The Evolution of a National Debt Burden – Part 7/7

Next, we should discover where the revenues comes from that helps pay the bills of the annual federal budget, America’s wars and socialist-welfare programs.

The Washington Post reported that federal government’s revenues for 2011 were $2.57 Trillion, and this money came from six sources:

  • individual taxes of $1.1 Trillion (42.8%)
  • social insurance (Payroll – Social Security and Medicare) of $934 Billion (36.3%)
  • corporate taxes of $297 Billion (11.5%)
  • customs duties of $27 Billion (1.05%)
  • excise taxes of $74 Billion (2.87%)
  • estate and gift taxes of $25 Billion (0.97%)
  • other of $87 Billion (3.38%)

How much did the federal government spend in 2011? $3.8 Trillion.

  • Defense spending was $895 Billion or 23.55% (this money is available for use at the discretion of the user. Discretion means: the freedom to decide what should be done in a particular situation).
  • Other discretionary spending was $510 Billion or 13.4%

Mandatory spending programs (required by law or rules; compulsory which means there is no choice. The only way to change this spending is through the Congress or if the Supreme Court rules it is unconstitutional) were:

  • Social Security (SS) of $730 Billion or 19.2% – passed into law by Congress in 1935

The 1935 Social Security Act created primarily a pay-as-you-go system, meaning that payments to current retirees come from current payments into the system. The trust fund represents a legal obligation of the federal government to program beneficiaries. The government has borrowed nearly $2.7 trillion as of 2011 from the trust fund and used the money for other purposes such as paying for wars and funding other social welfare programs that do not have a tax source to fund them.

The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033 … Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.

  • Medicare of $491 Billion or 12.9% – passed into law by Congress in 1965

Medicare is a national social insurance program, administered by the U.S. federal government since 1965, that guarantees access to health insurance for Americans ages 65 and older and younger people with disabilities as well as people with end stage renal disease. The trust fund is considered insolvent when available revenue plus any existing balances will not cover 100 percent of annual projected costs. The projected date of HI Trust Fund exhaustion is 2024, the same date projected in last year’s report, at which time dedicated revenues would be sufficient to pay 87 percent of HI costs. The Trustees project that the share of HI expenditures that can be financed with HI dedicated revenues will decline slowly to 67 percent in 2045, and then rise slowly until it reaches 69 percent in 2086. The HI 75-year actuarial imbalance amounts to 36 percent of tax receipts or 26 percent of program cost.

  • Medicaid of $297 Billion or 7.8% – became law in 1965

Unlike Medicare, which is solely a federal program, Medicaid is a joint federal-state program. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive matching funds and grants.

Medicaid funding has become a major budgetary issue for many states over the last few years, with states, on average, spending 16.8% of state general funds on the program. If the federal match expenditure is also counted, the program, on average, takes up 22% of each state’s budget.

Medicaid does not pay benefits to individuals directly; Medicaid sends benefit payments to health care providers.

  • Troubled Asset Relief (TARP) of $11 Billion or 0.29% – became law in 2008
  • jobs initiatives or JOBS Act of $25 billion or 0.65% – passed in Congress April 5, 2012
  • other of $612 Billion or 16.1%
  • Interest on the debt of $251 Billion or 6.6%
  • potential disaster costs of $3 Billion or 0.079% – FEMA was formed June 19, 1978
    The Department of Housing and Urban Development in 1973-1979
    FEMA became an independent agency 1979-2003
    In 2003, FEMA was placed under the Department of Homeland Security

Conclusion: Because the national debt for 191 years until 1981, when Ronald Reagan was elected president, came from the cost of fighting wars, then some or all of the current national debt must also come from wars that the US fought after 1981. In addition, some of the national debt may come from some social welfare programs but cannot come from Social Security or Medicare because these two programs are funded by a specific tax and trust fund.

The US Defense Budget 1947 – 2012 was $15.6 Trillion and the Defense Budget comes out of the general fund. In addition, another $850 Billion went to foreign military and economic aid—a form of foreign welfare that is never paid back by the countries that receive this aid.

In contrast, total spending on social welfare programs 1947 – 2012 was $6.2 Trillion, but $1.343 Trillion of that was unemployment benefits (established in 1932) funded by a federal-state program jointly financed through federal and state employer payroll taxes. Generally, employers must pay both state and federal unemployment taxes. The IRS collects this annual federal employer tax used to fund state workforce agencies. This means actual welfare programs cost $4.857 Trillion over sixty-four years.

Then defense spending cost 321% more than social welfare programs over the same period of time.

You decide the answer to the last questions:

Where does most if not all of the National Debt come from and why do we keep hearing from the Tea Party and the GOP that social welfare programs are the blame?

How much did President Obama add to the federal budget – the actual amount he is responsible for?

Note: The Inflation calculator used for this series of posts may be found at Dave Manuel.com, and the primary source for government spending was US Government Spending.com

Return to The Evolution of a National Burden – Part 6 or start with Part 1

Also discover Each President’s share of the US National Debt and learn more from the National Debt Info-Graphic by President 1945 – 2012

_______________________

Lloyd Lofthouse, a former U.S. Marine and Vietnam Veteran, is the award winning author of The Concubine Saga.

His latest novel is Running with the Enemy. Blamed for a crime he did not commit while serving in Vietnam, his country considers him a traitor. Ethan Card is a loyal U.S. Marine desperate to prove his innocence or he will never go home again.

And the woman he loves and wants to save was trained to hate and kill Americans.

To follow this Blog via E-mail see upper left-hand column and click on “FOLLOW!”

The Evolution of a National Burden – Part 5/7

The 16th Amendment was not the first time there was an American income tax. The financial requirements of the Civil War prompted the first American income tax in 1861. At first, Congress placed a flat 3-percent tax on all incomes over $800 and later modified this principle to include a graduated tax.

Congress repealed the income tax in 1872, but the concept as a source for funds did not go away.

In 1894, as part of a high tariff bill, Congress enacted a 2-percent tax on income over $4,000. The tax was almost immediately struck down by a five-to-four decision of the Supreme Court, even though the Court had upheld the constitutionality of the Civil War tax as recently as 1881.

In addition, Democratic Party Platforms under the leadership of three-time Presidential candidate William Jennings Bryan (1860 – 1925), however, consistently included an income tax plank, and the progressive wing of the Republican Party also supported the concept.

In 1909, progressives in Congress again attached a provision for an income tax to a tariff bill. Conservatives, hoping to kill the idea for good, proposed a constitutional amendment enacting such a tax; they believed an amendment would never receive ratification by three-fourths of the states. Much to their surprise, the amendment was ratified by one state legislature after another, and on February 25, 1913, with the certification by Secretary of State Philander C. Knox, the 16th amendment took effect. Source: Our Documents.gov

  • Then came World War I (1917 – 1921) that cost $20 billion (equal to $256.4 Billion in 2012)

By 1920, the federal debt was $22 billion (equal to $253 Billion in 2012). It would take ten years to pay that debt down to $16.2 billion ($221.92 Billion in 2012).

  • Next was World War II and the national debt grew to $43 billion by 1940. In 1950, after defeating Nazi Germany and Imperial Japan in 1945, the national debt was $257.4 Billion (equal to $2.451 Trillion in 2012).
  • The Marshall Plan to rebuild Europe after World War II cost the US $13 Billion (equal to $112 Billion in 2012). The Marshall Plan money was in the form of grants that did not have to be repaid.  The total of American grants and loans to the world, 1945-53, came to $44.3 Billion (equal to $381.9 Billion in 2012).
  • The Korean War (1951-1953) cost $30 Billion ($273.6 Billion in 2012). In 1953, the National Debt was $275.2 Billion.
  • The cost of the Vietnam War (1959-1975) was $111 Billion ($743 Billion in 2012). In 1975, the National Debt reached $576.6 Billion
  • The Persian Gulf War (1990-1991) cost $61 Billion ($102 Billion in 2012). By 1990, the National Debt reached $3.233 Trillion
  • The Iraq War (2003 to 2012) cost $715 Billion ($784 Billion in 2012 dollars) and still growing.
  • The war in Afghanistan has cost $583.3 Billion to November 10, 2012 and it isn’t over yet.

After World War II, the National Debt was reduced from 120% to 30% of GDP by 1981 when President Carter (1977 – 1981) left the White House. During that thirty-six year period (1945 – 1981), welfare spending in the US, including unemployment and workers compensation funded by taxes paid by workers and/or employers, cost $509.8 Billion and the federal government funded wars in Korea and Vietnam but still reduced the National Debt.

I repeat: under seven US presidents, Truman, Eisenhower, Kennedy, LBJ, Nixon, Ford and Carter, the National Debt was reduced from 120% (1945 at the end of World War II) of Gross Domestic Product to 30% of GDP by 1981.

Then Ronald Reagan was elected president.

Note: The Inflation calculator used  for this series of posts may be found at Dave Manuel.com, and the primary source for government spending was US Government Spending.com

Continued on December 7, 2012 in The Evolution of a National Burden – Part 6 or return to Part 4

Also discover Each President’s share of the US National Debt and learn more from the National Debt Info-Graphic by President 1945 – 2012

_______________________

Lloyd Lofthouse, a former U.S. Marine and Vietnam Veteran, is the award winning author of The Concubine Saga.

His latest novel is Running with the Enemy. Blamed for a crime he did not commit while serving in Vietnam, his country considers him a traitor. Ethan Card is a loyal U.S. Marine desperate to prove his innocence or he will never go home again.

And the woman he loves and wants to save was trained to hate and kill Americans.

To follow this Blog via E-mail see upper left-hand column and click on “FOLLOW!”