Fund is sound and doesn’t need reform.

        “Universal Government Health Care”; You mean like the broke systems in Canada and the UK?
        “The problem with Socialism is you eventually run out of other people’s money” -Margaret Thatcher

      • Sorry, by law Social Security is not part of the deficit. OMB and the CBO may list all government income and all government spending for a total picture, but that does not change the law. The Social Security Trust Fund consists of all funds paid by workers and employers, plus any interest earned on Treasury Notes. This money may only be spent on Social Security. Congress may borrow from the fund, but Treasury notes equal to the borrowing are the IOU’s. Should Congress pass a law to cut SS payments by 5% and/or raise the retirement age, all savings go back to the Social Security Trust Fund. That can not be changed by debt ceiling moves and would require a law be passed that allowed Congress to use Social Security funds for spending OTHER THAN Social Security. Not even possible for two years and even then a longshot. Currently about a $ 2.9 trillion surplus.

    • Well, they’re not “my” numbers. The are the President’s Office of Management and Budget’s numbers along with those of the Internal Revenue Service. You can follow the links provided in the article to see where the numbers originated and to get additional detail. But please recognize that the OMB’s numbers are Fiscal (September) 2023 budget numbers. Actual Fiscal 2023 revenue and expenditures will certainly deviate from the budgeted ones. For example, based on the fiscal year-to-date numbers, the budgeted interest expense looks to be woefully underestimated.

      • You published these numbers here, therefore one presumes you embrace them . (Thank you for posting a source for them). I would add, that there is no Federal budget, I don’t believe the Administration has submitted one to Congress, and I don’t believe the House has generated one either. We’ve been operating on spending appropriations like the lame duck Omnibus passed in January.

        I would add, that if you looked at a chart of Federal tax revenues over the years, it trends upwards, therefore I conclude this is mostly a spending problem, not a taxing problem….

  5. Why do these missives only show up when a Democrat is president? Under Trump the deficit soared partially because of another tax giveaway to rich people and corporations who now make record breaking profits but claim to not be price gouging. Partly it soared by mismanaging the Covid-19 response. Under Trump the economy collapsed, unemployment went through the roof, companies went belly up. With people like Geoff giving the 2018 rich people bailout a pass and the Beacon endorsing his pitch its no wonder the deficit has soared.

    And no I am not a Democrat.

    • Everyone is an expert on the subject of the budget. The government doesn’t make or earn money, it just spends it. Actually the government doesn’t seem to care about income, they just keep writing checks until somebody smacks them with a ruler. I would say…..consider yourself smacked. That goes for most (98%) of the “lawmakers” on the “hill”. My bank has this policy that if I spend more than what I earn and I borrow and mis a payment…..they shut me down. I’d say we are at the point of shutting down the government. And yes, I am a registered Independent.

      • If you are going to hit me with your ruler at least do it for what I said that you disagree with and not just write a rambling comment that in no way addresses what I wrote.

    • You’ll note that the first sentence of the article calls out both our Democrat President and House Republicans equally. There are no other political party references anywhere in the article. And nowhere in the article are prior administrations afforded a dispensation for their respective, and in some cases, substantial, contributions to the problem. Governmental expansion and our recurring annual deficits have developed under presidential administrations of both political parties and under congressional sessions led by both parties. But the math is the math. The problem won’t be solved if all we do is point fingers and blame the political party opposite our own. Any reasonable solution will require concessions —- and sacrifice — across the income and political spectrums. “The Other Guy” is you, it’s me — it’s all of us.

      • Geoff, that 2018 handout to the wealthy once again insured that the pain will be borne by the middle class. I am sure you aware of this. As Warren Buffet has pointed out, there is no way that people like him should be in the same or similar tax bracket as his secretary. I wonder if anyone reading this blog remembers Paul Ryan’s tax plan and if so, what did you think of it?

    • James: You are correct. The middle class will bear the brunt — because in spite of what you hear on cable news, that’s where the money is. Click on the 2nd link in the article, which will bring you to the IRS’s Statistics of Income Bulletin. Flip to Table 1.1 on page 47 and you’ll find the numbers. Americans with incomes of $500,000 and above earned $2.9 trillion or 23% of U.S. total adjusted gross income for tax year 2020. They collectively paid $753 billion in income tax, or 44% of the total federal income tax collected from individuals. Americans in the $50,000 to $200,000 income range collectively generated $5.7 trillion of adjusted gross income — double the amount earned by the $500,000 and above cohort — and paid $527 billion in income tax, or 31% of the total individual income tax collected. Those in the $200,000 to $500,000 income range earned 17% of the income and paid 21% of the total income tax paid by individuals.

      In terms of tax rates, the $500,000 and above crowd paid, on average, between 23% and 28% of their adjusted gross income in federal taxes whereas those in the $50,000 to $200,000 group paid tax rates on their adjusted gross income of between 7% and 11%.

      Again, these aren’t my numbers, they are IRS numbers. And you can check them out for yourself by following the link provided above.

    • Geoff, social security has turned into welfare for the upper middle class. I paid $150,000 into it and I got all that back in 4 yrs. If I live 20 yrs I will receive an additional $800,000 .We need to raise the age for eligibility and cut back on benefits.Unfortunately people need social security for 90% of their income .Tragically people don’t save.Congress will do nothing until the last minute, 98% need to get a real job. Without social security 50% of the country would be homeless. Billjr901.

      • Bill, your situation could be handled with means testing. Then moderate payments accordingly.

      • Eligibility age should not be raised for those who are employed in physical labor or any jobs that take a physical toll one one’s health.

Leave a Reply

Your email address will not be published. Required fields are marked *