Invest Effectively

Happy InDEBTpendence Day …

Happy Independence Day Weekend! We’ll be up at my brother’s lake place this weekend, so I thought I’d shoot out an early post before the festivities begin.

While we’re out enjoying brats on the grill, boats on the water, and fireworks in the sky, our Congress will be wrestling with getting a reconciled budget passed in Washington DC. I’m sure the fact that it is Independence Day will be lost on politicians wanting to make us more indebted – and dependent on borrows than ever.

The Congressional Budget Office expects the bill to result in annual interest payments on the national debt rising from about $1T in 2025 to almost $2T in 10 years.

That being the case, I thought it might be interesting to share where all of those interest payments go to. who owns all of that debt?

I was surprised to see how much we actually owe ourselves. Debt is held by intergovernmental agencies (SSI), owners of savings bonds (treasuries), the Fed, mutual funds, state & local governments, and pensions. A far smaller share is owned by foreign governments and other countries.

I don’t have any real insightful point with this post. I just thought it good background information as the GOP looks to raise the debt limit by another $5T dollars.

What surprises you about this chart?

Fireworks Image: (c) MrFireStation.com

16 thoughts on “Happy InDEBTpendence Day …”

  1. Isn’t a large part of the intragovernmental debt the trillions of dollars that have been “borrowed” against the Social Security Plan? This was done when the plan was flush with money, lots of revenue from workers, and few retirees.

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  2. Keep in mind that internal borrowing is terrible debt – it is one of the reasons that that SSI & Medicare programs are in trouble. When Congress & President take money from the inter-agencies they deplete those reserve. That means general taxes will need to be increased in the future to pay back those borrowed inter-agencies funds. For simpler picture, think about a family budget where you put money in envelopes for your different expenses. One of the envelopes is for future car repairs, one for future housing repairs, one for future vacations and others for regular expenses: groceries, utilities, rent/mortgage, cars, etc.

    If you decide that a boat would really enhance your “quality of life” and expand your kids intellectual and physical experiences – but have no additional income to purchase/rent you need to borrow (or come to your senses).

    By taking money out of your “future expense envelopes” to purchase the boat you have compounded your future financial problems. This what government has been doing through inter-agency borrowing.

    The reason people don’t raise a fit is because the number of tax payers continues to shrink. Most people receive more in services than they pay in taxes. Therefore the boat purchase is based on the hope your brother will buy the boat for you.

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    1. Agree – As John Wycliffe observed back in 1382, “A government which robs Peter to pay Paul, can always count on Paul’s the support.” It seems we have less & less Peters, and more & more Pauls as time goes on.

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    2. The shameful part of this is that for most of the Baby Boomer’s working lives we were paying excess Social Security ‘contributions’. The Federal Government immediately spent the excess ‘contributions’ and papered over their spendthrift ways by ‘investing’ in Treasury Bills. A government ‘investing’ in bonds is not investing at all, it mortgaging the future with more debt.

      President Clinton and and Speaker Gingrich claim that they had a balanced budget during their “Contract with America” term. However, their ‘balanced budget’ failed to account for the spending of excess SSI Contributions and issuing government IOU’s in the form of bonds.

      President George HW Bush knew that the funds had to be held outside the reach of politicians who buy votes with our money. The Demonrats declared that putting money in separate accounts that individuals own and control is dangerous.

      My expectation is that the same financial illiterates who call government issuing bonds to paper over spending excess SSI Contributions investing, will attempt to fix Social Security by playing more games with the bend points. Social Security benefits are based upon average indexed monthly earnings (AIME) over your highest 35 earning 35 years. On the first $0 to $1,226 of AIME, SSI pays out 90%. On the next $1,226 to $7,391, SSI pays out 32%. On the amount over $7,391, SSI pays out 15%.

      Those who paid the most into SSI are already receiving a much lower return than those who pay the least. Expect politicians to continue buying votes by getting the rich to pay their fair share. They will likely take away the caps of Social Security forced Contributions.

      Remember that the word politics is a Greek word. The prefix “poli” means many. The suffix “tics” means blood sucking creatures.

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      1. It sounds like you’ve been following the SSI shenanigans closer than most people. It’s just become another welfare program where what you pay in has no bearing on what you get in benefit.

        It looks like the new BBB agreement will give SSI tax deductions to people above the standard deduction (about $100K/couple, I read) and below $250K/couple. I suppose we will benefit from that, although I won’t have access to SSI for another 8 years – and the deduction will sunset before then.

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  3. Keep in mind that internal borrowing is terrible debt – it is one of the reasons that that SSI & Medicare programs are in trouble. When Congress & President take money from the inter-agencies they deplete those reserve. That means general taxes will need to be increased in the future to pay back those borrowed inter-agencies funds.
    For simpler picture, think about a family budget where you put money in envelopes for your different expenses. One of the envelopes is for future car repairs, one for future housing repairs, one for future vacations and others for regular expenses: groceries, utilities, rent/mortgage, cars, etc.

    If you decide that a boat would really enhance your “quality of life” and expand your kids intellectual and physical experiences – but have no additional income to purchase/rent you need to borrow (or come to your senses).

    By taking money out of your “future expense envelopes” to purchase the boat you have compounded your future financial problems. This what government has been doing through inter-agency borrowing.

    The reason people don’t raise a fit is because the number of tax payers continues to shrink. Most people receive more in services than they pay in taxes. Therefore the boat purchase is based on the hope your brother will buy the boat for you.

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  4. Here are a couple observations about the BBB process. The Republicans in the Senate do not have enough seats to overcome a Demonrat filibuster, so they have to do budgeting via the reconciliation route. The Congressional Budget Office (which is political as 90% vote Demonrat) is not scoring the tariffs that are being collected as offsetting the deficit spending at all. Reshoring manufacturing could possibly help increase tax collections by having more of the economic activity and value chain happen in the US.

    Hopefully we see more action on DOGE cuts. We got a little taste of this in action two days ago, when the FBI announced that they would take over the Ronald Reagan Building which DOGE freed up by firing the entire USAID staff. The FBI had previously planned to spend $4.5 billion on a new building. The US saves the money being spent by USAID on evils such as outsourced Wuhan biolab bat virus gain of function research and the FBI saves the cost of new building.

    Last weeks Supreme Court ruling that bars District Courts from making Nationwide injunctions should free up Trump’s Administration to make more cuts. The only problem I have seen is that the District Courts seem to be acting as if they are unaware of the Supreme Court ruling. These rogue judges will probably be ignored.

    Senate Parliamentarian, Susan McDonough needs to be fired. Why would they keep a Parliamentarian around who was appointed by the reprobate Harry Reid? This would allow the Senate version to be closer to the House version.

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    1. Still, debt keeps going up. If they had confidence in their plans – to seriously tackle the debt – they wouldn’t have had to raise the debt ceiling so high. Now, if they don’t use it, they’ve given the next Democrat administration an easy route to spend, spend, spend.

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      1. The Demonrats are still forcing lots of spending. The ghost of Harry Reid raised from the crypt in the form of the Senate Parliamentarian that he appointed and she ruled that the Republicans could not end Medicaid for illegals with a simple majority vote as a part of the reconciliation process. 44 Demonrats in the Senate voted not to defund providing Medicaid to illegals. Why Susan McDonough hasn’t been fired I find really perplexing?

        This budget does complete the wall on the border and increased ICE budget five food. I am expecting that a lot of immigrants who do not pass the test of not being a public ward will get deported. The Federation for American Immigration Reform estimates that illegal aliens cost US taxpayers $151 billion in 2023. AI answers that number had grown to $182 billion last year.

        A political CBO does not credit deporting illegals to save on government expenditures. They also don’t count tariff collections. We should see faster implementation of the DOGE cuts now that activist judges have been defanged because their ability to create national injunctions was just taken away. Reshoring manufacturing should also increase tax collections due to the elevated local economic activity. A fully employed worker pays more taxes than a laid off one on welfare, disability or unemployment. So far inflation has been moderate. I am seeing it in the grocery store and at the gas pump (even in the People’s Republic of California). An interest rate reduction will further lower the budget deficit. Surely the Trump Administration knows how to balance a set of books, but with the obstructionists on the other side of the aisle , he will have to work around them. Expect to see something really audacious as a next move now that the 2017 tax rates are in place.

        One of the next moves in addition to massive deportations will be not counting illegals in the next census. This will strip away a lot of Demonrat House Seats and Electoral College Points. Our economy is going back to a productivity driven one that we had in 1990’s. I made the most money of my working career on both an absolute and inflation adjusted basis then and the budget was sort of balanced except for the gaming around excess SSI contributions.

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  5. Don’t forget that most social security recipients will not benefit from the tax relief. The tax break is a deduction. Most taxpayers use the standard deduction, thus this assistance is like many touted assistance programs is a nothing burger.

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    1. The $6,000 Bonus Senior Deduction works similar to the Standard Senior Deduction. If I remember correctly, didn’t you mention in a recent post that you are under 65. Both are coming when you reach 65 and get added onto the Standard Deduction.

      The Bonus Senior Deduction is income limited and starts phasing out at $150,000 per couple. It is completely phased out at $250,000.

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      1. Well that is good news. Correct, I am 63 but spouse is 70 and a recipient of social security. I guess that since it is an add on to the standard deduction we might see a minor benefit.

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      2. You do not need to be taking Social Security to receive either the Standard or Bonus Senior Deduction, you just need be at least 65 at the end of the tax year you are filing for. I prepared a spreadsheet years ago to accurately calculate the impact of my Self-Employment Taxes when I was still consulting to make accurate quarterly estimated tax payments. Really nailed it last year. Got a couple hundred back from the Feds and had to send the couple hundred to California. I already plugged the Bonus Senior Deduction into my spreadsheet. If you are below the phaseout threshold, expect to receive around $1,200 to $1,400 more based on your spouse qualifying.

        I believe you have also mentioned that you are still consulting. Making a similar spreadsheet will help you avoid making an interest free loan to the government and also avoid tax surprises. Reduces your stress level.

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      3. We both turn 59 this year. If we take SSI at the standard age of 67, we’re 2 Presidential elections away from knowing what the rules will be!

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