… Social Security Benefits

… Medicare Benefits and

… Supplemental Nutrition Assistance Program Benefits.

The size of the national deficit or surplus is largely influenced by the health of the economy and spending and revenue policies set by Congress and the President.  This is why it is so important for America to have a good thriving economy.  The better the economy the more budget surpluses and less deficits – if the Government does their jobs properly.

The health of the economy is often evaluated by the growth in the country’s gross domestic product (GDP), fluctuations in the nation’s employment rates, and the stability of prices. Simply put, when the country’s people and businesses are making less money, the amount collected by the government also decreases. Similarly, when the economy is doing well and people and businesses are earning more money, the government collects more.  This is one reason taxes should not be increased in a faltering economy … but more on that in Part 4 of this series.

On the spending side, the increase or decrease of spending also impacts the budget, creating deficits or surpluses.  Legislation increasing spending on Social Security, health care, and defense that outpace revenue can increase the deficit.

While revenue increased during the COVID-19 pandemic, from approximately $3.5 trillion in 2019 to $4 trillion in 2021, increased government spending related to widespread unemployment and health care caused spikes in the deficit.

To pay for a deficit, the federal government borrows money by selling Treasury bonds, bills, and other securities. The national debt is the accumulation of this borrowing along with associated interest owed to the investors who purchased these securities.  The problem is that these instruments become due at some point in time along with the interest on them.  When the government does not have the funds to retire these debt securities that investors, for one reason or another, seem to love … they have to sell more to pay for those that are coming due (or print more money).  Either way it’s like a big “Ponzi Scheme.”

As a financial advisor I used to tell my clients that by investing in government bonds they may be helping the government go deeper into debt. 

As the federal government experiences reoccurring deficits, which are common, the national debt grows.  If we continue to borrow from Peter to pay Paul – eventually Peter will become a Pallbearer.

The visualization below shows how deficits from previous years are added to the current year’s deficit to equal total debt. This illustration is simplified to show how debt and deficit are different. In reality, the U.S. government must pay interest on the national debt. This interest expense increases spending each year, increasing spending (and thus, deficits) as the debt grows.

The government also uses operating cash available from an account at the Federal Reserve to pay for the deficit. This would be similar to a business using a line of credit from a bank to finance spending for a large project such as building a factory.

Since 2001, the federal government’s budget has run a deficit each year. Starting in 2016, increases in spending on Social Security, health care, and interest on federal debt have outpaced the growth of federal revenue.

From FY 2019 to FY 2021, federal spending increased by about 50 percent in response to the COVID-19 pandemic.

According to the Constitution’s Preamble, the purpose of the federal government is “…to establish Justice, ensure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” These goals are achieved through government spending. 

I am not against government spending because I stand for Justice, Tranquility here at home, defense of the country and the Blessings that liberty provides … but I am against continued long-term excess spending that will eventually destroy everything mentioned above in bold print.

The federal budget is divided into approximately 20 categories, known as budget functions. These categories organize federal spending into topics based on their purpose (e.g., National Defense, Transportation, and Health). The government buys a variety of products and services used to serve the public – everything from military aircraft, construction and highway maintenance equipment, buildings, and livestock, to research, education, and training. The chart below shows the top 10 categories and agencies for federal spending in FY 2022.

So, what has our deficit looked like over time since 2000.  Keep in mind it was $3.13 Trillion dollars in Fiscal year 2020:

We know that government spending is broken down into two major categories:  mandatory and discretionary.  Mandatory spending does not require an annual vote by congress and is about two-thirds (67%) of annual federal spending.  Discretionary spending (about 33% of the total spending) does require an annual vote by congress and presidential approval.

The difference between mandatory and discretionary spending relates to whether spending is dictated by prior law or voted on in the annual appropriations process.  Another type of appropriation spending is called Supplemental Appropriations, in which spending laws are passed to address needs that have arisen after the fiscal year has begun.

Mandatory Spending:

Mandatory spending, also known as direct spending, is mandated by existing laws. This type of spending includes funding for entitlement programs like Medicare and Social Security and other payments to people, businesses, and state and local governments. For example, the Social Security Act requires the government to provide payments to beneficiaries based on the amount of money they’ve earned and other factors. Last amended in 2019, the Social Security Act will determine the level of federal spending into the future until it is amended again. Due to authorization laws, the funding for these programs must be allocated for spending each year, hence the term mandatory.

This is the way mandatory spending works:

Discretionary Spending:

Discretionary spending is money formally approved by Congress and the President during the appropriations process each year. Generally, Congress allocates over half of the discretionary budget towards national defense and the rest to fund the administration of other agencies and programs. These programs range from transportation, education, housing, and social service programs, as well as science and environmental organizations.

This is the way discretionary spending works:

Supplemental Spending:

Supplemental appropriations, also known as supplemental spending, are appropriations enacted after the regular annual appropriations when the need for funds is too urgent to wait for the next regular appropriations. In 2020, Congress passed four supplemental appropriations to aid the nation’s recovery from the COVID-19 pandemic.

This is the way supplemental spending works:

Federal Spending and GDP:

The federal government spent $6.27 trillion in FY 2022. This means federal spending was equal to 25% of the total gross domestic product (GDP), or economic activity, of the United States that year. One of the reasons federal spending is compared to GDP is to give a reference point for the size of the federal government spending compared with economic activity throughout the entire country.

How has spending changed over time? The chart below shows you how spending has changed over the last 8 years and presents total spending compared to GDP.

Since 2015, the Spending to GDP ratio has increased from 20% to 25%.

Government mistakes and wastes:

The federal government paid nearly a billion dollars to dead people in 2018. A report estimated mistakes like mis-entering data can cost the government (and the American people) an additional $40 Billion dollars in incorrect payments each year.

There is one report that states, “The total amount the government lost in 2020 was $67 billion.” Whether you’re a conservative Republican or a progressive Democrat, you can almost certainly think of better ways to use that money than to simply lose it over silly mistakes.

You can read and view more about Federal Waste right here and how people make money off government mistakes.

Shamefully, the federal government continues to be a terrible steward of your tax dollars.  Each year government bureaucracy wastes approximately $1.67 billion maintaining more than 77,000 vacant or underutilized federal properties. 

Even more atrocious, the Inspector General reported in 2013 that the State Department squandered $630,000 “buying fans” for its social media accounts. The federal government allows legal brothels in Nevada to claim $17.5 million annually in tax deductions through the tax code; the federal government wastes more than 20 percent (amounting to billions yearly) on federal construction projects using an outdated wage calculation formula that has been determined to be 100% fraudulent. Unfortunately, these examples are more of the rule that the exception and I could list more than 100 other wasteful examples just from this past year alone.  ~ Congressman Paul Gosar, D.D.S. – Representing Arizona’s 4^th District.

I found this news release from 2015 here:

Today, U.S. Congressman Paul A. Gosar, D.D.S. (AZ-04) released the following statement after introducing bipartisan legislation, H.R. 2210, with Congressman Raul Ruiz (CA-36) titled the Coach-Only Airfare for Capitol Hill Act (COACH) which would prohibit members of Congress from using official funds known as Member Representational Allowance (MRA) to purchase first-class airline tickets while traveling for official Congressional duties:

“Currently, there exists a loophole that allows members of Congress to fly first-class at the expense of hardworking taxpayers. Members of Congress are public servants of the people and should not be considered a privileged status. Elected leaders must be judicious in the travel expenses that are paid for with federal funds. Luxury airfare accommodations utilizing taxpayer monies would be inappropriate in any fiscal climate, but at a time of soaring deficits and with a federal debt in excess of $18 trillion, such expenditures are especially wasteful.

“Furthermore, if current regulations prevent men and women serving in the U.S. military from flying first-class, there is absolutely no reason members of Congress should be given a special exemption not offered to our nation’s heroes. It’s time to end the double standard and rein in this abuse.”

Recently Rand Paul, Senator from Kentucky, released this report.  Here are some highlights from the report:

• Over the last year alone, the Subcommittee on Federal Spending Oversight and Emergency Management (FSO) under Sen. Paul’s leadership has uncovered over $1.8 billion in wasteful spending on frivolous projects. This level of spending, which equates to nearly $35 million per week, matches the tax liability of approximately 250,000 average American taxpayers.

• The most recent edition of ‘The Waste Report’ focused upon the East-West Center at the University of Hawaii. The center, established in 1960, receives millions in federal funding each year to promote diplomacy with Asian and Pacific islands nations. These nations include China and Japan, two of our nation’s two largest foreign creditors already, from which our government has borrowed $3.4 trillion to cover our annual deficit.

• Other examples of wasteful government spending uncovered through ‘The Waste Report’ include $8 million spent by the Department of Veterans Affairs to purchase solar panels that were never used and $28 million spent on heavy equipment lost by the Department of Defense in Afghanistan.

• This year the federal government spent $255 billion for interest on our debt, meaning that every American owes about $800 this year to pay for interest alone. If you consider only those who pay their taxes, this figure rises to $2,700 per taxpayer.

The waste report:

Here’s Just some information I found on Rand Paul’s Waste Report:

A selfie of waste:

Selfies, pictures of food, a beautiful sunset … we see them all over social media.  While these pictures might make us smile, does taking them actually make us happier?  That is a question you paid a group of researchers at the University of California, Irvine to answer. 

The study, released earlier this year, found that taking pictures with your smartphone can actually make you happier and, in some instances, more calm.  What probably will make you less happy and calm is that this study was partially funded by a $500k National Science Foundation grant – your tax dollars.

Instead of using existing technology, the researchers developed two smartphone apps (one overlaid the other) for participants to take photos and record their moods.  This resulted in 17.5 percent of participants dropping out of the study in the first week due to “system incompatibility issues.”  That probably made no one happy. 

Nonetheless, could it be that pulling out your phone and snapping pictures is the secret to happiness?  Well, not so fast.  You cannot just take any picture – it seems the key to happy snapping (at least based on this study) is taking pictures of happy things.  Who knew?

One Small Step for Waste, One Giant Leap for Wastekind:

We all learned, “That’s one small step for man, one giant leap for mankind” in school, but is that what Neil Armstrong really said during his 1969 moon landing? A recent study drew on two National Science Foundation grants, totaling more than $700,000 of taxpayer money, to find out why we may have heard something different than what Armstrong claimed he actually said.

Just thinking … perhaps I should apply for some Government grant to bring these articles to you!

When Neil Armstrong set foot on the moon in 1969, he uttered certainly some of the most famous words in human history: “That’s one small step for man, one giant leap for mankind.”  Or did he?  Armstrong said that he was misquoted by having an “a” omitted from his statement, claiming it should have been “step for [a] man.” 

Quite the earth-shattering controversy we have on our hands here.  Nope?  Not interested?  Don’t care?  Well, maybe you will care about this: the National Science Foundation (NSF) helped fund a study which brought together researchers from four major universities to find the missing “a.”  To explain the mystery, researchers even sought out subjects with dialectal familiarity to Armstrong – people from Ohio.

The study drew on two NSF grants totaling more than $700,000.  Though the research was just published this month, one of the grants came from the 2009 American Recovery and Reinvestment Act.  “Shovel ready” indeed.  

So, did they solve the mystery?  Well, no.  In the end, researchers believe that the speed at which one part of a sentence is said, relative to the rest of the sentence, affects identification of words like “a.”  Listeners in experiments did not universally miss the “a” and certainly not to the extent it was apparently missed by listeners of Armstrong’s statement on the moon and in recordings.  Thus, “these results demonstrate that substantial ambiguity exists in the original quote from Armstrong.”  Truly groundbreaking at a cost of $700,000.

So, why did NSF think this study deserved your tax dollars?  Well, they might not have.  As The Waste Report has noted in the past, once a grant goes out the door, there is no further accounting of where that money winds up and how much goes to a given project. 

In this case, the intended purpose of these grants was to help improve and understand communications for persons with conditions that may affect speech, such as autism, stuttering, and Parkinson’s disease – not what Neil Armstrong said on the moon.  The grant synopses make no mention of Armstrong, nor does the paper assert that he suffered from a condition that would affect his speech.

Sounds like NSF funds might be getting lost in transmission.

Rand Paul’s annual report Jan. 07, 2021 details more than 54 billion dollars in wasteful government spending:

You can read the report here, but here are some of the things he touched on …

• $1.3 million to study whether people will eat ground-up bugs;
• $36 million to ask why stress makes peoples’ hair turn gray;
• $1.47 million to persuade Eastern Mediterranean youth to stop smoking hookah;
• $6.97 million of cancer research money to create a “smart toilet;”
• $1.24 million to reduce the amount of time adults spend watching TV;
• $896,994 to give cigarettes to adolescents;
• $3.45 million to send messages to mothers to encourage their teenage daughters to stop indoor tanning;
• $31.5 million on an allegedly faked study linking e-cigarettes to heart attacks;
• $3.1 million interviewing San Franciscans about their edible cannabis use;
• $2 million on testing if using a hot tub can lower stress;
• $968,932 on developing a master’s degree in research ethics in Myanmar;
• $3.69 million on the U.S. Food and Drug Administration’s Deeming Rule;
• $1 million on helping people get over their fear of going to the dentist;
• $1.45 million on studying the prevalence of party drug use at New York City clubs and raves; and
• $787,355 on studying the effect of sleepiness on diet, physical activity and obesity in children.

Many of you may not know what the U.S. Food and Drug Administration’s Deeming Rule is so I looked it up for you:

The deeming regulation allows the FDA to regulate any product that is “made or derived from tobacco that is intended for human consumption.” 3 This includes cigars, e-cigarettes, hookah, pipe tobacco, dissolvable tobacco products, and any other product containing tobacco, or nicotine derived from tobacco. 

If you need to know more about that your can read it here.  Why we spent $3.7 million on this I have no idea.

According to the Committee for a Responsible Federal Budget (CRFB) – and this was way back in 2009 …

Government agencies misspent over $98 billion last year, $26 billion more than was wasted the previous year, the Associated Press reports. The White House attributes the increase in wasted money to a stricter interpretation of “improper payments” as well as greater levels of spending during the economic downturn. Yesterday, White House OMB Director Peter Orszag said:

Medicare and tax credits were the main sources of waste. Here is a list of the agencies and programs that misspent the most money, according to a breakdown posted by The Hill.

Keep in mind the numbers above are in Billions of Dollars. 

To help you understand what a billion of anything is I will relate it into something we all understand … a minute. 

• There are 60 minutes in an hour.
• There are 24 hours in a day, so there are 1,440 minutes in a day.
• There are 365 days in year, so there are 525,600 minutes in a year.
• There are 10 years in a decade, so there are 5,260,000 minutes in a decade.
• There are 10 decades in a century (100 years), so there are 52,560,000 minutes in a century.
• There are 10 centuries in a millennium (1000 years), so there are 525,600,000 in a millennium.

Think about that … 1,000 years from now a billion minutes still will not have passed.  That is because it will take 1,902.6 years for a billion minutes to pass.  In other words … a billion minutes ago would have been approximately 120.4 A.D. (or approximately May 20, 120) and we did not have calendars as we know of them today back then.  Our calendar, the Gregorian Calendar was started in 1582 by Pope Gregory XIII.

When the government wastes $98,400,000,000 in a year (as stated above) they are actually wasting $187,214.61 per minute every 24-hour period of the year.  Looking at it another way, if there are 332 million people in America (there were 331.9 million in 2021) then the government, if they did not waste $98.4 Billion dollars, could pay each person in America $296.39. 

It is estimated that there are (as of 2019) 148,245,929 tax payers in American based on the number of tax returns received by the IRS.  This means that at $100 billion per year in waste the government, if they did not waste the money, could provide a tax refund of $674.55.

Now that you know how much 1 Billion is … what is 1 Trillion?  It is 1 Million times 1 Billion.

A lot needs to change in the way the Government manages OUR MONEY.  One hundred billion dollars in waste is unacceptable from both a budgetary and governance standpoint; an effort should be made to reduce that number. However, no amount of cutting “waste, fraud and abuse” will put the budget on a sustainable path. Doing that will require making hard choices that affect real people, and specifically, going after the drivers of cost growth directly.

To summarize most of what is in this article, but in a different way, you may want to listen to this you tube video before it is taken down.  It will take about 9 minutes to hear it all.

Next up our Ineffective Tax System … until then, please feel free to comment below.

Thanks,

Jerry Nix | Freewavemaker, LLC