At the heart of all fearmongering over the debt ceiling “crisis” is the claim that if the federal government can’t borrow more money it won’t be able to pay interest on its existing debt, leading to a default.
But that’s poppycock. The government will collect more than a trillion dollars over the next three months. (It collected $638 billion in taxes in April alone.) That will be more than enough to pay interest on the debt. And it will be enough to pay all Social Security benefits, Medicare and Medicaid bills, welfare checks, food stamps. There will even be enough money to pay for Joe Biden’s new electric car subsidies.
There just won’t be any money left for anything else. Nothing for the military, infrastructure, education, the environment, law enforcement, or any other program the federal government currently operates.
That’s because, as it stands today, every penny collected in taxes goes to pay interest on the debt and a category described as “payments for individuals.” Everything else is paid for with borrowed money.
Here’s the breakdown:
This year, the federal government will collect $4.8 trillion in taxes, according to the Office of Management and Budget.
It will spend $4.2 trillion on “payments for individuals,” and $661 billion in interest on the national debt.
Everyone knows about interest payments. But what are these “payments for individuals”?
As the budget document explains, payments for individuals:
Are federal government spending programs designed to transfer income (in cash or in-kind) to individuals or families. To the extent feasible, this category does not include reimbursements for current services rendered to the Government (e.g., salaries and interest).
In 1946, “payments for individuals” accounted for less than 11% of federal spending. By 1991, they reached 50%. In 2014, they topped 70% for the first time and have been bouncing around that level ever since.
In 2022, payments for individuals accounted for a record high of 72% of all federal spending.
Some of that jump in 2022 was the result of all the COVID stimulus money being thrown around. But even with COVID behind us, writing checks to individuals will account for 67% of federal spending this year, and this share is on track to steadily increase over the next five years.
Put simply, despite what you may have heard, the federal government today is little more than a massive check-writing, wealth-transfer machine, redistributing trillions of dollars each year.
Much of this “redistribution,” however, amounts to robbing Peter to pay Peter.
The vast bulk of these “payments for individuals” involve middle-class entitlements such as Social Security and Medicare, which are paid for in volume by … the middle class. Only a fraction of the money (26%) targets the poor and needy for programs such as Medicaid, welfare payments, food stamps, earned income tax credits.
Worse, some programs, Medicare, for instance, are regressive. A paper published by the National Bureau of Economic Research concluded that “Medicare has led to net transfers from the poor to the wealthy, as a result of relatively regressive financing mechanisms and the higher expenditures and longer survival times of wealthier beneficiaries.”
This is all by design. The left desperately wants to increase dependency on government, and there’s no better way to do that than through income redistribution. Take as much money away from people as possible, then give it back to them in the form of a “benefit.”
Plus, it makes cutting government spending nearly impossible because to make a real dent in the size of the federal government you’d have to tackle these “payments for individuals.” Even Republicans are unwilling to confront this redistribution monster. The House debt ceiling bill trades off an increase in the debt ceiling for almost $5 trillion in deficit reduction over the next decade. But almost all those savings come from spending cuts to government programs, not on dialing back “payments for individuals.”
We are once again reminded of the warning from Alexis de Tocqueville, who wrote, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
— Written by the I&I Editorial Board
Republished with permission from TIPP Insights