Did you know that the U.S. government has experienced budget deficits every October for the last 70 years? This striking piece of information was highlighted in the Monthly Treasury Statement for the fiscal month concluding on October 31, 2023, which also marks the commencement of the 2024 fiscal year.
Consistency often symbolizes reliability and trustworthiness. Dependable employees are punctual, and responsible tenants consistently pay their rent on time, without fail. However, consistency can also be a detrimental trait. For instance, Richard Ramirez, known as the Night Stalker, was notorious for his unwaveringly deadly patterns.
In this context, the U.S. government’s 70-year streak of running deficits in October reflects profound governmental mismanagement. The mere fact that this alarming trend was mentioned as a highlight in the Treasury Statement is, in itself, noteworthy.
For October 2023, the government generated $403 billion in revenue. A substantial portion of this—over $220 billion—originated from individual income taxes. In addition, Social Security taxes contributed around $114 billion, while corporate income taxes added $48 billion. The rest of the revenue stemmed from excise taxes, custom duties, and other sources.
A total of $403 billion over the course of a month is a considerable amount. In many countries, such revenues would be more than enough. However, in the United States, with welfare and military expenditures both fully operational, this sum never suffices.
Social Security Shortfall
Unfortunately, even with $403 billion in receipts, the government still fell short. Total outlays for October reached $470 billion.
This shortfall resulted in a monthly deficit of $67 billion, allowing the U.S. government to maintain its 70-year pattern of overspending in October.
The difference was covered through debt, stacking the $67 billion deficit on top of the already colossal $33.8 trillion national debt.
Nonetheless, for the U.S. government, a $67 billion monthly deficit is relatively minor. The total budget deficit for the fiscal year 2023 was $1.7 trillion, averaging nearly $142 billion monthly.
Did Washington finally adopt a more fiscally responsible approach to kick off the new fiscal year? The answer, according to Maya MacGuineas, president of the Committee for a Responsible Federal Budget, is a resounding no. She remarked: “We’re a month into the fiscal year and we’ve already borrowed $67 billion. This is despite an influx of delayed tax revenues from California and other regions affected by natural disasters. Our debt is climbing uncontrollably, and with high interest rates, the situation is worsening.”
Even with the additional revenue from California, the October deficit raised concerns. Notably, Social Security itself disbursed more than it collected. While receipts amounted to $114 billion, outlays totaled $117 billion.
Is this monthly deficit an isolated incident? Or is a more profound structural issue emerging?
Socialized Insecurity
Recall that the cost of living adjustment (COLA) for 2023 was the highest in 40 years at 8.7 percent, designed to ensure retirees could maintain their standard of living in the face of rising prices. Despite this increase, retirees have not gained wealth. Instead, the additional funds in Social Security checks have been absorbed by climbing prices.
Such an 8.7 percent COLA resulted in a $134 billion rise in Social Security expenditures. Another COLA of 3.2 percent is anticipated for 2024.
To bridge the gap in 2024, the maximum taxable earnings subject to Social Security tax will be raised from $160,200 to $168,600. This increase may keep Social Security afloat for a little longer, but it does not fix the underlying issues.
These strategies, like raising the taxable threshold to take advantage of wage inflation, only serve as temporary solutions, allowing the government to continue its cycle of shifting responsibility.
Genuine reform will be essential in the coming decade. Adjustments to the social contract will likely include raising the retirement age to 70 or higher, significantly moderating COLAs compared to inflation, and further increasing Social Security taxes.
Ultimately, workers may find themselves contributing more while retirees receive less, creating a challenging scenario for both groups.
This trend is common amongst government entitlement programs reliant on Ponzi financing. Grand promises are made during periods of economic growth when demographics favor a balanced population pyramid.
Has Social Security Run Out of Suckers?
For decades, Social Security recipients have generally received more than they contributed. Take the example of Ida May Fuller, the first recipient to cash a Social Security check on January 31, 1940. The Social Security Administration highlights her story on their official website:
“Ida May Fuller worked for three years under the Social Security program. The total taxes on her salary during that time were $24.75. Her initial monthly benefit was $22.54, and throughout her lifetime, she collected a grand total of $22,888.92.”
Congratulations to Ms. Fuller for her extraordinary 92,380 percent return on investment! Her experience, along with that of millions of Americans who benefit from being in the right place at the right time, reflects a remarkable era.
Yet, as history shows, all Ponzi schemes—regardless of their coercive nature—are destined to collapse. Over time, an aging population leads to payouts that exceed contributions.
To sustain the facade, more young participants are required. While increased immigration may provide a temporary solution, it will ultimately exacerbate the existing problems. As it stands, a straightforward resolution remains elusive.
The best way to prevent the pitfalls of government-sponsored Ponzi schemes is to avoid erecting them in the first place. This eventuality was predictable from the outset.
In a 1939 article titled “The Social Security ‘Reserve’ Swindle” in Harper’s Magazine, journalist John T. Flynn foresaw that the program would encounter financial difficulties by 1970 and insolvency by 1980.
Flynn was largely correct. The reforms instigated by the Greenspan Commission in the 1980s succeeded in deferring Social Security’s impending crisis for several decades, yet the core problem was never resolved.
As Flynn predicted, insolvency is in Social Security’s future. This situation will need to be addressed head-on before the decade concludes.
Like Flynn, those who dare to highlight the impending challenges of Social Security often face backlash. In opposing the rapid expansion of government in the 1930s and 1940s, he was largely discredited.
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Sincerely,
MN Gordon
for Economic Prism
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