Why Payroll Taxes support Massive Military Spending.
More support for the contention “The Traders Crucible has the best comments section on the web.”
From Clonal Antibody.
“I have also come to the conclusion that the current method of funding Social Security and Medicare is inadvertently responsible for the high US spending on National Security, and therefore responsible for the US foreign adventures! Let me know if you need me to clarify!”
Here’s the nutshell argument:
“The only government segments large enough to absorb the necessary deficit spending are SS, Medicare, Defense and Homeland Security. Since SS and Medicare are funded through an entirely separate federal tax, the necessary deficit spending must happen in defense and homeland security. This level of deficit spending is what the market “demands” for growth, so it happens.”
More from CA:
“If we look at the FY ’12 spending pie, we find that
The main items of govt spending are (highest first)
1) Defense 25%
2) Healthcare 23% (primarily Medicare and medicaid)
3) Pension 22% (primarily Social Security)
4) Welfare 12% (primarily Food Stamps, unemployment and SSI)
5) Interest 6%
6) Education 3%
7) Transportation 3%
These items together account for 94% for the Federal Budget
Healthcare and Social Security account for 45% of Federal outlays. These are always paid for by a dedicated tax, that produces surplus revenues. So these items can never account for the Federal Deficit. The deficit has to be produced from other spending.
As per MMT accounting, the deficit is necessary to fund net private savings and interest.
In the pie above interest accounts for 6% – but this is only the interest paid on government issued Tsy’s.
What are these so called savings? We have previously discussed that interest on bank loans has to come from GDP growth, and in the absence of enough growth, it has to come from the government deficit.
Private credit creation, and charging of interest on it, of necessity require economic growth. This would not be the case with public banking. A “no growth” sustainable economy is only feasible with interest payments going to the government – (Another topic for another day!)
Going back to the deficit – the deficit has to come from a spending area other than those items covered by the “covered” expenses. This leaves defence and homeland security as the major items with which to create a deficit!
We could theoretically cut defence spending by eliminating the SS and Medicare taxes. I believe that the negative effects on the economy will be balanced out by the stimulative effects of the payroll tax cut!”
[Update: Viewed through this model, the U.S. Military becomes a gigantic make work program that focuses on extremely violent work.]
All this comes from thinking about the economy through the lens of accounting, and taking the accounting seriously. If you don’t spend to grow the economy, you’ll need to focus lots of spending on destroying stuff.
Don’t assume G – T out of existence for the IS/LM model, and clear thoughts develop. Don’t assume no demand for “net financial assets” and you get clear thinking about what happens in our world.
[Update #2: It appears that even this spending is being eyed for cuts. We’re doomed.