Stoneage Ramblings

By John R. Stone

The Federal budget deficit is and should be a big topic in any election. The numbers are now so large that they are hard to comprehend. We’re talking in trillions. A trillion is 1,000 billion. A billion is 1,000 million.

Up through the year 2000 deficits were small and their accumulation was small. If you look at a graph the line is nearly flat all the way up to 2000. In 2001 there was actually a $236 billion surplus.

Of course then came 9/11 and the extra spending that followed. The 2007 budget deficit was “just” $160 billion and then came the financial collapse and by the end of 2009 the deficit for that year was $1,412 billion, the first trip over one trillion.

Then along came the COVID-19 pandemic and the deficits starting 2020 were $3,132 trillion, $2,770 trillion for 2021, $1,375 trillion for 2022 and $1,695 trillion for 2023.

The total cumulative debt has now passed $34 trillion, the bulk of that in the past 22 years.

For fiscal year 2023 the Federal government spent $6.13 trillion. It had income of $4.44 trillion leaving the $1.695 trillion deficit.

Where does U.S. government income come from?

The personal income tax is the largest source of income representing 47 percent of income. The corporate income tax accounts for 13.5 percent.

The second largest source of income for the Federal government is the Social Security tax of 6.2 percent of payroll that is split between employers and employees unless a person is self employed. That generates 34 percent of government income. It is, of course dedicated to the Social Security retirement fund.

The balance comes from excise taxes, fees and other miscellaneous income.

When it comes to spending Social Security is the largest single program item. It accounted for $1.354 trillion in fiscal year 2023 which ended Sept. 30, 2023. The Social Security tax mentioned above generated right around $1.333 trillion in FY 2023, meaning there was a deficit there of roughly $21 billion.

Right now that is not technically a deficit. Earlier on, in fact up to around 2010, Social Security had a surplus. That surplus is called the Social Security Trust Fund which was basically a bookkeeping entry. That trust fund was $2.777 trillion at the end of FY2023. The Federal government basically used that money to pay other bills and uses it to balance the Social Security books now when withdrawals from the fund exceed income. It pays interest.

The income number of $1.333 trillion includes $66 billion in interest and $49 billion in income taxes on SS benefits. Trust fund interest will decrease rapidly as the balance gets smaller.

While that deficit is small now it is anticipated it will get to a point by 2033 where the trust fund will be gone and people can expect a 20 percent drop in benefits without some kind of action from Congress either to reduce expenses of the program or increase income, so the deficit will grow more quickly as time passes.

Roughly 66 million people receive “Old Age and Survivors Insurance” benefits, the official name for basic Social Security. About nine million people receive Disability Income benefits.

Medicare, too, has financial issues and its trust fund is expected to last until 2031 without changes to its income and expense structure. In both the case of Social Security and Medicare, different agencies give different trust fund dates, some are less optimistic.

So the issues surrounding federal budgets and deficits are complex. It is interesting to note that the government agency that collects taxes thinks there are billions not being collected because it is not staffed well enough to do so.

Next week we look at Internal Revenue System issues.