How Much Economic Trouble Is the U. S. In?

Everyone knows that the United States government spends far more than it takes in. Indeed, it has been doing that for all but a few years since 1930. Since it has been doing that pretty much all along, why get all that bothered about it at this late date? It would appear that the furor is being caused by the mounting size of this deficit spending in recent years under both political parties. At some point we might reach a point where the government is in so far in over its financial head that it is bankrupt in all but name but there is no bankrupcy court to appeal to. The question is then: are we there yet?

Believe it or not, the answer to that question is neatly compiled in one table provided by that very same government via the Bureau of Economic Analysis in the Commerce Department. That table, number 2.6, is entitled Personal Income and its Disposition, Monthly. That one table gives you all the figures you need to assess where the government is at financially in relation to the people of this country. We have pulled out the critical parts of the data in table 2.6 into the table below. Please do not be deterred by the size of this table and all those numbers. Anyone with an eighth grade education can easily understand what this table tells us and how important it is that everyone understand the implications of what it shows.

The critical part you need to digest is provided by the last two columns in the table. The column marked PRIV CAP shows how much money is made by private individuals in this country divided by our population to provide the per capita private earnings. When this figure increases, the average American is better off and when it decreases, we are worse off. The last column shows the the net financial effect that the government has on us because it is the total money coming in from private individuals and going out to them divided by our population. When the figure is negative, every man, woman and child is providing the government the figure shown each year to run the government. Obviously it should never be a positive figure because that would mean we are not providing any money to run the government but rather instead it is borrowing money to send money to us on top of the expense of running the government. Except for those last two columns, the other columns with money figures are in billions of dollars.

YEAR	MON	PERS INC	TRANS	CONTR	TAXES	PRIVATE	GOVT	PRIV CAP	GOVT CAP
2005	03	10,365.9	1,503.21	869.62	1,181.77	9,732.3	-548.18	32,947.6	-1,855.79
2005	06	10,509.8	1,516.11	873.61	1,209.95	9,867.3	-567.45	33,328.6	-1,916.66
2005	09	10,490.3	1,506.95	869.64	1,217.00	9,852.9	-579.69	33,192.9	-1,952.87
2005	12	10,660.2	1,510.10	875.62	1,248.31	10,025.7	-613.83	33,695.4	-2,063.02
2006	03	10,878.3	1,546.08	901.62	1,306.47	10,233.8	-662.01	34,322.1	-2,220.24
2006	06	10,954.9	1,570.41	861.69	1,306.84	10,276.1	-628.12	34,383.7	-2,101.67
2006	09	11,021.9	1,572.42	893.46	1,320.06	10,342.9	-641.10	34,511.5	-2,139.17
2006	12	11,187.5	1,596.22	907.33	1,366.01	10,498.6	-677.12	34,942.1	-2,253.63
2007	03	11,251.0	1,628.63	912.33	1405.68	10,534.7	-689.38	34,982.9	-2,289.24
2007	06	11,263.8	1,612.61	907.13	1,411.90	10,558.3	-706.42	34,976.2	-2,340.13
2007	09	11,331.5	1,634.35	907.22	1,417.51	10,604.4	-690.38	35,035.4	-2,280.91
2007	12	11,392.1	1,650.32	911.48	1,425.68	10,653.3	-686.84	35,113.3	-2,263.83
2008	03	11,401.1	1,668.54	915.28	1,424.71	10,647.8	-671.45	35,024.3	-2,208.62
2008	06	11,404.9	1,806.52	899.98	1,221.43	10,498.4	-314.89	34,457.3	-1,033.52
2008	09	11,293.3	1,716.60	897.11	1,343.54	10,473.8	-524.05	34,292.0	-1,715.77
2008	12	11,354.0	1,797.74	901.17	1,311.79	10,457.8	-415.52	34,163.9	-1,357.43
2009	01	11,247.1	1,846.59	896.42	1,254.20	10,297.0	-204.03	33,616.7	-666.10
2009	02	11,136.1	1,861.25	887.82	1,121.66	10,162.7	-148.23	33,157.6	-483.62
2009	03	11,119.8	1,898.35	886.91	1,085.82	10,108.3	-74.38	32,959.7	-242.52
2009	04	11,160.2	1,917.88	892.77	1,033.30	10,135.1	-8.19	33,025.6	-26.68
2009	05	11,330.2	2,075.84	896.05	1,022.13	10,150.4	157.66	33,053.0	513.39
2009	06	11,156.2	1,962.14	889.91	1,011.73	10,083.9	60.50	32,812.1	196.86
2009	07	11,111.7	1,956.83	886.49	1,017.29	10,041.3	53.05	32,648.1	172.48
2009	08	11,102.2	1969.22	886.61	1,021.77	10,019.6	60.84	32,550.6	197.65
2009	09	11,083.1	1,984.44	883.75	1,018.45	9,982.4	82.24	32,403.3	266.95
2009	10	11,060.6	1,969.50	883.21	1,014.54	9,974.3	71.75	32,352.2	232.72
2009	11	11,089.8	1,980.72	884.46	1,012.97	9,993.5	83.29	32,391.1	269.96
2009	12	11,128.5	1,999.85	882.81	1,010.37	10,011.5	106.67	32,427.6	345.50
2010	01	11,121.7	2,011.21	890.95	1,022.53	10,001.4	97.73	32,374.4	316.34
2010	02	11,129.1	2,017.32	890.08	1,022.59	10,001.9	104.65	32,356.1	338.54
2010	03	11,158.6	2,045.74	891.01	1,024.40	10,003.8	130.33	32,342.2	421.35
2010	04	11,242.3	2,053.22	899.13	1,030.21	10,088.2	123.88	32,594.2	400.24
2010	05	11,301.2	2,060.81	905.24	1,038.61	10,145.6	116.96	32,757.7	377.63
2010	06	11,321.6	2,070.92	906.35	1,040.06	10,157.0	124.51	32,770.2	401.71
2010	07	11,318.4	2,068.51	908.08	1,055.07	10,158.0	105.36	32,748.2	339.66
2010	08	11,351.7	2,098.86	909.73	1,060.81	10,162.6	128.32	32,736.1	413.35
2010	09	11,341.5	2,087.58	910.02	1,065.68	10,163.9	111.88	32,713.9	360.10
2010	10	11,379.7	2,091.47	912.60	1,076.83	10,200.9	102.04	32,807.9	328.17
2010	11	11,403.6	2,097.62	911.96	1,079.75	10,217.9	105.91	32,839.3	340.18
2010	12	11,428.5	2,096.45	911.62	1,083.64	10,243.7	101.19	32,901.3	325.00
2011	01	11,520.9	2,088.64	824.68	1,127.99	10,257.0	135.97	32,925.5	436.47
2011	02	11,520.9	2,085.60	824.24	1,126.57	10,259.6	134.79	32,915.3	432.44
2011	03	11,534.0	2,099.08	823.32	1,124.26	10258.2	151.50	32,891.2	485.75

The problem with the figures in the government table is that they are not adjusted for inflation, but there are figures at the bottom of the table to allow one to do that. We have done that for you in our table. The reason that it is critical to do that is because there is no way to tell if the government or we the people are better off or worse off than previously without making that adjustment. If you get a $5 a week raise but you are spending more than $5 a week more for groceries and gasoline than you were previously, then you are actually worse off in spite of the raise you got. Using the ratio of current dollars to 2005 dollars allows us to adjust all of the other figures in table 2.6 to 2005 dollars so we are not comparing apples to oranges. The population figures in the last line of table 2.6 allow us to calculate any figure to a per capita amount so we can see whether the average American is better off or not compared to a previous time. Indeed, we can do that for the government itself as well to see how much we are receiving from the government in benefits and paying to it in taxes and contributions to things like Social Security and Medicare.

In line 1 of table 2.6 is the combined total income of all of us as individuals in billions of dollars on a month by month basis and that is in the column marked PERS INC in our table adjusted to 2005 dollars. Part of our income is from the government itself in the form of social security, medicare, unemployment benefits, etc. This amount is provided on line 14 in table 2.6 and is in the column marked TRANS, That is because the government calls the direct benefits it provides to us current personal transfer receipts. The amount we contribute to entitlement programs is found on line 20 in table 2.6 and is shown in the column marked CONTR. Likewise, line 21 gives the total amount we pay in taxes and is in the column marked TAXES in our table.

The next column is a figure not provided directly by table 2.6 but is calculated by subtracting the transfers and adding back in our contributions to government benefit programs. We call this PRIV INC since this represents what our total income would be without the government having these benefit programs. We would not be receiving things like social security or Medicare nor contributing to them either. The next column gives us a figure of what effect the government has on us because it is the transfers to us minus the contributions and taxes we pay. Since it costs money to run the government, part of our income should go to the government to keep it going and hence be a negative figure to our own income. We might add that the sum of the private income per capita and the net government action is the total per capita income in 2005 dollars and it should and does agree with the figure provided in line 32 of table 2.6 plus or minus some minor rounding of amounts.

Two things immediately jump out at you from this table. One is that the government benefits (transfers) are way more than our contributions to these programs and as you go down the table towards the more recent months, you will see that it is getting progressively worse. That in a nutshell is why social security is going broke. You will notice that the contributions suddenly drop quite a bit starting in 2011. That is because the two political parties decided to "forgive" part of the social security receipts for all of 2011. Hardly a peep was heard in opposition to this idea but it does mean that social security will go broke that much sooner.

The second conclusion is the most startling and most unbelievable fact from our table found in that last column. At the top of the table back in 2005 through 2007, every one of us, including children, was ponying up between $1,855 and $2,340 to run the government and pay for all those entitlement program benefits some of us get. Suddenly that figure crashes in the middle of 2008 to less than half of that figure in June of 2008. By the first of 2009, this figure is down to $666 apiece. By April, it is down to pocket change. Starting in May of 2009, the figure goes positive and has been that way ever since. In the last two years, the average American has effectively not contributed one dime to run the government or pay for those entitlement programs. On the contrary, the government is sending some of us a lot of money because it is averages out to as much as $513 on an annualized basis for every last man, woman and child in the United States.

How can this be you ask? Taxes have not actually been lowered because all they did was extend the Bush tax cuts already in place last December. Remember all of those give away programs where the government actually sent most of us a check? How about cash for clunkers and the first time homebuyer's credits at $8,000 per pop? Of course, programs like unemployment benefits and food stamps are running up the costs of all of those benefit programs just as tax collections are dropping due to an economy in the toilet as well. So how well did all those programs handing out goodies to some of us, but not all of us, work? Look at the private income per capita column to find out. That figure peaked at $35,113 in December of 2007. It dropped steadily down until it bottomed out at $32,342 in March of 2010. At the peak, we were sending the government $2,263 apiece per year and managing quite well. At the bottom, the government was sending each of us $421 on the average every year.

In other words, our own average private income dropped from $35,113 to $32,342 for a loss of $2,771. The government went from taking in $2,263 to putting out $421 for a total turnaround of $2,684 in loss of income and outlays per person. The government attempted to make up for the loss of income by sending back all of the money we sent it and a whole bunch more. While that is no way to run a railroad, let alone a government, one can argue that the economic conditions justified these emergency measures. However, private income per capita has been increasing for over a year now but the government is still pouring out $485 in borrowed money to each of us on the average. The private income per capita has increased to $32,891 for a gain of $549. At the very least, the government needs to stop sending us money and start collecting some once again.

We can begin by repealing the "forgiving" of part of the withholding taxes. The table shows us that contributions have dropped from $911 billion to $823 billion while the private income has actually started falling again from $32,925 to $32,891 during the same time. Clearly, this is not stimulating anything. We also need to repeal all of the special benefit programs added to "help" the struggling economy. The money is not being spread anywhere near equally. Car buyers and home buyers got huge special benefits and the rest of us got zilch. Not only that but when these programs stopped, they dried up both markets for months as the potential pool of buyers was dried up as all of those who could buy, did so while the getting was good. When is the government ever going to learn that it is doing more harm than good and by the time it gets around to applying a band-aid, the wound is already starting to heal?

Support For Ryan's Path To Prosperity Comes From Unlikely Place: Slate- 'Good Plan'

Reminder from yesterday's post for those that wish to read the GOP's Path To Prosperity for themselves instead of letting the firestorm of opinion pieces in the old and new media tell you what to think.

Read the Full 73 page Report- Key Facts and Summary- A Contrast In Budgets (PDF's from budget.house.gov)

In going through the the discussions and massive amounts of ink dedicated to either hailing the budget plan or criticizing it, I found support for Paul Ryan's plan from a very unlikely place.

Slate, not known for a bastion of conservative thinking, headlines with "Good Plan".

For the past 30 years, Republicans have been hypocrites about spending. They've raged against big government without ever proposing the kinds of cuts necessary to bring federal expenditures in line with tax revenues. Democrats have been more fiscally responsible, producing an actual budget surplus during Bill Clinton's second term. But they've been little better than Republicans when it comes to confronting the nation's long-term fiscal imbalance, which is driven by the projected growth in entitlement spending.

This dynamic of political evasion and reality-denial may have undergone a fundamental shift today with the release of Rep. Paul Ryan's 2012 budget resolution. The Wisconsin Republican's genuinely radical plan goes where Ronald Reagan and Newt Gingrich never did by terminating the entitlement status of Medicare and Medicaid. (It doesn't touch the third major entitlement, Social Security, though Ryan has elsewhere argued for extending its life by gradually raising the retirement age to 70.) Ryan changes Medicare into a voucher, which would be used to purchase private health insurance. He turns Medicaid into a block grant for states to spend as they choose. Though his budget committee isn't responsible for taxes, Ryan includes the boldest tax reform proposal since the 1980s, proposing to lower top individual and corporate rates to 25 percent and end deductions. While he's at it, Ryan caps domestic spending, repeals Obamacare, slashes farm subsidies, and more.

If the GOP gets behind his proposals in a serious way, it will become for the first time in modern memory an intellectually serious party—one with a coherent vision to match its rhetoric of limited government. Democrats are within their rights to point out the negative effects of Ryan's proposed cuts on future retirees, working families, and the poor. He was not specific about many of his cuts, and Democrats have a political opportunity in filling in the blanks. But the ball is now in their court, and it will be hard to take them seriously if they don't respond with their own alternative path to debt reduction and long-term solvency.

The Slate piece delves into some of the meat and potatoes of the plan and concludes at the end of the article:

But more than anyone else in politics, Rep. Ryan has made a serious attempt to grapple with the long-term fiscal issue the country faces. He has a largely coherent, workable set of answers. If you don't like them, now you need to come up with something better.

Consider the conversation on how to bring America's fiscal house in order, started.

[Update] Video below shows Ryan stating "It all comes down to this: Either you fix this problem now where we, you can guarantee people who’ve already organized their lives around these programs get what they have coming to them, or you pick the president’s path, which is do nothing, punt, duck, kick the can down the road, and then we have a debt crisis and then its pain for everybody."



H/T CNS News

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Paul Ryan Unveils The GOP Path To Prosperity: Budget To Cut $6.2 Trillion Over 10 Years

Read the Full 73 page Report- Key Facts and Summary- A Contrast In Budgets (PDF's from budget.house.gov)



Paul Ryan, a Republican, represents Wisconsin's first congressional district and serves as chairman of the House Budget Committee, writes an op-ed in the Wall street Journal explaining the GOP Path to Prosperity.

"Our budget cuts $6.2 trillion in spending from the president's budget over the next 10 years and puts the nation on track to pay off our national debt."--- Paul Ryan, Wall Street Journal April 5, 2011

Congress is currently embroiled in a funding fight over how much to spend on less than one-fifth of the federal budget for the next six months. Whether we cut $33 billion or $61 billion—that is, whether we shave 2% or 4% off of this year's deficit—is important. It's a sign that the election did in fact change the debate in Washington from how much we should spend to how much spending we should cut.

But this morning the new House Republican majority will introduce a budget that moves the debate from billions in spending cuts to trillions. America is facing a defining moment. The threat posed by our monumental debt will damage our country in profound ways, unless we act.

During the last few months, the GOP controlled House of Representatives has been in a public battle with the Democratically controlled Senate and Democratically controlled White House over spending cuts, with the GOP pushing for more and more spending cuts and the Democrats holding on to every bit of government spending they can.

Below I am going to show two visuals. One from Business Insider from February 2011 showing an income statement for the United States and the other provided by Ryan in his WSJ op-ed.

Click to enlarge

According to the pie chart above the U.S. brought in $2.2 trillion and spent $3.5 trillion.

58 percent of those expenses are from entitlement programs. 20 percent from Social Security, 22 percent from Medicare and Federal Medicaid and 16 percent from Unemployment Insurance and other entitlements.

Those numbers were taken directly from The White House Office of Budget Management.

Anyone who lives on a budget or deals with money in any way should understand that level of spending vs revenue is not sustainable.

The graph Paul released in his WSJ piece shows what will happen if something drastic isn't done.



The GOP Path to Prosperity leaves nothing off the table, addresses entitlements in a way that no one has dared to address them in decades for fear of public backlash because while voters continue to harp on Washington for their continual overspending and enlargement of government, voters also cringe at the thought of specific targeted entitlements and the change needed to stop this free-fall into debt America is on.

The major components in Paul's proposal are Reduce spending, Welfare reform, Health and retirement security, Budget enforcement and Tax reform.

Reduce Spending:

This budget proposes to bring spending on domestic government agencies to below 2008 levels, and it freezes this category of spending for five years. The savings proposals are numerous, and include reforming agricultural subsidies, shrinking the federal work force through a sensible attrition policy, and accepting Defense Secretary Robert Gates's plan to target inefficiencies at the Pentagon.

Welfare Reform:

This budget will build upon the historic welfare reforms of the late 1990s by converting the federal share of Medicaid spending into a block grant that lets states create a range of options and gives Medicaid patients access to better care. It proposes similar reforms to the food-stamp program, ending the flawed incentive structure that rewards states for adding to the rolls. Finally, this budget recognizes that the best welfare program is one that ends with a job—it consolidates dozens of duplicative job-training programs into more accessible, accountable career scholarships that will better serve people looking for work.

As we strengthen and improve welfare programs for those who need them, we eliminate welfare for those who don't. Our budget targets corporate welfare, starting by ending the conservatorship of Fannie Mae and Freddie Mac that is costing taxpayers hundreds of billions of dollars. It gets rid of the permanent Wall Street bailout authority that Congress created last year. And it rolls back expensive handouts for uncompetitive sources of energy, calling instead for a free and open marketplace for energy development, innovation and exploration.

Health and Retirement Security:

This budget's reforms will protect health and retirement security. This starts with saving Medicare. The open-ended, blank-check nature of the Medicare subsidy threatens the solvency of this critical program and creates inexcusable levels of waste. This budget takes action where others have ducked. But because government should not force people to reorganize their lives, its reforms will not affect those in or near retirement in any way.

Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy. Future Medicare recipients will be able to choose a plan that works best for them from a list of guaranteed coverage options. This is not a voucher program but rather a premium-support model. A Medicare premium-support payment would be paid, by Medicare, to the plan chosen by the beneficiary, subsidizing its cost.

In addition, Medicare will provide increased assistance for lower- income beneficiaries and those with greater health risks. Reform that empowers individuals—with more help for the poor and the sick—will guarantee that Medicare can fulfill the promise of health security for America's seniors.

We must also reform Social Security to prevent severe cuts to future benefits. This budget forces policy makers to work together to enact common-sense reforms. The goal of this proposal is to save Social Security for current retirees and strengthen it for future generations by building upon ideas offered by the president's bipartisan fiscal commission.

Budget Enforcement:

This budget recognizes that it is not enough to change how much government spends. We must also change how government spends. It proposes budget-process reforms—including real, enforceable caps on spending—to make sure government spends and taxes only as much as it needs to fulfill its constitutionally prescribed roles.

Tax Reform:

This budget would focus on growth by reforming the nation's outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%. It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and leave some corporations paying no income taxes at all.

More:

A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage's analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year.

From the Heritage Foundation's The Foundry:

House Budget Committee Chairman Paul Ryan’s (R–WI) budget proposal, for the first time in recent memory, sets our nation on a different and better path. It tackles the massive spending excesses of the recent past and the entitlement crisis that is beginning to command our fiscal future. It rejects the politics of government dependence, massively higher taxes and the inevitability of national decline. No budget in decades has had the potential for so fundamentally improving the nation’s prosperity and restoring its vast promise. This is a monumental budget proposal for monumental times, and it opens a serious and necessary conversation about the future of our nation and its great legacy of freedom, opportunity, and self-government.

They conclude:

But in the end, let’s remember where we are and what Chairman Ryan has accomplished. Last year, neither the House nor the Senate passed a required budget resolution. This year, President Obama proposed a budget that more than doubles the national debt. In the first budget of the new Congress, Chairman Ryan has forged a serious path to fix our nation’s fiscal and economic crisis. The House, the Senate, and the President must now do their part so that we may reclaim our nation’s future.

You will hear a lot of talk, Conservatives hailing this plan, Democrats criticizing it, politicians pushing their own political agenda and pundits pushing their own ideology.

Click the links at the top of this post, read it, do the math and decide for yourself if we can sustain the path we are on and if the answer is no, then determine for yourself if you believe this proposal addresses the concerns you have as individuals.

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