Balancing the Federal budget

Toyman01 wrote: Why actually save for a flat screen when you can charge it an pay an extra 20% for it.

Here's my scenario..

I go to buy a flatscreen that costs $1000, They offer me 0% interest for 12 months. I have the cash in hand, but know I can get 2% in a 12 month CD. I get the TV now, but then invest in the CD and in 12 months I have $1020. I then Pay off the note on the TV and pocket $20.

Thats the power of credit. Now, do you have to use it all the time... Nope. But you need to be aware.

Just like most major corporations, even with the cash reserves to pay their weekly payroll, choose to utilize short term loans to cover payroll... While they have the reserves to cover their current expenses, It makes them more money to do otherwise.

oldsaw wrote:

huge-O-chavez wrote: Debt is a very powerful tool when utilized effectively. Those who are concerned with living debt free should also be concerned with their constant underachieving.

That's purely a value judgement. Those who personally choose to live debt-free aren't underachievers; they choose to be beholden to no one (within their personal powers). In other words, they live within their means.

Don't disagree with you.. I live within my means, but then know when to use debt to further myself much more rapidly than I could by my own means. I can provide very simple proofs.

Obviously the numbers are quite tidy as you presented them. You designed them that way.

The reality is that the VAST majority of debt is NOT 0%, the going rate for 12 month CD's is NOT 2%, and there are usually plenty of opportunities to miss something, like a late fee, pre-payment penalty, etc.

I don't disagree with you that there are times when using credit is smart. It's just not smart to offer it as general advice to the majority of people who are generally quite a bit safer pursuing limitations on their debt.

SVreX wrote: Obviously the numbers are quite tidy as you presented them. You designed them that way.

Uhh yeah.. Why would you take a bad deal? But, i pulled exactly that deal on a washer/dryer for my old house and made $50. The 0% and 2% are merely examples, but I've done this with borrowing money at 3% and paying off 9% money... Simple finance...

Here is a funny slant. Most of those who are against debt, fall squarely into the conservative, personal responsibility camp.. If they shun debt, then, do they necessarily mean that they are not personally responsible enough to use it effectively? Like an addict and a beer?

In reply to huge-O-chavez:

One side says you are being irresponsible you should quit using it, the other side says-awwww, poor victim, don't worry the government will help.

huge-O-chavez wrote: Here is a funny slant. Most of those who are against debt, fall squarely into the conservative, personal responsibility camp.. If they shun debt, then, do they necessarily mean that they are not personally responsible enough to use it effectively? Like an addict and a beer?

You're fishing with a hook baited by your personal choices, again. That doesn't mean every fish sees your offering (or premise) as the best meal for them.

Not everyone is as intelligent as you believe you are, nor or they as stupid as you perceive them.

I use credit to make money. I charge pretty much everything I buy. I keep all my cash for expenses in an interest bearing savings account. After I've floated my expenses on credit cards for a month, earned 1% cash back on everything, and earned interest on my cash in the meantime, I pay off my balance.

Whenever we make large purchases where there is no advantage to paying up front, we put the amount of the purchase in a CD for six months, a year or whatever the free interest period may be.

But I am responsible with my spending. The government is not.

Otto Maddox wrote: But I am responsible with my spending. The government is not.

Just a thought. The "government" is indeed responsible with their spending. They're responsible to us. Or more accurately, they are we.

Thing is, when we talk about this stuff, we like to talk about "us" instead of "we". "Us" means all the other folks who voted like I did, as opposed to "them". That's not who the government is responsible to. They're responsible to "we" the people - all of us.

So some folks vote for a gang of folks who promise to protect Social Security, Medicade and Medicare. And those people do their best to do what they said they would do. Another group of folks vote for people who promise to cut government spending. What we get in aggregate is what we voted for. We told them we want all the services and we want a balanced budget. They fight it out (and in the meantime recruit a bunch of us to say everyone who disagrees with our point of view is stupid, or un-American or something) and we end up somewhere in the middle.

What’s happened recently is we had a pretty awesome economy. It was easy to promise a lot and people liked that idea. So they promised, and delivered on, services and tax cuts. When the economy was singing along, it looked like we might be able to ‘grow our way’ to paying for it… mostly. But who cares, things are good!

Then things got not good and it became clear that it wasn’t going to work anymore. So now we have some of those folks promising and trying to deliver on a balanced budget. We will probably get closer to that than we are now. But the people who vote to protect Medicade, Medicare and Social Security still get their say, so they all still have to fight it out. People who are in favor of government services will tell us that children will go hungy and people will live in the streets if we allow any minor cuts to any programs at all and neglect to acknowledge any waste, abuse or inefficency in the programs. People who oppose government spending will tell us that Social Security will go bankrupt and neglect to mention that it is self funded and there's no reason in the world we can't keep it going just fine if we chose to.

I think where we run into real trouble is when we elect people who promise all the services and tax cuts. There’s a lot of them out there. I heard one of them on the radio yesterday (no idea who it was, House or Senate, or which party. Wasn’t paying attention until I heard this bit). He said Congress wasn’t going to give Obama any money for a war with Libya. He said it with a lot of righteous indignation and vitriol, of course, to demonstrate that he is far smarter than the other people up there in Washington and you should vote for him, whoever he was.

I hope we’ve learned a lesson and that the unknown bureaucrat above is true to his word. If we had people saying that through the last round of military intervention (guess it’s still the current round, though some of it is scaling down a bit) we probably would be in better shape than we’re in now.

Social Security is not self funding. It goes into a general account and is spent any way Congress feels they should. If you think you have an actual account somewhere, you are mistaken. Most of the big Govt. services are losing money every month. If they were an actual business, they would have been out of business long ago. When SS was proposed, it was sold with the idea that you would have an account where the money was placed and then used for SS purposes. It just hasn't worked out that way and it was all spent on other programs. It's like getting cash advances on one credit card to pay the interest on another.

In reply to racerdave600:

I thought Al Gore put my social security money in a lock box.

racerdave600 wrote: Social Security is not self funding.

:( it used to be... then not so much...

racerdave600 wrote: Social Security is not self funding.

:( it used to be... then not so much...

Otto Maddox wrote: In reply to racerdave600: I thought Al Gore put my social security money in a lock box.

the SNL take on that debate was hilarious

"...the other key would be sealed in a small magnetic container and placed under the bumper of the senate majority leaders car"

racerdave600 wrote: Social Security is not self funding.

Actually, it still appears to be, but just barely.

http://www.nytimes.com/2010/03/25/business/economy/25social.html

Either way, it is an interesting budget aspect. It is a huge part of the budget, but it also represents a huge amount of income. Completely eliminating it would do almost nothing budget wise.

Future wise, it is obviously a bigger potential issue.

I have some opinions about Social Security, but I’ll try to keep them out of this. And I’m not an expert. I could be wrong on something here. This is how I understand it…

Social Security is, indeed, self-funded. There is not a Social Security account with my name on it. Social Security is a pay as you go system. Social Security is now, and has been generating a surplus.

All of those statements I believe are true. The system works the way it works. Some people define it differently, I think, in an effort to mischaracterize the system for a political objective.

It is a perfectly reasonable position to say “I don’t want to pay Social Security because I would invest that money and provide for my own retirement. I believe I would benefit financially from that arrangement”. In fact, I am quite sure that I would get a “better deal” investing for my own retirement. That is not the premise Social Security operates under, however. It has been suggested by some that it should be restructured to work more that way. President Bush proposed that we invest the money collected for Social Security in the stock market. I thought it was a good idea at the time, and done right, could still be a good idea. However, the large losses in the market we saw a couple of years ago do make you wonder if it would have really worked out very well.

But if you want Social Security to go away because you think it would benefit you, or most people, or whatever, than that’s how it should be said. It should not be included in an argument about balancing the budget. Cutting Social Security dramatically could lead to dramatically reduced pay-roll tax. It would not do anything to balance the budget since the Social Security budget is separate, and more than balanced.

When introduced, as I understand it, Social Security was structured as more of a traditional pension. When the Great Depression hit, it no longer worked. Too many people applying for benefits the program promised than it could pay for. So they changed it to a pay as you go system. People pay with a pay-roll tax that is directly applied to current demands on the system. Using terms like “bankrupt” when talking about Social Security are intentionally misleading. It makes it appear to be an investment program. It is not. It can’t go “bankrupt” as most people commonly use that word. If you want to find particulars on the history of Social Security I’m sure it’s on the google, or the Wikipedia. But I think I have the broad strokes right.

Social Security has undergone many, many adjustments over the years to keep the funding at a level that will provide for the expense- plus a little just to be safe. If more and more people draw benefits, as many predict will happen now that the Baby Boomers retire, it can become underfunded. If that happens, we either need to adjust the pay-roll tax charged to cover the expenses or adjust the benefits to match the available funds. Either way, it is a self-funded system. Only money collected specifically for Social Security is spent on Social Security. In fact, I believe in recent years, money collected for Social Security has been spent on other things.

Completely eliminating it would do nothing in regard to balancing the budget. Cutting your taxes? Probably. Balancing the budget? No.

Social Security is practically the defining issue in the “why should I have to pay” school of thought. If you are paying Social Security pay-roll tax, you are literally paying for someone else’s retirement. Right now, with real dollars. Of course, the payoff is that when you retire, someone else will pay for your retirement.

In reply to aircooled:

No no, not 'insolvent'. Thats not what we meant. We meant that self-funded means all funds are directed to itself and not shared for any reason.

If the federal government wasn't "allowed" to borrow against the yearly projected "surplus" of the tax revenues of SS, and instead had been saving it in a 'lock box', do you know how much savings guarantee there would be behind it today?

In reply to fast_eddie_72:

Congress has been allowed to borrow money against the projected surplus for something like 45 years now, as part of the "Great Society" plan. that was the only way to pay for medicare and medicade was to take the money that Social Security had been accumulating in its trust fund.

Before that, by law, the government couldn't touch that money, it was not accounted in the 'general fund'. The act of 1965 changed the law.

And for about the last 20 years, congress has 'borrowed' every last dollar projected to come in for each and every year.

In reply to madmallard:

Thanks for the particulars. This, I think, is exactly the kind of stuff that we need to take a really hard look at.

Thats why I keep parroting that people need to first agree that we spend too much money.

Right now, in addition to tax revenues on income tax, the US government sells a ridiculous amount of bonds, borrows all the money surplus from SS taxes.... AND borrows/prints money against the future projected income taxes to be collected from people who haven't been born yet.

The trouble comes from the completely subjective question, how much is too much?

I'm a reasonably middle class kind of guy. I spend some money. A lot of people who make what I make spend a lot more. Someone who makes a lot less than me would say I spend too much money. It's all relative to your income and your comfort with debt.

So it's personal, and it's an opinion. All we can say for sure is we're spending a lot more than we're taking in. It seems that most people now agree that's not a good thing. Bear in mind, it wasn't long ago in the scheme of things that some in Washington told us deficits don't matter and that this was a sustainable course of action. Many of those same people are the ones who now are saying we have a crisis.

I tend to agree we have something of a crisis. But I'm not comfortable with much debt. Not comfortable with any debt that doesn't have a pretty good chance of paying for itself in the long run.

But I digress. We either spend too much, or we don't collect enough. Until someone steps up and cuts popular, expensive programs or raises taxes that is going to be the case. That's why grandstanding like the NPR thing drives me nutts. That guy is going to go back the people in his district and say "look, I cut spending!" And they'll love it because the people who voted for him don't much care for NPR. But, really? It's so insignificant in the whole. It's a distraction, not a solution.

We agree that there are issues with Social Security. But on the whole, it's a program that isn't in trouble. If it were to be revised, which would be great, that would have to be a separate action from the general budget anyway. So let's pull it off the table for the time being. Then look at the budget that’s left. You sound really informed on these issues, so I’ll let you do your own research. What jumps out as the glaring cost that could make a real impact on the budget?

Ah, I see how they do it.

http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

So there's no money in the Social Security Trust Fund. Any surplus in Social Security is held in bonds. In other words, the government borrows the surplus from itself. So it becomes a perpetual "break even" program even though it takes in more than it pays out.

fast_eddie_72 wrote: We either spend too much, or we don't collect enough. Until someone steps up and cuts popular, expensive programs or raises taxes that is going to be the case.

Why can't it be a case for both too much spending and not enough collection? As noted, it's just my opinion, but cutting and taxing is likely the route we'll have to take. I'd really love to see some huge tax reforms come down the pike first - like a flat tax or even better the Fair Tax. That's another issue, though.

We agree that there are issues with Social Security. But on the whole, it's a program that isn't in trouble. If it were to be revised, which would be great, that would have to be a separate action from the general budget anyway. So let's pull it off the table for the time being. Then look at the budget that’s left. You sound really informed on these issues, so I’ll let you do your own research. What jumps out as the glaring cost that could make a real impact on the budget?

The glaring cost that will make the biggest impact is the number of SS contributors reaching the age where they begin collecting benefits. The funds currently borrowed/stolen from SS will have to be re-directed away from the general fund and back towards SS.

That's where reform starts looking more and more necessary with ideas like extending the age-limit and higher contribution rates. The process will be delayed as long as their are politicians and pundits who will politicize critically needed changes. Sadly (imho), most of those culprits are associated with one party.

In 2010 the difference was -37 billion, or we had to borrow 37 billion to pay off SS. It was the first year since it exisited that this was the case. From here on out it will run as a deficit according to the CBO. By 2018 it will be projected at -118 billion and growing every year.

Still, it's not close to being the same as Medicare and Medicaid, and i assume ObamaCare when it gets fully implemented.

The problem with our debt as a Nation is that we finance a large majority of it by selling our bonds to other countries. Countries have a credit rating, and ours has always been at the top. Lately many countries have ceased buying our bonds, and Japan is more than likely to sell all of our bonds off to finance their rebuilding. They are I think the second largest holder of US bonds. If this happens, it could collapse the dollar as we know it. Combined with our excessive printing of money and huge debt load, there is a possibility, as remote as it may seem, that we could end up like Germany after WWI where the currency ended up as absolutely useless.

Our currency now is based pretty much on the faith others have in our nation (although others say it is based on oil). If we are seen as reckless in their eyes and they no longer value our dollars, the end is near for it value.

Bush and now Obama have both spent more money than they take in by huge margins. Debt increased $4.9 trillion during Bush's two terms. The Administration has projected the National Debt will soar in Obama's fourth year in office to nearly $16.5-trillion in 2012. That's more than 100 percent of the value of the nation's economy and $5.9-trillion above what it was his first day on the job. Neither party is immuned to raising debt, so much so that it can and will cripple the economy at some point.

To put this in car terms, it's like working at McDonalds and buying a new GT3R by borrowing money you are going to make in the next 100 years from every relative and person you know, only you keep buying a new one every year and giving the old ones away for free. Sooner or later someone is going to want their money and you're going to be left with nothing.

While it can certainly be true that you can use SOME debt to your advantage, for the most part paying cash is the better option if available. A low debt to income ratio is ALWAYS the best policy and will help you weather most financial storms, short of a total collapse.

oldsaw wrote: Why can't it be a case for both too much spending and not enough collection? As noted, it's just my opinion, but cutting and taxing is likely the route we'll have to take. I'd really love to see some huge tax reforms come down the pike first - like a flat tax or even better the Fair Tax. That's another issue, though.

A fair question, but it has an obvious answer.

When you look at the actual NUMBERS, both in volume of spending and proportion of spending, in the last 15 years especially.... Spending has eclipsed all previous growth rates of incoming tax revenues.

Here's the best perspective i can give of the disparity of spending to show tax collection isn't the problem:

If we just cut the entire military out of the budget. the whole thing. people and gear. everything. all $500~600 billion.

We'd still be falling into debt.

More taxes will NOT fix this problem. Its that simple.