An Analysis of the U.S. Debt Situation
First, some sources:
http://www.gpoaccess.gov/usbudget/fy08/pdf/hist.pdf
I am not going to attempt to perform an analysis in real terms. Nor am I going to bother with projections and what this mess looks like going forward. Therefore, everything will be done using 2006 figures, mostly in the interest of simplicity. I'm going to try to look at this from the standpoint of a creditor of a business, so the key credit numbers we'll be looking at are EBITDA, debt, interest expense, and free cash flow. Since D&A are non-cash and non-disclosed and the government doesn't pay itself taxes, we'll just call it EBI.
In 2006, tax receipts were $2,407,254 million.
Total outlays were $2,655,435 million. This includes ALL government outlays, so we'll try to break it down into operating expenses and discretionary expenses.
But for now, it is safe to assume that Free Cash Flow is -248,181 million.
So first, a look at the revenue side of the equation. As I already stated, tax receipts were $2,407,254 million in 2006. Of this, $1,043,908 million came from personal income tax, $353,915 came from corporate income tax, $837,821 million came from social insurance and retirement receipts, $73,961 million came from excise taxes, and $97,649 million came from "other". Over 10 years, personal income tax receipts have grown at a CAGR of 4.75%, corporate income tax receipts have grown at a CAGR of 7.5%, social insurance and retirement receipts have grown at a CAGR of 5%, excise taxes have grown at a CAGR of 3.2%, and other has grown at a CAGR of 4.75%.
I know at least one person is wondering: "What the hell is a social insurance and retirement receipt?", so I'll provide some clarity. This is government revenue realized from: Old-age and survivors insurance, Disability insurance, Hospital insurance, Railroad retirement/pension fund, Railroad social security equivalent account, trust funds, and federal employees retirement. Excise tax revenue is primarily received from the sale of alcohol, tobacco, telephone, etc., less transportation fuel subsidies as well as from trust funds related to highways, airports, waterways, etc. Other is largely estate and gift taxes as well as customs and duties taxes.
So we know where the money comes from, but where does it go? The big answers are National Defense ($521,840 million), Human Resources ($1,672,076 million), Physical Resources ($164,800 million), Interest ($226,603 million), Other ($138,366 million), and offsetting outlays ($-68,250). We'll try to look at each in some depth and try to segregate operating expenses from CapEx. We can argue all day about what is and isn't discretionary, but I'm just going to make some assignments and that is what we are going with.
The major expenses for National Defense are Personnel ($127,543 OpEx), Operation and Maintenance ($203,789 OpEx), Procurement ($89,757 Discretionary), Research and Development ($68,629 OpEx but this could be cut), Construction ( $6,245 Discretionary), Family Housing ($3,717 OpEx), and Other ($-370 OpEx). We also spend some on Atomic Energy Defense ($17,468 OpEx?) and Defense-related Activities ($5,062 no idea what that is, but we'll call it Op Ex). That gives OpEx of $425,838 and Discretionary of $96,002.
I am going to assume that all of our HR expense is OpEx simply because 1) it is small and 2) I can't get my mind around what is OpEx and what isn't. This includes stuff like Medicare, Health, Education, Social Security, and Veterans Benefits. So let's call it $1,672,076 of OpEx and no discretionary.
I am also going to assume that all of our Physical Resource outlay is operating expense as well. For much the same reason as above. This is related to Energy, Natural Resources, Environment, Transportation, etc. So let's call it $164,800 of OpEx and no discretionary.
Interest is non-negotiable. It is $226,603. It is a non-operating expense, though, so we'll come back to it later.
Other is also going to be largely OpEx. These outlays represent International Affairs, Science, Agriculture, Administrative, Justice, etc. We'll call it all OpEx and say it is $138,366 and 0 Discretionary.
Undistributed offsetting receipts will be just that... an OpEx offset. It was $-68,250 last year.
That gives revenue of $2,407,254 and Operating Expenses of $2,332,830 for EBI of $74,424 million. Keep in mind that this compares with mandatory interest payments of $226,603.
Public National Debt stood at about $5 trillion as of 10/2007 as best I can tell. If anyone has a better number, I'll take it. Average cost of debt would figure to be about 4.5%. Seems reasonable.
That gives leverage (debt/EBI) of 67.2x and interest coverage of 0.33x. Oh yeah, and recall that we burned about $250 billion of cash last year, or about 10.5% of tax receipts (revenue).
That, my friends, is not good.
http://www.gpoaccess.gov/usbudget/fy08/pdf/hist.pdf
I am not going to attempt to perform an analysis in real terms. Nor am I going to bother with projections and what this mess looks like going forward. Therefore, everything will be done using 2006 figures, mostly in the interest of simplicity. I'm going to try to look at this from the standpoint of a creditor of a business, so the key credit numbers we'll be looking at are EBITDA, debt, interest expense, and free cash flow. Since D&A are non-cash and non-disclosed and the government doesn't pay itself taxes, we'll just call it EBI.
In 2006, tax receipts were $2,407,254 million.
Total outlays were $2,655,435 million. This includes ALL government outlays, so we'll try to break it down into operating expenses and discretionary expenses.
But for now, it is safe to assume that Free Cash Flow is -248,181 million.
So first, a look at the revenue side of the equation. As I already stated, tax receipts were $2,407,254 million in 2006. Of this, $1,043,908 million came from personal income tax, $353,915 came from corporate income tax, $837,821 million came from social insurance and retirement receipts, $73,961 million came from excise taxes, and $97,649 million came from "other". Over 10 years, personal income tax receipts have grown at a CAGR of 4.75%, corporate income tax receipts have grown at a CAGR of 7.5%, social insurance and retirement receipts have grown at a CAGR of 5%, excise taxes have grown at a CAGR of 3.2%, and other has grown at a CAGR of 4.75%.
I know at least one person is wondering: "What the hell is a social insurance and retirement receipt?", so I'll provide some clarity. This is government revenue realized from: Old-age and survivors insurance, Disability insurance, Hospital insurance, Railroad retirement/pension fund, Railroad social security equivalent account, trust funds, and federal employees retirement. Excise tax revenue is primarily received from the sale of alcohol, tobacco, telephone, etc., less transportation fuel subsidies as well as from trust funds related to highways, airports, waterways, etc. Other is largely estate and gift taxes as well as customs and duties taxes.
So we know where the money comes from, but where does it go? The big answers are National Defense ($521,840 million), Human Resources ($1,672,076 million), Physical Resources ($164,800 million), Interest ($226,603 million), Other ($138,366 million), and offsetting outlays ($-68,250). We'll try to look at each in some depth and try to segregate operating expenses from CapEx. We can argue all day about what is and isn't discretionary, but I'm just going to make some assignments and that is what we are going with.
The major expenses for National Defense are Personnel ($127,543 OpEx), Operation and Maintenance ($203,789 OpEx), Procurement ($89,757 Discretionary), Research and Development ($68,629 OpEx but this could be cut), Construction ( $6,245 Discretionary), Family Housing ($3,717 OpEx), and Other ($-370 OpEx). We also spend some on Atomic Energy Defense ($17,468 OpEx?) and Defense-related Activities ($5,062 no idea what that is, but we'll call it Op Ex). That gives OpEx of $425,838 and Discretionary of $96,002.
I am going to assume that all of our HR expense is OpEx simply because 1) it is small and 2) I can't get my mind around what is OpEx and what isn't. This includes stuff like Medicare, Health, Education, Social Security, and Veterans Benefits. So let's call it $1,672,076 of OpEx and no discretionary.
I am also going to assume that all of our Physical Resource outlay is operating expense as well. For much the same reason as above. This is related to Energy, Natural Resources, Environment, Transportation, etc. So let's call it $164,800 of OpEx and no discretionary.
Interest is non-negotiable. It is $226,603. It is a non-operating expense, though, so we'll come back to it later.
Other is also going to be largely OpEx. These outlays represent International Affairs, Science, Agriculture, Administrative, Justice, etc. We'll call it all OpEx and say it is $138,366 and 0 Discretionary.
Undistributed offsetting receipts will be just that... an OpEx offset. It was $-68,250 last year.
That gives revenue of $2,407,254 and Operating Expenses of $2,332,830 for EBI of $74,424 million. Keep in mind that this compares with mandatory interest payments of $226,603.
Public National Debt stood at about $5 trillion as of 10/2007 as best I can tell. If anyone has a better number, I'll take it. Average cost of debt would figure to be about 4.5%. Seems reasonable.
That gives leverage (debt/EBI) of 67.2x and interest coverage of 0.33x. Oh yeah, and recall that we burned about $250 billion of cash last year, or about 10.5% of tax receipts (revenue).
That, my friends, is not good.
posted by Fresh at
8:30 AM
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