Security and Social Security -Can They Exist in a Balanced Budget?

(3/3/10)- The latest report from the Nelson A. Rockefeller Institute of Government points out that total state tax collections shrank in the fourth quarter of 2009 for a fifth consecutive quarter, the longest period of continuing states revenue declines since at least the Great Depression.

Lucy Dadayan, a senior policy analyst, wrote the report. In sum, state tax collections fell to $134.5 billion, a 4.1 percent drop from the $140.2 billion collected during the same period last year.

Ms. Dadayan went on to say, "State tax revenue will continue to be insufficient to support current spending commitments, and more spending cuts and tax increases are most likely on the way for many states."

Seven states reported growth in revenues, but the report notes that the gains "were often driven by legislated tax increases rather than growth in the economy and tax base."

The report predicts that more states will begin to see revenue growth soon, particularly as sales tax collections increase, as retail sales rebound.

(2/6/10)- The House voted on Thursday, to increase the debt limit to $14.3 trillion, which meant the increase was $1.9 trillion. Since the Senate has already approved the measure, it will now go to President Obama, who said he would sign it.

With this increase, the accumulated debt now amounts to about $40,000 per person in the United States. The approval vote was 217 to 212, with 37 Democrats voting against the measure along with all the Republicans in the House.

At the same time as the vote to approve the increase was taking place in the Senate, that legislative body also approved new rules that would require future spending increases or tax cuts to be paid for with either cuts to other programs or equivalent tax increases.

If the rules are broken, the White House budget office could force automatic cuts to programs like Medicare, farm subsidies and unemployment insurance. Most other programs, including Medicaid, Social Security and food stamps would be exempt from such cuts.

(2/3/10)- The Balanced Budget Act of 1997 required Congress to either offset any increase in spending for one item in the budget with a cut in spending in another item to balance it out, or an increase in taxes to negate the increased spending. That act was allowed to expire in 2002, even though there has been several attempts to reinstate that principle in one form or another.

President Obama called for a executive commission to examine ways to cut the deficit in his State of the Union message recently, since the Senate defeated a measure for such a commission to be established. The vote in the Senate was 53 to 47 in favor of the establishment of such a commission, which would have had compulsory authority to enforce its recommendations, but a super-majority vote of 60 senators in favor was required for the measure to be passed.

The commission that the president appoints must report back to him by yearend with its recommendations, which would require congressional approval before the recommendations could be enforced. The Senate would vote on the recommendations first, and if passed by at least 60 to 40, the measure would then go on to the House to be acted upon.

The Senate did pass a pay-go amendment to the increase in the debt ceiling limit to $14.3 trillion (an increase of $1.9 trillion) by a super-majority vote of 60-40 that mandated that Congress offset the cost of expansion of entitlement programs like Medicare with tax increases or spending cuts to avoid adding to the deficit.

(1/30/10)- The latest report from the Congressional Budget Office (CBO) estimated that the projected deficit for the fiscal year that ends September 30, 2010 would be $1.3 trillion. This works out to be about 9.2% of the gross domestic product.

The federal fiscal deficit for the year ended September 30, 2009 was $1.4 trillion, which was nearly 10% of the gross domestic product. The CBO estimated that interest payment for the federal government would be about $207 billion this year.President Obama's budget estimated that the deficit for the next federal fiscal year would be $1.6 trillion, which he hoped could be cut to a $800 billion deficit by fiscal year 2013.

In the face of these numbers, we can only appreciate how fortunate the federal government is that interest rates are at the extremely low levels that they are at today.

(1/24/10)- The Senate voted on a proposal to wind down the $700 billion Troubled Asset Relief Program, and at the same time voted 53-40 on an amendment to a bill to increase the debt ceiling by$1.9 trillion to $14.3 trillion.

A Senate rule requires a 60-vote majority to pass any amendment to a bill, so that the matter is still pending.

We are all aware of how difficult and contentious President Obama's attempt to reform health care in this country has been. Please keep in mind that in just seven years from now, in 2017, the Medicare hospital insurance fund will be exhausted. Looming down the road is the fact that the Social Security Trust Fund will also become exhausted a few years thereafter.

(1/6/10)- The U.S. Census Bureau reported that state and local tax revenues fell 7% in the 3^rd quarter of 2009 from a year ago. Sales taxes declined 9% to $70 billion in the third quarter compared with the year-ago period. Income taxes dropped 12% to about $58 billion.

Sales and income taxes make up roughly half of state and local tax revenues. Strangely enough property taxes increased by 3.6% in the third quarter compared with a year ago, but this revenue figure will drop off sharply as property assessments plunge and residential and commercial property values drop sharply.

All this adds up to more cutbacks by state and local governments. Interest rates are expected to rise in the coming months, and disbursements from the federal stimulus package will begin to abate. Governmental services will be sharply curtailed and even eliminated.

The only bright spot on the horizon is the fact that because of the sharp rally in the stock market since March 9, 2009 relief may ultimately be on its way. Repayments will be made to the federal government of many of the loans to financial institutions, and the economy is expected to slowly and unevenly emerge from the recession of 2008-2009.

Only three states saw increases in third quarter revenues. They were Nevada, New Hampshire and Rhode Island. Alaska saw the biggest decrease in revenues at 65%, but that was due mainly to the sharp drop in the price of oil.

(12/30/09)- The U.S. Senate approved a $626 billion Pentagon spending budget and separately approved and also sent on to the president a short-term increase in the federal debt limit. Since the House had already passed these measures, this finishes the work that the legislature had to do before they re-convene on January 19^th, 2010. The president has signed both measures into law.

The federal government's current debt limit was $12.1 trillion that is expected to be broken shortly. The $290 billion increase that passed by a vote of 60-39 will keep the government operating through February, 2010, and then Congress will have to act on the matter once again..

A bipartisan group of 31 senators sent President. Barack Obama a letter urging him to join them in backing an 18-member commission to be made up of lawmakers and two administration officials. The commission would have the power to recommend legislation to Congress to help reduce the deficit.

The defense bill, which passed 88-10, sets military spending for the remaining 10 months of fiscal 2010 the federal fiscal year. It does not include funds to pay for the extra 30,000 troops President Obama said he intends to send to Afghanistan next month

In addition, the bill postpones for two months a 21% scheduled cut in Medicare payments to doctors..

(12/14/09)- Congress has passed and sent on to the president a 1,088 page, $1.1 trillion spending bill, which covers the government's annual appropriation for fiscal year 2010. The measure combines $447 billion in operating budgets with about $650 billion in payments for federal benefit programs like Medicare and Medicaid.

The spending bill combines six of the 12 annual appropriation bills for the 2010 budget year that began Oct. 1. Obama has signed into law five others.

The final one, a $626 billion defense bill, will be used as the base bill for another catch-all package of measures that Congress must deal with in the coming days. Those include action to raise the $12.1 trillion debt ceiling and proposals to stimulate the job market

The measure provides for spending increases averaging about 10% to programs under the immediate control of Congress. This increase percentage is far in excess of the rate of inflation, and it also contains 5,244 earmarks totaling $3.9 billion, according Taxpayers for Common Sense, a watchdog group in Washington.

(10/28/09)- Under the current Medicare law, physicians are faced with a 21% cut in their scheduled Medicare fees in 2010, and then, annual cuts of 5% for the next several years. The formula traces back to Medicare laws passed in 1989 and 1997, and were aimed at keeping Medicare spending in check.

There has never been a reduction in doctor's fees as required by the law, because Congress always passed "doc fix" laws increasing the yearly fees, for fear that physicians would leave the Medicare program.

Democrats in the Senate had hoped to pass a law, separate from the health-care legislation pending before Congress, that would have called for an increase in Medicare spending to physicians of $247 billion over 10 years. The bill, S.1776,was introduced by Senator Debbie Stabenow (Dem-Mich), but was defeated by a vote of 53 to 47 in a roll call vote last week.

A dozen Democrats and one independent joined 34 Republicans in voting against the bill. The purported reason for voting against the bill was that there were no offsetting reductions in spending as against the increase of $247 billion in outlays. An attempt was made to cut the time frame to a one year increase as opposed to the 10-year time frame, but this measure was also defeated.

President Obama has gone on record as saying that his health-care proposals would add no more than $900 billion to the deficit, and any attempt to charge an expense outside the legislation is not appropriate in the eyes of fiscal conservatives.

(10/25/09)- The Treasury Department reported that the federal deficit for the fiscal year ended September 30^th 2009 came in at about $1.4 trillion, or about 10% of the U.S.'s gross domestic product. This deficit, even though it was down about 24% from earlier projections, was the largest deficit since World War II.

The Treasury said government receipts were down 16.6% in fiscal year 2009 to $2.1 trillion, whereas spending increased more than 18% to $3.5 trillion, including $113 billion in stimulus spending. The stimulus package that was passed last year called for a total of $787 billion in stimulus spending.

(10/4/09)- With time running out on September 30^th, the Senate by a 62 to 38 vote passed the stopgap measure that had been passed by the House on September 25^th, as shown by our item dated 10/1/09 below. The measure maintains federal spending at the present levels with some exceptions as stated below.

None of the needed 12 annual spending programs have been passed by Congress yet.

(10/1/09)- The House on September 25^th passed legislation to head off a government shutdown by temporarily extending spending on most federal programs at current levels. The legislation was tacked on to a $4.7 billion House-Senate compromise bill that will finance Congress' own budget.

The one-month stopgap measure, approved by a 217 to 190 vote, is needed because Congress failed to complete work on any of the 12 annual spending bills required to keep the government running.

The measure would extend financing for the operating budgets of Cabinet departments and other agencies at current levels through October 31. An exception would be made to provide more money for the Census Bureau, which is preparing for the 2010 count and for veterans medical programs.

The measure would also allow the Postal Service to delay $4 billion in payments due next month to a health care fund for retirees. About $5.4 billion is due to be paid into the Retiree Health Benefits Fund, but Postal officials say they do not have enough money to make the payment.

The measure would also extend the federal highway program for one month. Congress is working on a 3 month extension.

(9/15/09)- According to Treasury officials, the August federal deficit came in at $111.6 billion, which was slightly less than the estimated $118 billion that analysts had expected. This is the amount that receipts fell short of outlays for the month.

(9/5/09)- The Congressional Budget Office, the Congressional overseer of the budget numbers, revised its May deficit projection of $1.84 trillion for the present federal budget which ends September 30^th to $1.58 trillion. Spending will rise by 24% this fiscal year, the largest increase since 1952 when the Korean War was about to wind down.

This means that the deficit will be at 11.2% of the gross domestic product, a level not seen since 1945. It estimates that the deficit will improve only slightly in the 2010 fiscal year to $1.5 trillion.

The Obama administration's Office of Management and Budget raised its 10-year tally of deficits expected through 2019 to $9.05 trillion, nearly $2 trillion more than it projected in February, though as we all know, predicting 10 years down the road is a useless act of crystal ball gazing.

(8/2/09)- The U.S. Treasury Department announced that the government's annual deficit reached almost $1.1 trillion by the end of June 2009. The Obama administration in May estimated that the annual deficit would hit about $1.84 trillion by the end of the fiscal year on September 30, 2009.

In February, the administration had estimated that the deficit would be $1.75 trillion by fiscal yearend. The administration also revised upwards its deficit estimates for 2010 and 2011, to $1.26 trillion and $929 billion, respectively.

By historical standards, the 2009 deficit, at 13% of the country's gross domestic product, would be the biggest since the end of World War II in 1945, when it reached 21.5%.

(7/26/09)- States' tax revenues fell 11.7% in the first three months of 2009, the steepest decline on record. For the 45 states that have reported their tax collections for April and May, it has been a decline of 20% compared with the same period a year ago, according to the report from the nonprofit Nelson A. Rockefeller Institute of Government.

The recession has cut into just about every revenue source. States' collections of corporate income taxes were down 18.8% in the first quarter, compared with a year ago; personal income taxes dropped by 17.5%; and sales taxes were down by 8.3%.

State tax revenues are now down to the level that they were in 2005.

(6/29/09)- State-income tax revenue fell by 26% in the first four months of 2009, compared to 2008 according to a survey of states by the nonprofit Nelson A. Rockefeller Institute of Government. The public-policy research arm of the State University of New York conducted the report.

Withholding tax for the first four months was down 6.9% from the same period last year. Only Utah, Alabama and North Dakota posted gains, while Arizona, South Carolina, Michigan, California and Vermont led the decline.

Personal-income tax collections were down by $28.8 billion for the first 4 months of 2009 compared to 2008 for 37 states included in the survey. Nine states do not collect broad-based personal income taxes, while the results for the other states were not available.

(6/9/09)- States face an aggregate budget deficit of at least $230 billion according to the latest estimate from the National Association of State Budget Officers. For most states, that covers the period from July 1, 2008 to June 30, 2011.

That deficit estimate figure is nearly double the $130 billion in federal stimulus funds that states can use flexibly over that 3-year period of time. About $120 billion in further stimulus funding comes with stricter requirements, and sometimes with new costly mandates.

About a quarter of the states saw their economies contract last year, according to the U.S. Commerce Department, and it will be worse this year. Social Security will continue to see its deficit grow, since with the growth in unemployment, less revenue will be coming into the system.

(5/15/09)- The federal deficit is running at $956.8 billion for the first 6 months of the fiscal year that began October 1, 2008, which is nearly 1/7^th of GDP according to Wrightson ICAP, a research firm. The Treasury will have to borrow about $2 trillion for the fiscal year.

All this borrowing will mean that the Congressionally mandated debt ceiling of $12.1 trillion will be breached in September. Tax revenues have dropped by 14% in the first half of the fiscal year.

The Congressional Budget Office expects interest payments alone on the federal debt to more than quadruple in the next decade to $806 billion in 2019 from $172 billion in 2009r.

(5/8/09)- Congress has passed a $3.5 trillion budget outline for 2010, that includes $530 billion in basic spending for domestic programs. President Obama released a more detailed budget plan on, May 6 that we will add on to this article when available..

The House approved the budget outline by a 233-193 vote, with no Republicans voting for it, and 17 Democrats voting against it. The Senate vote was 53-43 with four Democrats voting against it, including Sen. Arlen Specter of Pennsylvania who recently switched to the Democratic side of the aisle

The Democrats feel that under their budget outline, the budget deficit would fall to$523 billion, or 3% of GDP by 2014.

The U.S. Treasury Department reported that the deficit for the first half of the government's fiscal year for 2009 was $956.80 billion.. For the fiscal year 2008, which ended September 30, 2008, the total deficit was $454.80 billion.

The Congressional Budget Office (CBO) estimates that the deficit for the 2009 fiscal year ending September 30, 2009 will be at about $1.8 trillion, or 12.5% of the Gross Domestic Product (GDP). The components of the GDP are consumption; government spending; net exports; and capital investments.

Many economists are fearful that the huge stimulus programs initiated by the Obama administration will put this country at such unbelievably high deficit levels, that it will mean our grandchildren's grandchildren will be faced with financial crises for the rest of their lives. We at therubins on the other hand believe, that this massive stimulus spending that is going on right now is the only way to bring us out of this dire economic situation that we face now, and will result ultimately in big profits for the government down the road.

(3/18/09)- By a vote of 62-35, the Senate passed and sent on to President Barack Obama a $410 billion spending bill that will fund the government for the balance of the federal fiscal year which ends on September 30, 2009. The government has operated on a temporary-spending budget, which has been extended for various periods of time since the last budget expired on September 30, 2008.

Eight Republicans supported the measure, thus enabling the bill to finally pass. The president signed the bill, even though he objected to some of the items in the budget bill. The new budget represented an 8% increase over last year, and included some new items, such as spending on the war in Iraq and Afganistan, which were taken as "off budget" items in the previous administration's budget.

The bill contains an increase of $335 million for the FDA, which is hoped will help that agency deal with the many problems that have come to the forefront in the last few years.

(7/24/08)- The House passed and sent on to the Senate the bill that would allow the government to extend aid to Fannie Mae and Freddie Mac that we discussed in our item. The measure now goes before the Senate, and if passed by that legislative body will be signed by the president, who is no longer threatening to veto the legislation. The measure also contains a provision for the federal government to extend aid for homeowners faced with mortgage foreclosure.

(7/23/08)- As this country's economy continues to struggle, Congress and President George W. Bush have legislation pending that deals with whether or not the federal government should help Fannie Mae and Freddie Mac, the two major mortgage dealers who are presently in crisis mode. Combined, these two companies hold over $5 trillion in mortgages that could be endangered if they fail.

Almost all major U.S. financial institutions own debt obligations of one or both of these companies. Neither or them is an actual federal agency, although they have been frequently called "quasi" governmental agencies.

There is pending legislation before both the House and the Senate that deal with how to assist these companies while they are in this present crisis situation. Both Henry Paulson, Secretary of the Treasury and Ben Bernanke, head of the Federal Reserve Board favor legislation that would help both Fannie and Freddie on the near term.

The Congressional Budget Office, an independent office of Congress, estimates that the rescue package can cost anywhere from zero to over $300 billion dollars. Strict fiscal conservatives want to set a figure for the cost because under the Balance Budget Act of 1997, Congress must offset any increased budgetary spending by either cutting an equal amount of spending, or increasing taxes to match the increased amount to be spent under new legislation.

Even though we at therubins favor fiscal restraint there are times when we have to look at the pluses and minuses of each situation before strictly interpreting the Balanced Budget Act. We will attempt to look into the crystal ball and give our educated determination as to what Congress will do to help these two companies.

We think that the House will pass the legislation today that will enable the U.S. Treasury to take control of the situation for the next 12 months (not 18 months as requested by Secretary Paulson) in order to help Feddie and Frannie in whatever way they need the help. Included in their version of the bill, there will be a provision to help individuals who have defaulted on their mortgages or are close to doing same to the extent of a $2 billion package (not $4 billion as many of the Democrats are now asking for). The Senate will go along with the House measure on either Thursday or Friday.

Even though the president will threaten to veto the message, he will accept it for the good of the economy, and not veto it. The pay-as-you-go requirement of the Balanced Budget Act will not be adhered to, just as it is not being adhered to in connection with any other national emergency legislation.

(8/4/99)- We will continue to update this article whenever significant developments warrant it. It may mean that this article will become very lengthy, but we feel it is important that all the developments be written about in one place, so that you may be better able to understand the complexity of the issue. Of course you can always say lets abandon the Balanced Budget Act of 1997 and go back to our old ways. So what if we go into deficit spending. That way everybody can have whatever moneys they need, because the expenditure is necessary and for a very good cause. We will present the facts; you make your own decisions.

At the end of this article we discuss the fact that the CBO is now projecting a non-Social Security budget surplus. Congress is due to adjourn on August 6 and so far no budget for fiscal year 2000 has been passed. The original Republican plan called for an allocation of $270 billion for the military and $268 billion for all other spending. This is the amount that remains unallocated of the $1.75 trillion budget after payment for mandatory programs and spending. The Defense Department was to receive $19 billion more than it did for the fiscal year 1999, while domestic spending was to be cut $26 billion from the amount it received in the fiscal year 1999.

According to John Feeherty, a senior aide for Speaker J. Dennis Hastert, " we're going to trim off some of the allocations for Defense, Treasury, the legislative branch, and feed some of that back". The exact details of the changes proposed have not been released, but we will advise you of it as soon as it is released.

On January 25th, 1999 the U.S. Supreme Court, in a 5-4 vote, ruled that the Census Bureau could not use statistical sampling to determine the population counts for purposes of allocating seats in the House of Representatives among the states. This ruling is now coming back to further demonstrate the difficulty in maintaining a balanced budget. On Tuesday, June 1,1999 Jacob J. Lew, Director of the Office Management and Budget wrote to the Congressional leaders of the House and Senate appropriations committees to advise them that an additional $1.72 billion would be needed to conduct the year 2000 census. Incidentally, this would bring the cost of the year 2000 census to $6.99 billion up from the $2.6 billion spent on the 1990 census.

The increased estimate is 60% more than the administration had budgeted for the task. The Senate Appropriation Committee has allocated $32.2 billion in budget authority for the bill that includes the census, which is already $300 million less than appropriated for the current year. The House Appropriations Committee has allocated $30.5 billion, so it is already at a lower figure than is the Senate.

If the $1.72 billion is allocated we then have to contend with the Balanced Budget Act of 1997 because we then will need $1.72 billion taken from somewhere else to offset this increase. Where will this offset come from?

If you had a 13% mortgage and could refinance it for 6% wouldn't you want to refinance it at the lower rate? This strangely as it may sound shows you how complex the issue is, in connection with preserving the Social Security surplus for the Social Security system. An article written by David Wessel in the Wall Street Journal edition of June1, 1999 entitled " Treasury Edges Toward Bond Buybacks" delves into this issue.

In one of the latter paragraphs of this article we pointed out the fact that the Government has reduced sharply the amount of bonds, bills and notes that they have issued, since our debt has been reduced substantially by our surplus. In the last quarter alone the amount of debt held has been reduced by $116 billion. With the lower amount of borrowing, and therefore the lower the supply available, interest rates had fallen until very recently. Since March 1997 the amount of marketable government securities in private hands has fallen by $300 billion.

On Wednesday August 4, 1999 the U.S. Treasury announced that they would proceed with their plans to hold reverse auctions to help retire higher coupon U.S. Treasury obligations as we discuss in this article below. Although this will mean that the amount of the budget surplus will be reduced by the amount of the premium paid for the surrendered bonds it has long term beneficial implications that outweigh the negatives.

Now the U.S. Government has a great deal of high interest bonds outstanding, which were issued in the days of higher interest rates of the 1970s, 1980s and early 1990s. These bonds are non-callable meaning that you can not be forced to surrender these bonds before maturity. There is a procedure called a reverse auction that may be invoked to induce the bondholders to voluntarily surrender their bonds. It is called a reverse auction because the government would be buying the bonds from the holders instead of the normal auction procedure wherein the government issues the bonds. In order to induce the bondholders to surrender their bonds the government would have to offer the holders some inducement to accomplish this. This is called offering a premium to induce the surrender. Federal auditors would classify this premium as an extra interest expense immediately and thus the size of the surplus would be reduced by this amount. This procedure would involve billions of dollars to have a meaningful impact and yet that would mean that less of a surplus would be available to be used to balance the budget. No offset would be required in this situation unlike some of the required offsets under the Balanced Budget Act of 1997. Future predictions of surpluses would be increased because of the interest savings.

The Treasury will put the issue before the White House National Economic Council before issuing any of the required regulations in connection with this matter. Again we take no sides in this issue, but feel that bringing this matter to your attention will further help you at arriving at your own decision.

We continue to add paragraphs to this article because of the newsworthiness of the evolving issues that are becoming more and more complicated. Because of the divergent issues involved herein, we may face another governmental shut down because of these budgetary complications. Emergency and/or temporary spending bills may be needed once again to keep the government running.

The House of Representatives recessed on Thursday, May 28, 1999 without passing the $288.8 billion defense authorization bill. The night before the Senate had passed its version of the bill by a huge 92-3 majority. Some Republicans want to add $8.3 billion to President Clinton's defense request, but others are opposed to it. Complicating matters is the fact that the House bill, as drafted by the House Armed Service Committee, would bar use of the money for the war. It would require President Clinton to come back to Congress for additional funding approval for actions in connection with the war after September 30th. Speaker Dennis Hastert tried to have this restriction eliminated from the bill but conservative Republicans opposed to the war blocked his efforts. You must also remember that under the Balanced Budget Act of 1997 if spending is increased in one area, compensating cuts must be made in other areas. If you add to defense spending you may be negatively impacting the solvency of Social Security by utilizing some of its surplus as the offset.

With each passing day it is becoming more and more obvious that the budgetary conflict between Security and Social Security is widening instead of narrowing. On May 26th, 1999 the U.S.Senate, by a vote of 60-40, rejected the Administrations request to close down more military bases. Secretary of Defense William S. Cohen and the Pentagon estimated that $2-3 billion could be saved through base closings with no appreciable impact on our military preparedness. The General Accounting Office had agreed with this estimate. Sen. John McCain (Rep.-Ariz.), Sen. Charles S. Robb (Dem.-Va.) and Sen. Carl Levin (Dem.-Mich.) had introduced the base closing legislation. With the spending caps in place from the 1997 Balanced Budget Act it is beginning to look like we may have a budgetary impasse once again. The shortfall is almost $30 billion and Social Security and Medicare look like the cash cow that will be used to make up the deficit under the caps.

As the budgetary process continues to evolve we are now seeing another promise that was made by many of our Congress people fall by the wayside. In the latter part of this article we articulate how the promise to not touch Social Security and Medicare funds, while at the same time preserving and enhancing the solvency of these systems, is being broken. It now looks like the promise of no new taxes will also be broken. Instead of calling it a "tax" they are calling it a "fee".

To make up for the increases in military spending the Senate Appropriations Committee is calling for spending for the Federal Aviation Administration operations to be limited to $5.75 billion, or almost $300 million less than requested under the president's budget request. To make up about $200 million of the loss the FAA would be permitted to impose new fees on air carriers to pay for the agency's costs in operating the air-traffic-control system for trans-oceanic flights. Guess who in turn will pay for these new "fees"?

In addition the Army Corps of Engineers construction spending would be cut by over $300 million from current levels. This will result in some serious cutbacks to several water projects out West. Over $90 million would be cut from projects to protect the ecosystem in Florida, California and the Pacific Northwest.

In the Energy Department funding, about $600 million more will be allocated to the military portion, while taking away that same amount from the non-military portion thereof.

"Weapons Makers Seek Rise in Pentagon Spending " is the title of an interesting article in the N.Y.Times issue of Wednesday, May 19, 1999 written by Leslie Wayne. The main reason we began this site was our " hope that as a result of reading these articles you will be able to make a more informed decision about the problems associated with the elderly". We are not attempting herein to affect your beliefs about the current war going on in Yugoslavia, nor how we should deal with the tyrant President Slobodan Milosevic. The horrible genocide taking place there is certainly being fully covered by your local and national media. The purpose of this article however is to explain the ramifications that increased spending for defense and security will have on the Social Security System. Once you understand the ramifications, it is up to you to make your own decisions on this matter.

The Balanced Budget Act of 1997 mandates that there can be no increased spending in the budget without having a balancing cut therein, so that the budget must remain in balance. It was just a few years ago that the U.S. Government was operating at an almost $300 billion deficit. The U.S. Government is by far and away the largest borrower in the credit market. As the largest borrower the government was creating the most demand. As we got into deeper and deeper debt the lenders would ask for higher and higher interest rates to be paid to compensate them for our weakening credit status. If you lent money to someone deeply in debt you either require more security or a higher interest rate. It had reached the point wherein for each dollar the government raised in revenue, almost 30 cents had to be paid to cover the interest service being paid on the debt. Thus only 70 cents was left for operating the government.

There are two basic reasons why interest rates have been dropping over the last few years. The combination of low inflation and less borrowing by the U.S. Government are the driving forces behind this lower interest rate environment. Although the Federal Reserve Board has just indicated a bias towards higher interest rates we must wait to see how this will play out for itself. Ask the average stock market investor how he has enjoyed this low interest rate environment and he will surely smile.

We will now come back to the core of our problem caused by the potential conflict that arises from increasing spending for the military and helping insure the solvency of the Social Security System. Military spending has decreased by about 70% since the late 1980s. Many people have felt that the combination of base closings and cutbacks to the military have weakened the military power of the United States much more than was necessary. Thus the Administration of President Clinton requested $112 billion in additional military spending over the next 5 years. Weapons procurement would be increased from $44 billion in 1998 to $53 billion in 2000 and $60 billion in the year 2001. Now mind you, these proposals were announced even before the war in Kosovo and Yugoslavia. Much of the armaments that have been used will have to be replaced. New generations of weapons and planes are more expensive than ever. As of the latest figures about 240,000 barrels of jet fuel and oil products are being consumed daily by the war effort. Incidentally this is one of the reason why we have seen an increase in the cost of gasoline. Cutbacks in production by producing nations are the other cause for the increase in price. Congress is presently working on a $14.7 billion emergency spending bill, part of which is to cover the cost of the Yugoslavian campaign. This matter is covered in our article The Accurate Numbers as To Social Security and Medicare Solvency. In updating this article it is now expected that the CBO will show a non-Social Security surplus of about $20 billion for 2000, which is expected to grow to a surplus of $100 billion by the year 2005. According to strict private practice accounting this money should not be used in arriving at a budget surplus The healthier economy of the last 2 years alone has resulted in the increased estimates for the solvency of Social Security from the year 2029 to the year 2034. The estimate for Medicare has been increased from the year 2001 to the year 2015. Now let us suppose that interest rates rise because of additional borrowing done to pay for the increased military spending. This of course assumes that Congress finds a loophole to get around the Balanced Budget Act of 1997. Will that not mean that the economy will weaken, and that the actuaries will than have to shorten the solvency estimates for Medicare and Social Security? Then of course there is the other possibility of borrowing from the Social Security Trust Fund. Another possibility would be to cut back on Social Security and Medicare spending and use the additional money for military spending.

We are not even attempting to answer this very difficult question in this article. It is our hope however that in reading this article you can make a more informed decision on this matter.

FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home"

By Allan Rubin
updated March 3, 2010

http://www.therubins.com

To e-mail: hrubin12@nyc.rr.com or rubin@brainlink.com

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