The US receives a surplus from social security taxes every year. This was originally intended to be held in a reserve fund until the government figured out it could raid the extra revenue without many people complaining. So instead of a piggy bank full of cash, we have one full of worthless IOU's. In theory, SS should be able to pay benefits through 2041 if the treasury pays its debts. In other news, if I had ham, I could have ham and eggs, if I had some eggs.
While infuriating in principle, it really should suprise no one, and doesn't make much difference in the long run. Even the best Ponzi scheme comes to an end eventually, and the governments behavior merely sped up the day of reconning. Which is coming sooner than most people would like.
The government's ability to raid SS surplus is vanishing, simply because the drop in employment has cut payroll tax revenue. This chart from Mish caught my eye:
The surplus will be next to nothing next year, and even with a rosy recovery scenario, looks to become a substantial drain on the budget in 10 years. Spending continues unabated. Again, tie this in to the projected Medicare numbers we've been discussing.
The entitlement tsunami was once a distant wave, and from our vantage point on the beach it now appears that the ocean has withdrawn, leaving bare sand and flopping fish in its stead. Perhaps there is still time to get to higher ground.
Switching gears for a moment, take a look at your last pay stub. You'll see a number of various taxes deducted (federal, state, payroll tax), but the the most important is the diminishing number on the bottom, your net income. It makes little difference what Box A and Box B ratios are compared to the sum of A and B.
It's important that we stop compartmentalizing taxes. Given the fungible nature of tax revenue, the source of money and semantic allocation of it becomes irrelevant...it simply goes into the pool of available (or unavailable) funds to be used however the government wishes. Anyone who still thinks their lottery ticket purchase as "funding education" may stop reading and feel free to smack themselves up side the head at any time. Compartmentalization is a slight of hand to government uses to trick you into accepting a higher tax burden, and makes it more difficult to reign in overspending.
The government will try to tell you that entitlements are a Box A or Box B problem. They're not. They're a global spending problem.
Notice which way the graph is trending? Entitlement spending is a problem because it pushes global spending up to unsustainable levels. Substantial government spending has been enabled by a strong economy, not the other way around. At some point, all the oxygen gets sucked out of the room, leaving no prospect of economic growth.
In the summer of 1995, a friend and I were backpacking in Rocky Mountain National Park. This almost came to an untimely end after getting stuck well above the tree line during an afternoon thunderstorm. The mistake was not made during the thunderstorm. The mistake was ascending the mountain on a picturesque, crystal clear midmorning. By the time lightning starts to strike, it's far too late to do anything but duck and hope for the best.
Better minds than mine can answer at what point government spending (as % of GDP) results in irreversible decline. I would prefer not to find out. A look at the above graph shows that outside of a world war, it has been impossible to prevent further growth, let alone reduce spending. I hope we have not already passed the event horizon.