$34.832 Trillion National Debt 2nd Quarter 2024 per FRED.
$1.089 Trillion annual interest on the US National Debt based on the 2nd quarter of 2024 per FRED.
$3.076 Trillion annual tax receipts based on 1st quarter of 2024 per FRED. The Fed from 2014 to 2021 remitted about $88 billion a year to the US Treasury, which was their profit. In 2023 the Fed lost $114 Billion, thus did not give any money to the Treasury. As of 2023 they have $133 billion is deferred assets, meaning that is the amount they will have to earn in the future to again pay the Treasury and annual disbursement.
$6.684 Trillion annual Federal Expenditures 2nd Quarter 2024 per FRED.
$1.0 Trillion per quarter borrowing by the Federal Government (If annualized, this is about 14% of 2024 GDP) per Forbes 5/30/24. According to FRED figures it is about $.9 trillion per quarter.
The GDP is $28.6 Trillion per FRED 2nd Quarter 2024.
The cost in 2024 of Medicare, Medicaid, CHIP, and the Affordable Care Act will be $2.0 Trillion per the CBO. Thus, the interest cost on the National debt and the non-VA medical care expenditures of the Federal Government are currently slightly higher than the annual income of the Federal Government.
We have been running a negative balance of trade for over 40 years straight. In June of 2024 we ran a $78.8 Billion trade deficit per FRED. On an annualized basis this is about $.95 trillion. Perhaps, at some point in the future, if the US Dollar is not the significant unit of international exchange, we may not be able to rely on the kindness of strangers. We would have to export more or import less or both. Currently tax, regulatory, environmental, and labor arbitrage inform multinational corporations of where to produce goods and services for international trade. Obviously a lower (weaker) Dollar, relative to our trading partners would tend to reduce imports and increase exports. Higher US interest rates than our trading partners tends to strengthen the Dollar relative to other currencies. Tariffs could lower imports over time, this would help with our negative balance of trade, unless our trading partners do them same, then it is a wash. Tariffs would be analogous to the effects of a lower dollar; thus imports would be more expensive, assuming the same corporate profit rate.
There are about 131 million households in the USA. The interest on the debt is about $8300 a year per household. The $3.6 trillion annual Federal borrowing costs are about $27,500 per household. The annual trade deficit is $7,250 per household. The national debt per US household is $265,900 as of July 1, 2024. The median annual income of households in the USA over age 64 is about $50,000 pretax.
Since 1970, labor income as a percent of GDP has been dropping in the USA, from 64.9% to 59.7% in 2019 (latest data from FRED). Capital income has thus become a larger portion of the national income. Median wage, in real dollar terms, peaked 11/1972. Minimum wage peaked, in real dollars 1/1968. Perhaps with all this additional capital income, an increased tax on that income could cover some or all the Social Security and Medicare Trust fund shortfalls?
Perhaps even some of the US Treasury as well? Lowering the threshold for Estate taxation could also help to stem the flow of red ink.
The Medicare Trust Fund started flashing yellow, so to speak in 2003 for short term inadequacy, that changed to a Trustee warning each year since 2018. The most recent projection is for the fund to run dry in 2036. At that point they will be able to pay 89% of the costs. This is what pays for Part A (hospitals). Unless greater funding is allocated to the Trust, I assume Part A will eventually have a premium and or just pay out less than 80% of the bills (perhaps 11% less). For those with a Supplement or an Advantage plan, the monthly premium would rise or more costs would get billed to the users of hospital services. The Medicare Trust Fund was due to run out late this decade, but the massive number of deaths from Covid-19 helped to push the depletion date out.
Currently Medicare Part B and D is largely (about75%) covered by an annual Congressional appropriation. The rest is covered by a monthly premium, or in the case of Medicare Advantage, part D is part of the premium. At some point, if Congress decides to not increase the debt faster than the economy is growing, Part B and D premiums could potentially rise.
The Social Security Trust Fund will deplete in 2035, in a mere 11 years according to the latest 9 (June 2024) Trustee projection. One way to fully fund the Social Security system is to have a 3.5% increase in the current tax rate. For non-self-employed workers, the company they work for would pay half of the increase. That amount would keep the system solvent for at least 75 years. If the Trust Fund is depleted, the latest projection assumes a 17% decrease in the size of the check, with more decreases later. In 2019 we lost about 270,000 people a year due to excess deaths in the age 25 to 65 group, relative to other peer developed nations, implying that if we merely had average death rates, many of those people would have been alive to collect Social Security and use Medicare. This has been a longstanding issue (39 years in the making) in the USA (and getting worse). Having more workers die prior to age of 62 has, of course, extend the depletion date of both the Social Security and Medicare Trust Funds.
Note, I was calling for Congress to address this Social Security funding shortfall about 20 years ago when the Trust Fund depletion started. The tax increase percentage is lower the sooner a shortfall is addressed and as a side benefit the taxation event is less economically disruptive. A mere 1% increase in about 2009 would have addressed the problem (or less if the same percentage of workers were over the Social Security tax cap as in the early 1980s). Congress was (and still is) clearly asleep at the switch relative to Trust funds and other fiscal issues, in my view.
The Trust Fund in 2023 booked $51 Billion from taxes on Social Security disbursements. Currently just over half the households receiving Social Security income pay tax on it. Each year that percentage increases, as the taxable brackets have not been inflation adjusted since 1993. Of course, this tax does extend the life of the Social Security Trust Fund. The need for a 3.5% increase in the Social Security tax rate is caused by a lower birth rate, higher life expectancy at age 62, and the increased percentage of workers that make more income than the Social Security tax cutoff at $168,600 (2024) relative to the baseline metrics in the 1983 Social Security reform plan. That legislation mandated a higher tax rate on labor income and an increase in the full retirement age. Basically, a Trust fund was set up and funded for the baby boomer bulge which would have put Social Security funding in jeopardy a mere 33 years later. Now if a bill passes, in 2024 to raise the Full Retirement Age (FRA), assuming a very short 10-year phase in, that would do next to nothing to alleviate the default 2035 cut to Social Security checks.
Note; there is also significant possible future money owed for Veteran’s medical care from previous wars that will taper as we near the end of this century, assuming no more future conflicts. There will be continuing future costs for Federal and Military pensions as well. The Hanford Nuclear Weapons site in Washington will cost about $600 billion over the next few decades. That is far from the only military site that has legacy underfunded cleanup costs. The Superfund sites around the nation have a legacy cost of about a $1 billion a year as far as the eye can see into the future. We still have done little to fulfill our promise in the 1960s to the Navajo to clean up the 523 abandoned uranium mining and tailings sites.
If Federal tax rates do go up in the future, due to our manifold fiscal headwinds, I assume the 50th percentile and below (of over 64 year old’s household after tax income) will not be as strongly impacted as those with higher incomes, as there is a much more limited amount that could be obtained by increased taxes. I assume it more likely the financial effects for the median income retired household and below will be centered on Part A, B, and D premiums/copays and for those who have Part C ( Advantage Plan) a rate hike. Possible Social Security cuts would just add insult to injury. Medicaid may not be able to accept as many (who have spent down their assets) into nursing homes due to costs/national debt. Perhaps those with children will be more often billed to provide the care they can’t or will not provide to their parents? Perhaps even garnishing the children’s Social Security and or pension check and or RMDs? Or for those children working in their 60s and 70s possible wage garnishment? 30 States currently have filial responsibility laws, perhaps more will in the future?
75% of all long-term capital gains currently accrue to 1% of households and 85% to the top 5%, I assume there is some chance that taxes on that income, beyond a certain floor, could increase in the future.
Note; there is also significant possible future money owed for Veteran’s medical care from previous wars that will taper as we near the end of this century, assuming no more future conflicts. There will be continuing future costs for Federal and Military pensions as well. The Hanford Nuclear Weapons site in Washington will cost about $600 billion over the next few decades. That is far from the only military site that has legacy underfunded cleanup costs. The Superfund sites around the nation have a legacy cost of about a $1 billion a year as far as the eye can see into the future. We still have done little to fulfill our promise in the 1960s to the Navajo to clean up the 523 abandoned uranium mining and tailings sites.
If Federal tax rates do go up in the future, due to our manifold fiscal headwinds, I assume the 50th percentile and below (of over 64 year old’s household after tax income) will not be as strongly impacted as those with higher incomes, as there is a much more limited amount that could be obtained by increased taxes. I assume it more likely the financial effects for the median income retired household and below will be centered on Part A, B, and D premiums/copays and for those who have Part C ( Advantage Plan) a rate hike. Possible Social Security cuts would just add insult to injury. Medicaid may not be able to accept as many (who have spent down their assets) into nursing homes due to costs/national debt. Perhaps those with children will be more often billed to provide the care they can’t or will not provide to their parents? Perhaps even garnishing the children’s Social Security and or pension check and or RMDs? Or for those children working in their 60s and 70s possible wage garnishment? 30 States currently have filial responsibility laws, perhaps more will in the future?
75% of all long-term capital gains currently accrue to 1% of households and 85% to the top 5%, I assume there is some chance that taxes on that income, beyond a certain floor, could increase in the future.
In any event, in my opinion, Modern Monetary Theory (MMT), even it can sustainably keep our monetary house in order, will not be able to stem our declining metal and mineral ore grades (creating the need for more energy intensive rock crushing), declining topsoil, decreasing biological diversity, the longstanding lowering of our EROI (Energy Return on Energy Investment), and the costly biophysical effects of climate forcing. Those things can not be fixed by a “printing press”. It is easier to make monetary claims on the future delivery of goods and services (new money/credit) that is is to deliver on those claims. Especially when credit expands at a faster rate than the GDP expands as it has for over 50 years, with no obvious end in sight. Not only is public debt increasing at a faster rate than the GDP, but quite often private and corporate debt is as well.
Larry Shultz