Blaming the Victim
You read and hear it all the time – unfunded mandatory spending like Social Security is going to “bankrupt us” and the time has come to raise FICA taxes and/or cut benefits to fend off financial Armageddon. This narrative has become conventional wisdom in the halls of Congress and on the trading floors of Wall Street. But here’s the truth—in the context of the accumulated deficit and in the projected shortfalls, Social Security is a tiny component of the problem (if it is a problem) going forward—after many, many years of running an actual surplus. Blaming America’s retirement fund for the deficit is akin to football coach blaming his defeat on a late touchdown given up by his second-string defense in the fourth quarter of a blowout loss.
Sources: Office of Management and Budget, Social Security Trustees Report. Projections for the federal deficit are from OMB and for those for the SSTF are from the Trustees’ Report of 2024 (intermediate assumptions).
Over the last ten years, Washington has spent $18 trillion more than it has taken in; the Social Security program, which ran a surplus up until a few years ago, kept that deficit from being worse. And now, having supped at the trough for years, the billionaires who have benefited the most from the government’s largess are demanding that the rest of us take a hit in the name of Fiscal Responsibility.
We have said it before but the point still stands. A trillion dollars placed in the Social Security Trust Fund would allow payments to be made at the current level for the next seventy five years. And you wouldn’t even notice it on that chart above.
But the turkeys won’t vote for Thanksgiving unless they are constantly bombarded by the insistence that paying retirees the pensions they were promised is the straw that will break the camel’s back. Nothing could be further from the truth.
Reality Check
Recently, there has been much blather in the subreddits and hype sites about replacing income taxes with tariffs as a method of funding the federal government. Sounds like a great idea; after all, who likes paying taxes? Unfortunately, anyone suggesting it is either trolling, innumerate, or blithely unaware of the realities of the federal budget. Since this commentary seeks to be the antithesis of all of those, we hereby present the math.
The composition of federal revenues in fiscal year 2023-24
We should note that “Other” includes, inter alia, receipts from the Post Office, payments of student loans, remittances from the FDIC, and Medicare premiums—that is, items not usually thought of as taxes.
As you can see, three-quarters of Washington’s revenue—over $4 trillion–came from the income tax on individuals (including FICA). Coincidentally, the nation’s imports amounted to about the same dollar value in 2024. Sounds almost too tempting, doesn’t it? Just slap a 100% tariff on all imports and voila, the income tax can go away.
Of course, it doesn’t work that way in the real world. Raise tariffs to those levels and imports will plummet, not to mention the dislocations—unemployment and business failure–that would result from a compensatory loss of exports. No income tax doesn’t sound as great when you lose your job and everything costs more, if it’s available at all. For what it’s worth, the administration is hyping tariff revenues of around $400 billion per year, which as you can see doesn’t come close to replacing the income tax. It doesn’t even put much of a dent in the $2 trillion deficit.
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