Facts and Promises
Here are some interesting facts to ponder:
Economics consists of two main parts. The part that explains what is happening and the other part that supplies the raw data that the first part is based on.
Here we examine some raw data.
Please do not be put off by the large numbers and the fact that there are a lot of them but try and get a sense of where things stand in the US at this time. I have tried to put the numbers in perspective where possible.
Let’s get started.
The US Population is currently 317.64 million people. This figure is the total number of people living in the 50 states that comprise the United States according to the latest census. It is about 4.4% of the world population which is 7.1 billion.
The number of US Taxpayers is 115.42 million people. This is the number of people that file IRS (Internal Revenue Service) tax returns. This is about one third of the US population.
In the US some people work, and some do not.
The number of those in the civilian nonfarm labor force is 145.55 million or roughly 50% of the US population. This number includes independent contractors as well as those who are employees. The farm labor force consists of approximately one million workers.1
(As an aside, in the United Kingdom in 1700, approximately 60% of the workforce was engaged in agriculture or food production directly. By 1820, the percentage had reduced to 40% and then to 16% by 1890. By 1979 the number was 2% and dropped to 1.4% by 2006. Agriculture production efficiency has improved markedly over time requiring less labor.2)
Back to the US, from the numbers above we can calculate that 202.22 million people (about two thirds of the US population) pay no federal taxes whatsoever. We arrive at this number by subtracting the number of filers from the total population.
Put another way: 36.33% of the US population pays federal taxes and 63.67% do not. This means that the Federal government is supported financially by only one third of its people.
Not all who work pay taxes.
There are 30 million people who labor but pay no Federal tax. To put these numbers in perspective, the population of California is 38.04 million as of 2012 or about one-tenth of the US population.
Persons who are retired, who are students, caregivers of children or other family members, or those not working or not seeking work are considered “Not in the Labor Force”. This number is 91.89 million, about one third of the US population.
The official number of unemployed is called the Nonfarm Unemployed figure. It stands at 9.86 million. It is 3% of the total population and 6.8% of the labor force, but this is not the whole story.
There are those who are currently not in the labor force but want full-time work and have been looking for it for the last 12 months but cannot find it. They are called marginally attached workers. Additionally, there are also those that are employed part-time because they cannot find full-time work and have to take part-time to get by. These two groups fit under a category called the U-6 unemployment rate. The U-6 unemployed plus the official unemployed come to 19.52 million. This is 6.1% of the total population but 13.4% of the Nonfarm Labor Force in comparison. To put this in perspective, the population of the state of New York is 19.57 million as of 2012.
The number of retirees stands at 47.21 million. These are people who are 65 and older who are eligible for social security and Medicare. This amounts to 15% of the population.
The Federal Income Supplement Program helps the aged, the blind and disabled who have little or no income. Beneficiaries of this program include spouses and children of disabled workers as well as disabled children. This number stands at 14.28 million (4.5 %).3
The Federal Poverty Line is a calculated level and is determined based on the annual pre-tax income of an individual or family. The poverty threshold was originally calculated under the Johnson Administration during the ’60s and was used to make sure a family had enough to eat. The percentage of income used on food was set by the US Department of Agriculture food budgets based on the observation of families under economic stress and the percentage spent on food. The USDA budget figures were determined during the great Depression of the 1930s. There is some simplification here because the poverty level, the poverty line, and the poverty threshold have specific meanings but for our purposes could be considered synonymous as the numbers are similar.
The poverty level is different for those living in the 48 states, for those living in Alaska, and for those in Hawaii. For the lower 48 states, it is a 2013 pre-tax income of less than $23,550 for the year for a family of four. For a single individual, it is $11,490. Hawaii and Alaska have higher numbers. These figures determine who can receive subsidies from the Federal Government and how much.4
The number of people living in poverty in the United States is 47.16 million. Roughly the entire populations of New York and California combined or around 15% of the population.
Those receiving Supplemental Nutrition Assistance or Food Stamps amount to 46.86 million, or also 15%.
The number of those in each of the categories: in poverty, retired, or using food stamps are about the same at about 47 million (15%) each, although the individuals in each set are probably different.
Many people work for either the Federal government or State and local government.
The number of Federal employees who are either civilian or military in the US and foreign countries excluding those that work in the CIA, NSA or DIA (Defense Intelligence Agency) is 4.42 million. The CIA, NSA, DIA numbers are not listed.
The population of Los Angeles is 3.85 million as of 2012.
The number of those who work in municipalities or state and local government including school districts and townships is 19.52 million.
The total number of government employees who directly work for a government or municipal agency is 23.94 million (7.5% of the population). This does not include those who are independent contractors or are the beneficiaries of government contracts either directly or indirectly which could easily quadruple this figure.
The Federal government tax revenue is 2.866 trillion dollars. This comes from Income tax (1.33 trillion dollars, or 47%), corporate taxes (0.276 trillion dollars, or 9.6%), payroll taxes (0.972 trillion dollars, or 34%). The rest (about 10%) comes from duties and excise taxes (taxes on gasoline, gambling, highway usage by trucks, etc.).
US Federal spending is 3.5 trillion dollars annually. This is the total dollars that are appropriated (allocated) and spent by the US Congress and approved by the President.
The US Federal Deficit is the difference between the amount approved to spend and IRS revenue. This amount is 0.638 trillion dollars or 638 billion per year. This is called the US Budget Deficit.
The US government borrows money to fund the difference between revenues and approved spending. It borrows this for different time periods ranging from one to thirty years. The government arranges auctions which set the interest rate that the market demands in order to lend money to the government. The amount of all the US government debt currently outstanding is about 17.4 trillion dollars if the government decided to pay it back tomorrow.
The interest paid per year to holders of this debt amounts to 415.6 billion dollars.
The interest rate the US pays on the total debt is about 2.4%. Compare that to your mortgage or the amount you receive in interest from your bank.
To pay back the 17.4 trillion in one go, it would be necessary for each US Federal Tax filer to pay $150,826.
The entire US personal debt including mortgages and consumer debt (credit cards, car loans, and short-term revolving lines of credit) is roughly 16.3 trillion dollars. It is slightly less than that of the government.
The total US debt including all personal, government as well as state and local debt is 60.9 trillion dollars. This means that about 27 trillion is owed by entities other than the Federal government and the consumer. This would include corporations as well as State and local governments.
The total US assets which is the value of assets held by small businesses (9.1 trillion), corporate (20.4 trillion), household assets (80 trillion) is 110 trillion. Currently assets are greater than liabilities.
Unfunded liabilities: these are future payment obligations.
If a company has promised each employee ten thousand dollars when they retire and there are 100 employees, the total amount of unfunded liabilities the company has is the amount of money it has on hand to pay these ten thousand dollar payments less the total amount owed. If the company has $100,000 on hand in an account to pay potential retirees, it has unfunded liabilities in the amount of $900,000 dollars because 100 x$10,000 is one million dollars less the amount on hand. Of course it is highly unlikely that everyone will decide to retire all at once nonetheless management has to be aware that as the average age of employees increases, money will be needed to meet those obligations if it is to keep its promise to its employees.
The unfunded liabilities for the US government are 128.13 trillion dollars. These liabilities are made up of the following:
Social Security liability (16.89 trillion dollars, or 13.2%). This number is based on tax and funding projections as well as demographic shifts in future years.
The Prescription Drug liability is what the Federal government expects to pay for medicines for its population that it has promised by laws passed by the Congress.
This amount is $22.35 trillion, or 17.4%.
The Medicare liability is the amount of funds that will be needed to be paid out to hospitals, doctors and caregivers to its people in the form of benefits that have been promised and approved by law.
This figure is $88.89 trillion, or almost 70% of the Federal unfunded liabilities.
The amount of future unfunded liability per tax filer is $1,110,146.5
What does all this mean?
There are several observations that can be made based on history.
The first is that governments do not go quietly into the night; they try and preserve themselves at all costs.
Several countries over the course of time have had more than one government with the one kicked out waiting in the wings in a rival country to come in and take back power. Examples include England, France (in the last thousand years to name two) and Ukraine today.
From the data to hand the largest potential problem is in the area of unfunded liabilities regardless of all other numbers and their consequences.
As to what will happen in the future one has to answer this question:
Which is more likely: will government in general try and keep financial promises to other governments and to markets to continue funding budgets for their existence, or will they honor those promises to its citizens when a choice must be made between the two?
There is much in the future that could make this potential problem disappear such as a future renaissance of productivity. On the other hand war, famine, and disease could easily make the need for meeting these obligations also unnecessary.
The truth is there is no law that says that civilizations, let alone economies, can and should grow on a consistent basis over the long term to ensure that the overpromising of the past is easily handled by the progress of the future.
- US Debt Clock.org. Retrieved March 6, 2014 from http://www.usdebtclock.org/#.
- Kealey, T. (2009) Sex, Science & Profits, How People Evolved to Make Money. London, UK: Vintage Books.
- US Debt Clock.org. op. cit.
- Amadeo, K. (N.D.) Federal Poverty Level, About.com. Retrieved March 6, 2014 from http://useconomy.about.com/od/glossary/g/Federal_Poverty_Level.htm.
- US Debt Clock.org. op. cit.
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© 2014 Ivan Obolensky. All rights reserved. No part of this publication can be reproduced without the written permission from the author.