But I have a nasty little secret for you, folks. If you use realistic numbers rather than what I call WAAP – Washington Accepted Accounting Principles – the real federal deficit for the current fiscal year is more than 2-1/2 times the stated deficit.
What is going on? The same old story. Those in charge of spending the money in Washington like to use deceptive tactics to try and trick people that don’t know any better. For example, if the government incurs a deferred liability to pay $100 Billion dollars in future social security payments this year and invests that money in treasury bonds they act like the government didn’t spend that money. Of course it did, they took $100 billion in social security taxes and spent it to build bridges to nowhere, pay huge corporate welfare payments, other worthless wastes, even worthwhile things etc..
Related: USA Federal Debt Now $516,348 Per Household – Washington Paying Out Money it Doesn’t Have – Concord Coalition
Comptroller Says Medicare Program Endangers Financial Stability:
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Asked if he knows any politicians willing to raise taxes or cut back benefits, Walker says, “I don’t know politicians that like to raise taxes. I don’t know politicians that like to cut spending, but I think what we have to recognize is this is not just about numbers. We are mortgaging the future of our children and grandchildren at record rates, and that is not only an issue of fiscal irresponsibility, it’s an issue of immorality.”
Strong words and I agree, as stated in: Washington Paying Out Money it Doesn’t Have and USA Federal Debt Now $516,348 Per Household.
I am not exactly sure why but for some reason people seem very ignorant of the wealth distribution by age. The richest group by far are those over 65. There are several reasons for this including self preservation. Once you stop working you better have a large pool of capital or you will most likely have little income (you could have a great pension and no other savings but…). Another is that the “miracle” of compound interest. Those that actually saved enough for retirement often find their investments out-earning their spending thus wealth increasing yearly. This effect over time results in wealth increasing dramatically. Many of those that failed to save enough will have their savings dissolve very quickly thus leaving the inverse of a bell curve (a high number of wealthy and of poor and a lessor number in the middle). Social Security helps those that failed to save enough for retirement to slow the decline (and those that saved enough to become even wealthier even faster). The presence of large numbers of poor elderly I think is one reason so many are surprised that they are the richest age group.
I used to be surprised how few people know this – now I know, for those I talk to anyway, they are always surprised. This has several public policy impacts such as why do we have a huge “social security transfer system” (social security including medicare) to move money from the young to the old when the old are wealthier than the young? People see the 7.65% deducted from their check but the employer has to pay an equal amount to this transfer of wealth between the generations bringing the total to 15.3%.
It doesn’t make much sense to me to have those working at Wal-mart and McDonalds transfer 15.3% of the income from their labor to much wealthier people. Yes, paying something in I think is fair. But the system should be adjusted. One method I would use is to reduce (or eliminate) payments to the wealthy elderly (continuing the existing payments to the poor elderly is affordable so I see continuing those payments as good public policy) and reduce taxes on the working poor. Obviously others disagree so we transfer a large amount of money from those working at Wal-mart to those with hundreds of thousands in investments. I think this is wrong. I wish at least the facts would be known so that the decision is made with awareness of the facts.
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The growing divide between the rich and poor in America is more generation gap than class conflict, according to a USA TODAY analysis of federal government data. The rich are getting richer, but what’s received little attention is who these rich people are. Overwhelmingly, they’re older folks. Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans.
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The implications are far-reaching and can turn conventional wisdom on its head. Social Security and Medicare increasingly are functioning as a transfer of money from less affluent young people to much wealthier older people.
Wow, I don’t recall seeing publications actually point out this fact very often. Good for the USA Today.
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Buffett blasts system that lets him pay less tax than secretary:
Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. Mr Buffett told his audience, which included John Mack, the chairman of Morgan Stanley, and Alan Patricof, the founder of the US branch of Apax Partners, that US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation.
The comments are among the most [significant] yet in a debate raging on both sides of the Atlantic about growing income inequality and how the super-wealthy are taxed. They echo those made this month by Nicholas Ferguson, one of the leading figures in Britain’s private equity industry, when he criticised tax rates that left its multimillionaire venture capitalists “paying less tax than a cleaning lady”.
Last week senior members of the US Senate proposed to increase the rate of tax that private equity and hedge fund staff pay on their share of the profits, known as carried interest, from the 15 per cent capital gains rate to about 35 per cent.
Related: Estate Tax Repeal – USA Federal Debt Now $516,348 Per Household – Income Inequality in the USA – General Air Travel Taxes Subsidizing Private Plane Airports – Warren Buffett bio
The federal debt is not officially calculated the way that other accounting is done. Future obligations are not included, thus promising ever larger payments for health and retirement programs are not accurately reflected in government official debt totals. There are some legitimate arguments for why using exactly the same standards as others does not make sense for the federal government accounting. However the current methods make it too easy for politicians to claim they are not spending our grandchildren’s money for promises they make today. Rules ‘hiding’ trillions in debt:
Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.
Foisting debts on our grandchildren because we elect politicians that refuse to either cut spending (and promised spending) or raise taxes is a sad legacy of the last 30 years for the USA.
Related: Washington Paying Out Money it Doesn’t Have – Is the USA Broke – The Fallacy of Estate Tax Repeal – Social Security Trust Fund
This is the kind of stuff that makes so many people so cynical about how those with the gold make the rules. Somehow unless enough people pay enough attention to stop every single boondogel the politicians seem to keep throwing money at their rich friends. Then those rich friends give a reward the politician’s re-election campaigns for the taxpayer money they received. Traveler taxes awarded to small airports:
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Passengers pay as many as six separate taxes and fees on a single airline ticket, adding up to more than $104 billion since 1997, the AP found. Yet these assessments often are overlooked by the millions who click the “buy” button to purchase tickets online, even though they can exceed 25 percent of the total airfare.
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Congress will decide later this year whether to curtail the huge public subsidy for small airports, while pilots’ associations, airport managers and other interested groups are fighting to keep it.
Any guess on what they will do? I would guess fund their friends and themselves. It is true if the public actually pays attention then I believe they would stop until they think the public won’t notice and then slip the millionaire subsidies back in.
The article includes many more examples.
Congressional Budget Office on the Alternative Minimum Tax (AMT):
The Looming Challenge of the Alternative Minimum Tax, Alan D. Viard, Federal Reserve Bank of Dallas:
Related: Families Face Alternative Minimum Tax, NPR – Brookings Institution article on the AMT – Preparation Softens Blow of Alternative Minimum Tax – IRS on the AMT
Both of these still understate the size of the deficit. The Bush administration has been adamant about keeping certain costs out of the budget figures. Spending on the war in Iraq, for example, has been included not in budget resolutions but in special emergency spending bills. They are “off budget” in the language of Washington. That spending, estimated by the Congressional Budget Office at $360 billion overall and $95 billion in the fiscal year that ended in October 2006, aren’t in either of these two budget figures. And Iraq funding for fiscal 2007 won’t be included in the budget the president will introduce next month, either.
Putting away some money is vital, even if you are young and in debt by John Waggoner:
Starting small – If you don’t have a 401(k) available, at least open a Roth IRA. You contribute after-tax money to a Roth, but you pay no taxes on your withdrawals at retirement.
More on Roth IRA’s.
The Value of the Public Domain by Lawrence Lessig:
Exactly right. Lessig mentions an interesting article, The Value of the Public Domain by Rufus Pollock that goes into this area in more detail.
Related: Innovation and Creative Commons – Estate Tax Repeal