Beltway Bulletin

March 22, 2010

By Phil Carver

For up-to-date reports on many progressive issues, see the Center for American Progress at www.americanprogressaction.org/ and the Gristmill at http://www.grist.org/news/. For justice issues, see the American Civil Liberties Union (ACLU) at www.aclu.org/. For the issues of peace, national defense and the Iraq and Afghanistan wars, see the Friends Committee on National Legislation (FCNL) at www.fcnl.org/. For the issues of energy and global warming, see the Union of Concerned Scientists (UCS) at http://www.ucsusa.org/ and the Natural Resource Defense Council (NRDC) at www.nrdc.org.

Federal Debt vs. the Current Deficit

It is important to distinguish between the accumulated federal debt and the federal deficits that are forecast for the next two years. The accumulating federal debt is a problem that must be solved in the next 10 years. The projected federal deficits through October 2011 are a not a problem and are too small rather than too large.

The reason for this paradox is the recession. This recession has been the largest since 1980 and may turn out to be even larger. The early 1980s recession was solved by massive deficits, as was the Great Depression. This is well established economic theory. The stimulus bill passed early last year was just big enough to get the economy to bottom out. We are still at bottom.

Over half of the current deficit is decreased federal revenues and increased federal spending, due to the recession. Much of the rest is direct payments to cities, counties and states to avoid cuts to local programs when they are most needed. With one exception, states do not have a mechanism to borrow to cover deficits during a recession.

Over the last two years the U.S. economy lost 8.5 million jobs. January saw no job gains. February may see a negligible gain. Without the massive federal payments of the last two years, the economy would still be in free-fall. Only massive deficits will pull us back to anything close to full employment.

But in two or three years, Congress needs to reduce the deficits. That doesn’t mean that Congress should look to reduce Social Security benefits. The unsustainable deficits are driven by growing health care costs (Medicare and Medicaid) and military spending – not social security payments.

Congress could begin to reduce federal health care costs by strengthening and passing health insurance reform. Congress could cut U.S. military spending in half without reducing U.S. or world security. Income taxes could be raised or tax breaks reduced to balance the budget. U.S. tax rates are low by world standards. If Congress fails to use these techniques to reduce deficits over the next 10 years, it risks massive devaluation of the U.S. dollar and even a U.S. economic collapse.

Social Security

The Social Security (SS) Trust Fund is not part of general federal revenues. SS benefits are paid from this identified fund. Only SS payroll taxes go into the fund. The tax rate (employer plus employee) is 12.4 percent on earnings up to $106,800 on an individual. For all investment income and for earned income over $106,800, the tax rate is zero. Therefore, wealthy families pay a lower social security tax rate than the poorest families. For a family earning a million dollars a year, the rate is 1.3 percent of income.

Because retirement by the baby boomers has been largely anticipated, the fund built up a large surplus. The fund will begin drawing on the surplus in 2016. The    “… deficits [between cash inflows and outflows] will be made up by redeeming trust fund assets until reserves are exhausted in 2037, at which point [SS] tax income would be sufficient to pay about three fourths of scheduled benefits through 2083.” http://www.socialsecurity.gov/OACT/TRSUM/index.html.

The SS funding gap after 2037 can be solved by raising the SS tax cap on earned income, taxing unearned income or by reducing benefits to seniors with higher incomes.

While there isn’t a problem for the SS fund, there is a large concern ahead for the federal government’s general fund. The SS fund’s surplus was loaned to the general government. Beginning in 2016 the general government will have to start repaying the loan so the SS fund will be able to pay benefits. This is another challenge for Congress, and one that must be addressed soon.

The Federal Debt

There are two debt numbers. The total debt includes the debt owed by the general government to the SS Trust Fund. The government does not have to sell bonds to the public to cover that part of the debt. The Census Bureau estimates there are 117 million U.S. households. Dividing that figure into the gross debt — also known as “total public debt outstanding” — does indeed yield a figure of $105,143 [per household]. But using the figure that economists generally find more relevant — “debt held by the public” — the debt works out to be a less dramatic number — $66,531 per household. http://factcheck.org/2010/01/obamas-state-of-the-union-address/.

The overall annual federal deficit includes net revenues from both the SS Trust Fund and the general government. Until now, SS fund surpluses covered part of the deficit by the general government. After 2016 that cushion is gone.

Seniors are politically powerful because they vote and because they know how to organize. If Congress tries to raid the SS trust fund, they will likely be voted out of office.

Obama’s Energy and Global Warming Plans

The Obama adminstration plans to invest $150 billion over 10 years in energy research and development to transition to a clean energy economy. While “clean” includes nuclear power and carbon capture and storage (CCS) for coal power, much of this money will go for renewable and energy efficiency energy programs, transmission investments needed to bring wind power to cities and new kinds of electric car batteries. In addition, there is $8 billion over 10 years for intercity passenger rail.

The administration remains committed to capping greenhouse gas emissions. Obama continues to support a comprehensive approach to transform our energy supply and slow climate change.

The Administration will work to enact and implement a comprehensive market-based policy that will reduce greenhouse gas emissions in the range of 17 percent in 2020 and more than 80 percent by 2050. Businesses will have the flexibility to seek out the most profitable and least costly ways of achieving greenhouse gas emission reductions, from making investments in energy efficiency and low-carbon or zero-carbon fuels to offsetting their emissions through agricultural activities that remove carbon dioxide from the atmosphere.

The Budget eliminates tax preferences and funding for programs that provide inefficient fossil fuel subsidies, which impede investment in clean energy sources and undermine efforts to deal with the threat of climate change. We are eliminating 12 tax breaks for oil, gas, and coal companies, closing loopholes that will raise $36 billion over the next decade.http://www.whitehouse.gov/omb/factsheet_key_clean_energy/ and http://www.whitehouse.gov/sites/default/files/fy2011-innovation-fact-sheet.pdf.

Tethered Wind – Emerging but Ignored by the Feds

In November the first major U.S. conference on tethered wind energy was held at Chico State University in California. Tethered wind (a.k.a. high altitude wind power) is turbines hung at the end of cables at altitudes of 10,000 to 30,000 feet. The wind energy at that altitude is five to 10 times more powerful than that found at ground level.

This technology has many challenges. The turbines will have to be flown back to the ground when winds are too weak or too strong. Problems with icing of turbines and cables and lighting strikes have to be solved. General aviation will need to be restricted from large areas where tethered turbines operate.

Yet this technology holds as much or more promise than CCS coal or new nuclear plants. CCS coal faces all the problems associated coal mining and ash disposal. The technology to permanently store CO2 underground is still in the research-phase of development.

Nuclear must address permanent disposal of wastes and nuclear weapons proliferation. There is not enough of the uranium 235 isotope for once-through nuclear fuel use to be major part of solution to global warming. To extend these fuel supplies a thorium-uranium fuel cycle will have to be developed. Recycling plutonium would create unacceptable proliferation risks.

Tethered wind could be used in the U.S. Midwest and the South. Other renewable technologies are not commercially viable there. Geothermal, biomass and conventional on-shore and off-shore wind resources are not plentiful in those areas. Solar is not yet commercially viable without large subsidies. Transmitting conventional wind energy from the Great Plains or from off-shore turbines along the East Coast to the Ohio River Valley or the South will be expensive. This lack of commercially competitive renewable options is one of the reasons that senators from those states oppose federal subsidies for renewable energy.

Tethered wind is being developed by several start-up companies. They need help from the federal government to better understand high altitude winds. They need help on small-scale research and demonstration projects. Similar projects are being promoted across the globe. China is rumored to be planning their first high-altitude wind power project near the city of Foshan in Guangdong Province. The project could be on-line in 2011 or 2012.

The Journal Nature reported in 2009 that Sky Windpower is developing an unmanned helicopter design with four horizontal rotors that would hover at altitude. Shepard says he plans to send a prototype with four 2-metre rotors aloft this year to collect electricity at a few hundred metres.”

See http://en.wikipedia.org/wiki/High_altitude_wind_power.
See also http://www.jobyenergy.com/img/news/high_hopes.pdf. 

Phil Carver, a former OPW Board Chair, writes this column exclusively for each issue of The PeaceWorker. He worked on energy and climate change issues for Oregon state government from 1980 until 2009. He earned a Ph.D. in natural resource and utility economics from the Johns Hopkins University in 1978.

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