U.S. Federal Budget With Emphasis On Social Security And Medicare

Index Page and Intro To This Web Site (fb-index.html)

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What's New And Updates

An Introduction To This Web Site

At the current time, this site is almost entirely about the problem of financing Social Security after the boomers begin reaching age 65 in the year 2010. The projected Medicare funding gap is also discussed. Most of the statistics about Social Security are from the March 1999 Social Security Trustees Report (TR99).

Most media reporting about Social Security funding that I have seen is confusing and even misleading. Thus I decided to learn about Social Security and Medicare from the primary government source material (the March 1999 Trustees Reports on Social Security, Medicare Part A, and Medicare Part B). I also read several books and web sites. One can get an idea of what source material I've read by looking at the Citations (fb-8.html) and the Links (fb-9.html) pages.

Some general federal budget concepts are discussed, particularly in Appendix B (fb-60.html) and Appendix C (fb-66.html). It hopefully will clear up some confusion about what Social Security being off-budget means. Also, how large a share Social Security, Medicare, and other entitlements (what the budget people call the Mandatory Spending category) are as a percentage of the federal budget (about 75%). And what is and isn't in the Mandatory Spending category.

The best way to see what this web site is about is to browse through the rather verbose table of contents (fb-index2.html).

This web site is not meant to be propaganda for one side or the other of the Social Security debate. There are too many books, articles, and web sites that present only one side of the story via half-truths and lies in order to convince you either that (a) Social Security and Medicare are hopelessly "broken", and only privatization can possibly save it, or (b) the future funding problem is very small, and the best course of action is to continue with the present system.

I have tried to sort through the arguments and the counter-arguments, as well as the source government documents, in order to present the truth as I understand it.

I have concluded that there is a problem. One of my concerns is that the government bonds in the Social Security and Medicare trust funds will have to be redeemed by future taxpayers.

I have collected a number of quotes by official government documents, media, politicians, and others about the integrity of the federal budget process (fb-50.html). Currently it consists of quotes by the Congressional Budget Office (CBO), the Congressional Research Service (CRS), the Office of Management and Budget (OMB), the General Services Administration (GSA), and a former Social Security Administration commissioner, among others in the government and media, about the Social Security Trust Funds (and other U.S. government trust funds). The quotes say that the trust funds have no real assets in them except for some IOUs. The IOUs in effect state that the Treasury general fund owes money to the trust funds -- to pay back what the general fund has borrowed from the trust funds in the past.

And where will the Treasury general fund get the money to pay back the trust funds? There is only one place it can get the money from -- the general taxpayer. Either by raising taxes, or cutting other federal spending, or by selling bonds to the public (which then becomes in effect an obligation of the general taxpayer to pay the bondholder principal and interest).

Even the Social Security Trustees allude to this problem in the March 1999 Social Security Trustees Report by saying that the problem of where the general fund is going to get the revenues to redeem the trust fund IOUs is "not within the scope of this report" (non123).

Have you heard that the Social Security surpluses are being saved in a Social Security Trust Fund (SSTF) so as to provide a reservoir of savings to fund the boomers' retirement? Well, you have been mislead intentionally or unintentionally by media reports that state this. The "Quotes" (fb-50.html) web page makes it clear that nothing is being saved -- there are no assets in the SSTF that are not also general fund liabilities. That is why the SSTF (and all other trust funds) balances are counted as part of the $5.5 Trillion national debt -- the nation owes the trust funds what it has borrowed from the trust funds.

As of September 30, 1998 (end of fiscal year 1998), the SSTF balance is $730 billion, and the balance of all the trust funds combined is about $1,760 billion (non160). This $1.76 Trillion dollar trust fund debt makes up about 32% of the $5.5 Trillion national debt.

Thus, the SSTF insolvency date, currently projected to occur in 2034, is of no real signficance because the assets in the SSTF are not real economic assets. (They are assets to the Social Security system, but liabilities to the federal government (the nation), and so on net, they are not assets that will help the federal government or future taxpayers to pay Social Security benefits). Nor does trust fund exhaustion affect the obligation of the goverment to pay benefits -- as that obligation is set by law, and not by the full or empty status of the SSTF (non131).

On the other hand, Social Security is not going to go "bust". In 2035, when the SSTF is empty (not that that matters), the current Social Security payroll tax (12.40% evenly split between employer and employee) is projected to be sufficient to fund 71% of promised Social Security benefits. Even as far out as 2075, the payroll tax will be sufficient to fund 67% of promised Social Security benefits. See section non61 for the 71% and the 67% numbers.

Another topic that I want to highlight in this introduction page is whether or not the Social Security Trustees are using pessimistic demographic and economic assumptions (fb-80.html). Some people fault the Social Security Trustees' Intermediate projection as being very pessimistic with respect to real GDP growth (about 1.3%/year after 2020). However, the GDP growth is low because the growth in the labor force is expected to be very low -- 0.2% per year after 2020, and 0.1% per year after 2050 (See Table T234.1). This very low rate of labor force growth will adversely affect not only the ratio of workers per beneficiary, but also overall economic growth.

Unless the productivity growth rate improves from the low level of the last 30 years (about 1.3%/year  (non241)), tax rates will have to go up considerably and benefits will have to be cut somewhat. But, given that the economy continues to grow in real terms, and that we don't squander the unified budget surpluses that we are currently enjoying, and if worker pay grows in real terms, then the tax bite will not be that unbearable. In fact, the Intermediate forecast of the Social Security Trustees is that even with the heavier tax bite, the real after-tax pay of workers in the future will be higher than currently (non74). (The Social Security Trustees don't state that. But given their projections of Social Security and Medicare costs, and of real worker pre-tax pay -- I made some calculations to reach this conclusion).

An alternative view, suggesting that the middle class and below have lost real earning power and real wealth over the last 25 years  (non206), will also be presented for balance. If the majority of taxpayers do not experience real before-tax pay increases in the future, then the tax rate increases of the future will force a reduction of living standards.

Navigational Aids and Section "Non" Numbers

In the above, you've seen many references to "non" numbers, for example, "non206". These are link numbers or bookmark numbers to identify different sections and notes. The "non" stands for "Numbered NOte", although most of them are used to identify sections

Most notes, sections, or bookmarks are book-marked with a section number or note number like "non999". For the convenience of text version users, or when a non-number is mentioned without a link, one can find it by searching for (999), i.e. the section number in parentheses, and with no spaces between the parentheses and the number. It is also for the convenience of people reading a printed version -- to know what section is being referred to.

Currently, the non-numbers are in order. However, as sections are inserted, deleted, or rearrangements made, the non-numbers will no longer be in order. Any section moved elsewhere will keep their old non-numbers. This is for continuity of reference.

New sections will be given a "midway" non-number. For example, if a section is inserted between non235 and non236, it will be assigned non235.5 and marked as (235.5).

Table numbers are designated with a "T" number, for example, Table T234.1. A table with such a name is likely to be found in, or shortly after, section non234.

Every two years, in around June of odd-numbered years (June 2001, June 2003, etc.) there is a possibility that all non-numbers and table numbers will be re-numbered to bring them back into simple numerical order. So don't depend on the non-numbers being kept the same for ever.

For A Good Overview, Visit The Table Of Contents

Again, the best way to see what this web site is about is to browse through the rather verbose table of contents (fb-index2.html). The topic headings are long and descriptive. Reading the table of contents is almost like reading a summary of the whole web site.

Index Of All Federal Budget Pages

Index page (fb-index.html) (this page)

Table Of Contents, p1 (fb-index2.html)      p2 (fb-index3.html)

Revision History And What's New of this federal budget web site (fb-changes.html)

Abbreviations, Conventions, and Definitions (fb-7.html)

Citations, References (fb-8.html)

Links To Other Web Sites (fb-9.html)

Part 1, p1 - Introduction (fb-20.html)

p2 (fb-21)     p3 (fb-22)

Part 2, p1 - Discussion (fb-30.html)

p2 (fb-31)     p3 (fb-32)     p4 (fb-33)     p5 (fb-34)     p6 (fb-35)

Appendix A, p1 - Quotes by official government documents about the integrity of the federal budget process (fb-50.html)

Appendix A, p2 - Quotes by media, politicians, and others about the integrity of the federal budget process (fb-51.html)

Appendix A, p3 (fb-52.html)

Appendix B, p1 - Federal Budget Overview (fb-60.html)

p2 (fb-61)     p3 (fb-62)     p4 (fb-63)

Appendix C - National Debt and Interest On The National Debt (fb-66.html)

APPENDIX D, p1 - Financing Social Security and Medicare - Common Questions, Myths, And Special Issues (fb-70.html)

p2 (fb-71)     p3 (fb-72)     p4 (fb-73)     p5 (fb-74)     p6 (fb-75)     p7 (fb-76)

Appendix E, p1 - The Social Security Trustees Are Using Pessimistic Demographic and Economic Assumptions ??? (fb-80.html)

p2 (fb-81)     p3 (fb-82)

Appendix F - Technical Index (fb-90.html)

Appendix G - Correspondence With AARP Regarding Their "Social Security Is Solvent For Decades" Viewpoint (fb-91)

UPDATES Page (FB-UPDATES-1)