Social Security and Medicare Go in the Red

From my previous blog post–The State of America’s Private Sector XX: April 2011–I noticed a disturbing trend in some of the underlying data.  But first I had to hit the personal income methodology books at the Bureau of Economic Analysis to make sure I understood all the definitional issues involved.  Now I’m satisfied that what I saw is, in fact, disturbing.

The chart below shows, on a monthly basis, the contributions paid into Social Security and Medicare (red line) via the payroll tax versus the benefits paid-out by Social Security and Medicare (green line).  Prior to the “Great Recession,” contributions paid-in almost always exceeded the benefits being paid-out.

However, beginning around 2007, contributions began to level off.  The decline in contributions was exacerbated by the recent extension of the Bush tax cuts which included a one-year reduction of 2 percentage points in the payroll tax.

On the other hand, benefit payments have the looks of becoming an exponential function.  I’ll have to do some more digging around, but I’m guessing a lot of the new growth was due to the Medicare Part D expansion which went into effect in 2006 which coincides with a large lurch upwards in benefit payments.

At any rate, if you do a quick mental projection of the two lines you get one ugly picture.  And this is on top of a runway federal budget deficit and exponentially growing interest rates . . . ugh, Calgon take me away!

Growing Gap Between Contributions and Benefits for Social Security and Medicare

Obamacare Designed by Wealth Alchemists

Greg Mankiw exposes the myth that repealing Obamacare would increase the deficit.  Only Wealth Alchemy-style accounting could make that myth a reality.

I have a plan to reduce the budget deficit.  The essence of the plan is the federal government writing me a check for $1 billion.  The plan will be financed by $3 billion of tax increases.  According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit.  Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit.  But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Healthcare reform, its advocates tell us, is fiscal reform.  The healthcare reform bill passed last year increased government spending to cover the uninsured, but it also reduced the budget deficit by increasing various taxes as well.  Because of this bill, the advocates say, the federal government is on a sounder fiscal footing.  Repealing it, they say, would make the budget deficit worse.

So, by that logic, giving me $1 billion is fiscal reform as well.  To be honest, I don’t really need the money.  But if I can help promote long-term fiscal sustainability, I am ready to do my part.