Continuing my study of the shell game that our elected representatives are playing, today we’ll look at the revenue sources of the federal government minus Social Security taxes. (Click image to enlarge)

During the Nixon era in the late sixties and early seventies, excise and other taxes decreased.  As inflation ran rampant during the seventies, taxes on individuals made an increasing contribution to the federal pot.  As a share of the pot, corporate taxes decreased so that in the last three decades, individual taxes and Social Security and Medicare taxes on individuals made up about 3/4 of federal revenue.

As I have noted before, this country practically invites imports.  We have the lowest import duties of any developed country yet we scratch our heads and wonder why our trade balance is so far in the red, why we have a deficit, and where have the jobs gone?

Some will say that government needs to get leaner but most large organizations, both private and public, do not run lean.  Any of us who have worked for a large corporation can attest to that fact.  We can continue to campaign for leaner government but the fact is that the federal government is not raising enough money.  Like a giant Ponzi scheme, our elected representatives have been collecting Social Security taxes and treating the excess taxes as “income”.

In this coming decade, the boomers will start asking for their Social Security pensions.  The largest influx of retirees won’t occur for another 10 years and the demand for Social Security pensions will overwhelm the receipts collected sometime in the middle of the 2020s.

Just as Bernie Madoff swindled most of his investors by not investing the money entrusted to him,  politicians will be in the uncomfortable position of admitting that they spent rather than invested the Social Security excess taxes and there aren’t enough new taxpayers to get the money from.

It’s going to be a bloody battle then – not as bloody as a battle scene in the movie “Braveheart” but you get the idea.  Retired people get the majority of their income from Social Security.  Inevitably, politicians will have to find some way to tell boomers that their pension payments are going to be reduced.  The coming furor will make a Tea Party rally look rather sedate.