Tuesday, July 25, 2006

The Bush Administration's New Stealth Plan to Cut Social Security Benefits

The Treasury Department has concluded that dynamic scoring of Bush's tax cuts would result in an increase of $90 Billion a year of GDP, in the long run, but only if the tax cuts are eventually paid for by slashing future government spending.

When is "eventually"? The treasury assumes it means "in ten years", or for now, in 2017. That is, if the govt continues to run big deficits between now and 2017, and then cuts spending to the level necessary to make the interest payments on the debt that builds up between now and then, then the economy would be bigger than if we start bringing in enough revenue now to match current spending.

Now, for those uninitiated, 2017 will be the last year when the treasury debt held by the Social Security trust fund does not have to make good on any of the few hundred billion a year of interest that is currently accruing. That is, Social Security still runs a cash surplus each year until 2017. Of course, the administration considers those particular treasury bonds to be worthless IOUs that never need to be repaid.

So, presumably, the adminstration would like to both default on the Social Security trust fund debt, AND cut spending to match the $3 Trillion or so of debt that will be racked up to finance Bush's tax cuts until 2017.

One wonders if any thought was given to the dynamic impact on the economy of throwing a bunch of starving elders onto the streets was given any consideration.

And, isn't it convenient to set things up so politicians ten years from now are supposed to make whopping big cuts in government spending, while partying on during the last few years when the Social Security trust fund runs surplusses?

Below is the conclusion to mull over. And remember, the static assumption of this budget exercise is that government spending would be cut from the BASELINE in 2017. That doesn't account for the known future liability of financing the baby boomer bulge through Social Security.

If, instead, the tax relief is extended only through the 14 end of the budget window (i.e., it is temporary), the tax relief would increase national output in the short run, but long-run output would decline as future tax rates increase.

That is to say, the freaking idiots running our country don't care if they steer the Titanic into an iceberg field.


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