Perpetual Economic Motion from the Tax Cut Machine?

Bloomberg's John M. Berry wonders when the administration will adopt a reality based view of tax policy and the budget deficit:

Bush, Congress Make a Farce of the Debt Ceiling, by John M. Berry, Bloomberg: The scary, totally unfunny debt ceiling farce is playing once again in Washington. With the federal government debt about to hit the $8.18 trillion legal limit, the Treasury Department last week suspended sales of special securities bought by state and local governments so that regular auctions of Treasury bills and notes could continue. More such steps undoubtedly will have to be taken in coming weeks until Congress screws up the courage to increase the debt limit. At some point next month, Treasury will run out of such stop-gap measures and regular securities auctions may have to be postponed. ...

The problem, of course, is that voting to increase the debt ceiling is approving profligate behavior, even though they have little choice because of earlier tax and spending decisions. The reality is that taxes and spending are badly out of whack, and hardly anyone -- certainly neither President George W. Bush nor Vice President Richard Cheney -- wants to admit it. ... Instead, Bush continues to push Congress to extend earlier tax cuts that lowered the maximum personal income tax rate on dividends and long-term capital gains to 15 percent. Those cuts are set to expire at year-end.

Meanwhile, Cheney ... called for extending not just that pair of rate cuts, but all of the Bush-era cuts that under current law would expire in 2010... "...tax relief is set to expire in the next several years. So if we do nothing, Americans will face a massive tax increase. That would be counterproductive, it would be irresponsible, it would be bad for the economy. Congress needs to make the Bush tax cuts permanent,'' he said.

Irresponsible? Bad for the economy? Not nearly as irresponsible as Cheney's claim in the speech that "despite forecasts to the contrary, the tax cuts have translated into higher federal revenues.'' ... In fact, total federal receipts in fiscal year 2005 were higher than in each of the prior two years. On the other hand, receipts as a share of gross domestic product were only 17.5 percent last year. Except for fiscal 2003 and 2004, that was the lowest share at any time since 1992. And since most of the cuts involved personal income taxes, the more telling comparison is in those receipts as a share of GDP. In fiscal 2005, individual income tax receipts were equal to just 7.5 percent of GDP. Again, except for the prior two years, that was the lowest share in 29 years. ...

Nevertheless, the administration is greatly enamored with the notion that tax cuts can more or less pay for themselves. For instance, the fiscal 2007 Bush budget would create a new Dynamic Analysis Division within the Treasury Department, at a cost of more than a half-million dollars, to analyze major tax proposals along those lines. Analyze? Why waste the money? ...

What if you don't want to increase growth because the economy might be nearing full employment? That's more than a passing concern at the Federal Reserve right now ... If tax cuts were a good way to stimulate the economy after the 2001 recession hit, might raising taxes be a good way to help restrain it when needed? Certainly the tight fiscal policies and budget surpluses of the late 1990s helped the Fed keep interest rates lower than they otherwise would have been.

And then there is the fundamental issue of balancing revenues and spending. At the moment, investors and analysts seem largely unperturbed by large continuing deficits, presumably because other forces are helping keep interest rates low. That's not likely to be the case indefinitely, and Federal Reserve Chairman Ben S. Bernanke gave this warning in his congressional testimony on Feb. 15.

"I am concerned about the prospective path of deficits,'' Bernanke said. "I believe that that does reduce national savings and therefore imperils, to some extent, the future prosperity of our country and increases the burden that'll be faced by our children and grandchildren.'' Bush and Cheney should keep it in mind.

Comments

[save_the_rustbelt]

I recommend Bruce Bartlett's book for a detailed discussion of delusional tax and economic policy.

[calmo]

I wonder how many people can listen to the VP talk about responsibility without recalling the shooting incident.
A minor lapse (esp if you weren't Whittington) that will recede with time like his connections to Halliburton. Not incompetence or mendacity, but measures of both --carefully under-played by the media.

[Bruce Webb]

We will never be able to have a rational discussion about deficits going forward, particularly as projected out over periods of ten years or more, until we confront the fact that one component of government, in control of reporting projected revenue for what is combined the second biggest component of government spending, that is Social Security and Medicare, was allowed to project productivity growth for 2005 at 2.0%. An official government body, the Trustees of Social Security, including 3 Bush Cabinet secretaries among its six members solemnly signed a report suggest that a slow down from reported 3.3% productivity in 2004 (itself against a projected 2.7%) to 2.0% was their best guess mid-point projection.

That was an economic and political crime. No one made a serious effort to defend the number when it was issued, indeed no one has made any kind of effort to defend it since. Which is a good thing because actual 2005 beat that number substantially. Moreover it equally beat Low Cost. This projection, which is supposed to represent the upper range of possible economic performance was set in the 2005 Report at 2.1%. Per the Trustees a slowdown in productivity growth to 66% of 2004 levels was officially 'optimistic'. This was equally an economic crime. It makes rational discourse about deficits impossible.

It matters a great deal whether Social Security becomes a net seller of bonds in 2017 (Intermediate Cost), remains a net buyer of bonds until 2023 (Low Cost) or remains a net buyer forever (Trend Productivity). Yet every discussion I have seen blandly builds Intermediate Cost in. We have one projection that shows a Trust Fund with zero dollars late in 2041. We have another one showing a Trust Fund with $69 trillion dollars in 2080. And both are based on productivity numbers that are far below both current year performance and historical trend. Yet all the discussion I see simply assumes that none of that matters.

Well it does matter and the test is coming. The Annual Report of the Trustees of Social Security is due by March 31. Last year it was released on March 23 and was available in print form that day, which suggests it was sent to the printers some point previous. Now no government report of this magnitude is going to be released without in house review by management, and then outside review and approval by the Trustees, which means indirectly OMB and the Presidents' economic team. The timeline suggests that the Report already is close to or already in final draft form and that dozens, perhaps hundreds of people involved in its production and review already know what it is going to say. So I am watching for the spin. What I am seeing so far in an attempt to deflect attention away from Social Security as a standalone proposition and a continuing drive to co-mingle it with Medicare as generic "entitlements" needing to be addressed as a package.

Sorry. Legally that will not fly.

[calmo]

Thanks for the heads up on that March report Bruce.
I wish I could say "legally that will not fly" is a comfort and not a worry.
Where are the officials below Snow and the other trustees who should be standing up and protecting the public's interest, who should be demonstrating their personal integrity by pointing to the right numbers they so diligently calculated, who should not be cowering in fear of losing their well-paid jobs?
The AARP (ok, and B. Webb) were instrumental in turning the 'war room' of privatization of SS upsidedown.
I am a little nervous about the final outcome.

[save_the_rustbelt]

Legal is whatver the feds say it is.

The federal government is the only organization in the country in which accounting fraud is not fraud, because the feds write their own rules.

Thus the Social Security "trust fund" and the highway tax "trust fund."

The average farm town township trustees are subject to stricter accounting standards.

[Bruce Webb]

Calmo, the numbers are out there in the public realm. It is really not the fault of the actuaries at SSA that Congressional staff and reporters are too lazy to look at them.

Low Cost is actually a very useful metric, once at least you understand what it is actually measuring. I discussed this in some detail in Nov 2004 What is the Low Cost Alternative. In the right hands it is a powerful tool.

Simply put it is an implied solution. Give me a set of economic and demographic numbers that will supply fully funded Trust Fund. That is what Low Cost does and has for a decade. As such it is also a touchstone. If you look at Low Cost and conclude that the economy will outperform those numbers then Social Security is saved to the degree you are confident with your judgement. Looked at in this light the career actuaries are doing nothing wrong, they are openly showing that any amount of Productivity growth above 2.1% saves Social Security. Their bosses don't allow them to say that openly, so they don't, the Report speaks for itself. Or would if anyone ever read it.

And Rustbelt the Social Security Trust Fund is legally separate from the Medicare Trust Fund. Whatever your feelings about government accounting and the overall soundness of the bonds it would literally take an act of Congress to somehow merge the Trust Funds or transfer funds from one to another. To say the least Congressional action on this is going to be a non-starter this year.

Ideologists will yelp and yammer, pragmatists who want to be reelected will move along: "Okay its not broke, lets change the subject".

Which will allow us to put some more honest numbers into the front end of the models and watch where that takes projected balances.

[calmo]

Which will allow us to put some more honest numbers into the front end of the models and watch where that takes projected balances
"us"? If only 'us' had some weight, some bearing on the directors/demolishers of the actual fund, no?
I do admire your optimism Bruce, but I'd feel way better if some of the accountants within the SSTF actually made a stand.
"There is no crisis." is all they have to say to make me think that there really is no general crisis in personal integrity within the bureaucracy.

[Bruce Webb]

Calmo you are missing the dynamic here. There is an inherent tension between Privatizers whose numbers are pinned to ridiculously low productivity numbers and Tax Cutters whose models would benefit mightily by being able to insert 3.0% productivity into their own models. As it is the President's Budget strikes a balance by predicting 2.6%.

Once Privatizers concede defeat you will see the Bush Administration unleashed to insert higher numbers. It makes tax cuts easier to sell by diminishing their impact going forward. Social Security Privatization is a huge drag on the rest of the Rightest Free Lunch economic program. And you know and I know that as much as they are dying to stick an ideological knife into FDR, money in the form of permanent tax cuts is what really talks to this crew.

"1.6% ultimate? Did I really say that? Jeez I meant 2.6% ultimate. And 2.9% shortterm" The transition will be tricky for them and no doubt long hours are being consumed with strategies for flushing "Social Security Crisis" down the Memory Hole.

That has been the fun thing about this debate all along. You can actually rescue private accounts for certain taxpayers, all without hurting lower income recipients, but only if you assume productivity at levels that prove Social Security is fully funded.

We will have some productive discussions about diversification of the Trust Fund. But only once the other side abjectly confess they were wrong on Solvency all along.

But make no mistake, the Club for Growth is wetting themselves at the prospect of inserting 3.0% productivity into their tax cut models. And their time may have come.

[Bruce Webb]

3.0% productivity goes a long ways to justifying tax cuts. Which in my view explains the suppression of productivity numbers in the Clinton era Reports (because it didn't begin with Bush, it only got more blatant). 'Save Social Security First' was in my opinion a cynical, yet ultimately good-intentioned attempt to prevent Republican tax cuts until the point that President Gore and hopefully a Democratic Congress discovered to their 'amazement' that Social Security was fully funded and Single Payer was affordable after all.

And we were only a few Diebold machines, a 'bourgeous riot' and a 5-4 Supreme Court decision from pulling the whole deal off.

[Emmanuel]

Damn good job, Bushie. The only question left is whether the deficit will hit $10 trillion by the end of Dubya Debt Lubber's term. Given the pace at which the government is plunging itself into debt hell, it should be a realistic
scenario.

The old adage must be updated for Bush's profligacy: a trillion here, a trillion there, pretty soon you're talking about real money.

[Orlowski Zygmunt]

Orlowski Zygmunt says...

Perpetual motion machines* (the latin term perpetuum mobile is not uncommon) are a class of hypothetical machines which would produce useful energy "from nowhere." The existence of a perpetual motion machine is generally accepted as being impossible according to current known laws of physics. In particular, perpetual motion machines would violate either the first or second laws of thermodynamics. Perpetual motion machines are divided into two
subcategories, referred to as perpetual motion of the first kind and perpetual motion of the second kind. There is a chance that the accepted laws of physics are wrong, but a lot of evidence is needed to regeneralize these.
P.S.
The conception of an energy is discreate one to the same as a imbecility. No one has seen the energy and no one has seen the imbecility. We are able to observe results of the energy and imbecility. At present we have got to few energy because we have got to much imbecility. Thank you for your time and interest.

[Orlowski Zygmunt]

Orlowski Zygmunt says...

METOZ will be able to create A NEW KIND OF CLEAN ENERGY.
METOZ IN THEORY IS THE PERPETUAL MOTION MACHINE.
My idea is very difficult for understanding. It is not difficult for engineer - mechanic, who knows very good the Pascal’s law and even-arm lever.

THE CLEAN ENERGY
The entire world is looking for a source of clean energy. I have discovered a certain paradox basing on which a machine called METOZ can be built which by harnessing the gravitation of our EARTH can produce clean energy.
The energy producing process is demonstrated in:
http://www.nets.pl/~metozor/paradox.html
and can be very easily confirmed by an experiment.
I am also in possession of a set of calculations which prove that the METOZ machine:
1/ does not consume water / 39 A5-pictures /;
2/ does not consume compressed air / 39 A5-pictures /;
3/ produces energy to the outside = 4 839 kGm during a „swing cycle” /39 A5-pictures /;
/ this is a „weight cycle” = the centre of gravity of the water in the METOZ machine sinks ( downward movement ) /
4/ energy is produced / released to the outside = 44 600 kGm during the „straightening cycle” / 39 A5-pictures /.
/ this is a “pressure cycle” = the water mass centre of gravity inside the METOZ machine travels upwards (upward movement) /
Features: 1/; 2/; 3/; 4/, of the machine owing to appropriate dimensions of individual elements of the lever mechanism.
The METOZ has an even-arm lever of a 1.72 m length. The centre of gravity of the lever lies beneath the lever suspension point. The METOZ is equipped with two cylinders of a 1.6 m diameter each. Piston sidewalls do not contact directly with cylinder walls. The lever swing changes between 0 and 25 dgr
Figures ( 3 x 13 x 4 = 156 ) present temporary, consecutive action situations at intervals of . The middle figure presents the machine and the side figures the position of the left and right cylinder and the mathematical description of these situations.
In the past I have made two models, which confirmed the legitimacy of my theoretical assumptions concerning the METOZ machine. I have got photographs.
I am looking for a person who would be interested in my invention. I can offer ample information. I look forward to hearing from you.

http://www.nets.pl/~metozor/three_levers.html

03 - 08 -2006 Gdynia, Polska Zygmunt Orłowski
P.S. The term “gravitational paradox” use in this description relates to the mathematical and physical description of the action of the METOZ-machine.
THE EARTH GRAVITATION CAN BE THE SOURCE OF CLEAN ENERGY

=============================================================

By
Orlowski Zygmunt
Poland 2006
index html
COMMENTS CONCERNING MACHINE “METOZ”
“METOZ” is able to realize the cycle “deflection” and the cycle “straighening.” Both cycles are in accordance with current physic’s laws. “METOZ” as machine can not work and hand over the energy because it would be inconsonant to the law of conservation of energy.
I propose to execute the following intelectual process:
we have found ourselves in the Europe of XVII century. We know the trigonometry in the scope of being occured for “METOZ.” We know what is the even-arm lever and moment of force too. Just appeears Mr. Baise Pascal / 1623–1662/ and he publishes his hydraulics law with adequated experiment. All thinkers are sure that this law is correct and quite real. This time someone invents machine “METOZ”. Now turn up the following questions:
1/ why the implementation of the cycle “deflection” is impossible?
2/ why the implementation of the cycle “straightening” is impossible?Both groups: opponents and followers of bulding “METOZ” live in XVII–th century and they not know that:
a/ the idea of an “energy” will be introduced into science scarlerly in mid. of XIX century,
b/ the law of conservation of the energy will be exist scarlerly after 1847 y.
QVESTION!!!
WHAT KIND OF RATIONALY ENTERELY / ARGUMENT/ CAN BE DREAMED UP THE OPPONENTS OF BUILDING THE MACHINE “METOZ’ IN XVII CENTURY.
==============================================================
Please open GOOgle and klick metozor and after : index of metozor At is site that explains technical details in easy to understand language. example : http://www.nets.pl/~metozor/for_greenpeace.html or
http://www.nets.pl/~metozor/energy_for_everybody.html
Everyone is able to build just the model of METOZ machine and test it. Please, have a look at http://www.nets.pl/~metozor/supplement.html Perhaps METOZ is some duplicating machine of a clean energy.
I am inventor and owner of Metoz machine invention. Everyone can take absolutely and legitimate the METOZ invention and build the Metoz machine. I can help only. I can not build METOZ. I am moneyless. Thank you for your time and interest.

[Orlowski Zygmunt]

Orlowski Zygmunt says...

Perpetual motion machines* (the latin term perpetuum mobile is not uncommon) are a class of hypothetical machines which would produce useful energy "from nowhere." The existence of a perpetual motion machine is generally accepted as being impossible according to current known laws of physics. In particular, perpetual motion machines would violate either the first or second laws of thermodynamics. Perpetual motion machines are divided into two subcategories, referred to as perpetual motion of the first kind and perpetual motion of the second kind. There is a chance that the accepted laws of physics are wrong, but a lot of evidence is needed to regeneralize these.
Physicists may try to test their knowledge of physics by proving, without using thermodynamics, that a proposed perpetual motion machine cannot work. Also, sometimes physicists will discover "apparent" perpetual motion in thought experiments. Such "paradoxes" expose .

[Orlowski Zygmunt]

Orlowski Zygmunt says...

It is something METOZ about.
http://www.nets.pl/~metozor/not_for_idiot.html
http://www.nets.pl/~metozor/cycle_str.html
http://www.nets.pl/~metozor/work_deflection.html
http://www.metozor.nets.pl/metoz.htm
http://www.nets.pl/~metozor/energy_exper.html
Thanks for understanding.

[Orlowski Zygmunt]

Something new METOZ machine about:
http://www.nets.pl/~metozor/prolog_for_metoz.html