The State of America’s Private Sector 30: March, 2012

The U.S. Department of Commerce’s Bureau of Economic Analysis recently released their monthly personal income data for March, 2012 (pdf). The chart below shows the private sector share of personal income from January 1959 to March 2012. For March, the private sector share of personal income was 71.27 percent.

While the private sector continues to claw it’s way back up (after cratering in May, 2009 at 69.06 percent), the current level is still well below the pre-Great Recession level of 74.48 percent set in June 2007. With the aging of the baby boomers and Obamacare looming, it’s doubtbul that we will ever get back to pre-recession levels. We will all be poorer as a result of a smaller private sector.

 Chart Showing Private Sector Share of Personal Income by Month from January 1959 to March 2012

However, while the private sector has been gaining ground, there is other less rosy news. 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). While contributions are finally growing again, benefits paid-out have been growing faster.  In fact, in March, the gap between the two set an all-time record of $351.6 billion–more benefits being paid than taxes being collected.

Chart Showing Growing Gap Between Contributions and Benefits for Social Security and Medicare January 1959 to March 2012

The State of America’s Private Sector 26: August, 2011

On Friday the U.S. Department of Commerce’s Bureau of Economic Analysis released their monthly personal income data for August 2011 (pdf). The chart below shows the private sector share of personal income from January 1959 to June 2011. For August, the private sector share of personal income was 70.74 percent–up 0.04 percentage points from July. While the trend has been up for the last few months, the current level is still well below the pre-Great Recession level of 74.48 percent in June 2007.

Chart Showing Private Sector Share of Personal Income in August 2011

However, while the private sector has been gaining ground, there is other less rosy news. 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). In August, the gap between the two set an all-time record of $348.2 billion–more benefits being paid than taxes being collected.

Chart Showing Growing Gap Between Contributions and Benefits for Social Security and Medicare August 2011

The State of America’s Private Sector 23: June, 2011

Today the U.S. Department of Commerce’s Bureau of Economic Analysis released their monthly personal income data for June 2011 (pdf).  This is an important update because it contains revisions in the data back to 2003–click here to view the pre-revision data up to May, 2011.

The chart below shows the private sector share of personal income from January 1959 to June 2011. Post-revisions, the drop-off in the private sector was greater than before although the bounce-back is now greater–but it looks like the private sector still ends up in the same place.  So, for June, the private sector share of personal income was 70.49 percent.  This is well below the pre-Great Recession level of 74.48 percent in June 2007.

Chart Showing Private Sector Share of Personal Income Monthly June 2011

And since we have revised data, I have also updated this chart (see below) which 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 and the Great Recession, 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.  So as of June 2011, the gap between benefits paid and contributions is $348 billion.

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.

Chart Showing Growing Gap Between Contributions and Benefits for Social Security and Medicare June 2011

Note: “Supplements to Wages and Salaries” (benefits) in the BEA data are not broken down into “private” sector” versus “government” components. I used the ratio of private wages and salaries to total wages and salaries in order to disaggregate supplements.

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

Younger American Generations Beware . . . “Entitlement Slavery” Awaits

Finding Freedom

Every American under the age of 40 should shudder at this quote from a Foxnews story–NY Dem Wins Seat in Heavily GOP District:

Hochul’s victory gave a lift to Democrats still reeling from an electoral drubbing last November that cost the party control of the House. It also bolstered their resolve to push back on GOP efforts to cut Medicare and other entitlements — efforts that have drawn support among some tea party members but are widely opposed by independent voters.

“The three reasons a Democrat was elected to Congress in the district were Medicare, Medicare and Medicare,” Democratic Congressional Campaign Committee Chairman Steve Israel, D-N.Y., said in an interview . . .

Hochul said she would work to balance the federal budget but refused to “decimate” Medicare . . .

Her supporters at a union hall in Amherst, outside Buffalo, chanted “Medicare! Medicare!”

Folks, this may make for good politics, but it is an economic impossibility.  This chart from the Heritage Foundation shows that all revenue post-2049 will be consumed by entitlements.  From the chart caption:

If the average historical level of tax revenue is extended, spending on Medicare, Medicaid and the Obamacare subsidy program, and Social Security will consume all revenues by 2049. Because entitlement spending is funded on autopilot, no revenue will be left to pay for other government spending, including constitutional functions such as defense.

If this election becomes a national trend, then folks under the age 40 may be staring a form of indentured servitude right in the face–lets call it “entitlement slavery” . . . brought to you by the ballot box because there are simply more voters over 40 (who also have a higher voter turnout rate) than those under 40.