First Reactions to McCain’s “Jobs for America” Plan
July 8th, 2008 . by economistmomNo time tonight to pour through the various media reports/blogs/interpretations of the McCain economic plan released today, but it doesn’t take long to go through the document itself (14 pages). A few initial reactions, mostly from my fiscal-hawk perspective…
Even with the lack of specificity, it’s all too obvious that the plan offers far more ways of adding to the deficit than of trimming the deficit, in virtually every section of the report–including, most annoyingly, the fiscal responsibility section on pages 4-5. Let me walk you through how I get to being so annoyed about that section…
First, there’s the gas tax holiday, proudly listed on page 2 with the validation of the press pointing out that they would have “immediate effect” and would “save motorists…taxes.” (This reminds me of how the Bush Administration has repeatedly bragged about their tax cuts in the Economic Report of the President in terms of how much they have cost the Treasury, rather than what positive economic effects they’ve produced.)
Then there’s the “Lexington Project” (which unfortunately sounds like it could be related to the Concord Coalition, doesn’t it?…) for “energy independence” on pages 8-10, which is billed as a “comprehensive and integrated” strategy, yet instead seems to be a rather lopsided strategy of large subsidies to energy production and other subsidies (probably smaller) for consumption of cleaner technologies (i.e., policies that cost money), rather than a strategy based on policies that would discourage energy consumption (e.g., through a carbon tax that would raise revenue/reduce the deficit).
There’s the health care reform section on pages 11-12 that points out that “[w]ithin a decade, health spending will comprise twenty percent of our economy”–and yet offers no specifics and lists only vague options that sound largely focused on “waste, fraud, and abuse”-type savings, particularly in talking about the big programs of Medicare and Medicaid. There’s one health policy mentioned that I think might actually be (or could be structured to be) a revenue raiser: the refundable tax credit for health insurance, on page 12–if it’s meant as a replacement to the current tax expenditure (the largest one in fact) for the exclusion of employer-provided health insurance. (The McCain document doesn’t dare spell that out.)
To me, the document doesn’t convince me that the McCain team has figured out how to “flat line” federal health spending as a share of GDP, which leads to my real peeve about the overall “plan” in terms of how it pitches its fiscal repsonsibility. The most annoying passage is found in the so-called “Bi-partisan Fiscal Discipline” section on page 5 (my emphasis added):
Bi-partisan Fiscal Discipline: A McCain Administration will provide the leadership to achieve bipartisan spending restraint equivalent to that in the 1997 Balanced Budget Agreement between a GOP Congress and a Democratic President.
- In 1997, President Clinton and the GOP Congress agreed to balance the budget by restraining the growth in spending and cutting taxes over a ten-year period.
- With the same bipartisan effort today, with the federal budget that is now 70 percent larger, we could keep taxes low and still balance the budget by holding overall spending growth to 2.4 percent. Unlike Congress and the Executive branch in recent years, a McCain Administration will enforce the spending restraint to balance the budget and keep it balanced.
- A McCain Administration would perform a comprehensive review of all programs, projects and activities of the federal government, and then propose a plan to modernize, streamline, consolidate, reprioritize and, where needed, terminate individual programs. McCain could use the bi-partisan commission structure used for the Defense Base Realignment and Closure Commission (BRAC). Such a commission could be required to report to the President who would then submit the recommendations to the Congress for a straight up or down vote.
- A McCain Administration will review all special spending provisions to end subsidies to high-income individuals and corporations.
First, the Clinton Administration did not achieve fiscal discipline by restraining spending and “cutting taxes.” The Clinton Administration made the tough choices (and earlier than 1997) to restrain spending and raise taxes in order to achieve meaningful deficit reduction through both the spending and revenues side of the budget.
Second, how is it “bipartisan” to continue to take the hard line that all the fiscal restraint has to come from the spending side of the budget? The basic budget math says that if you insist on keeping revenues as a share of GDP at its 40-year historical average (to “keep taxes low”), then “enforcing spending restraint” means you’re going to have to do even better than ”flat-lining” government spending as a share of GDP–and that’s with all that spending on health care we know we’ll be doing and have little clue about how to control. (That 2.4% growth must be nominal?)
(And by the way, a lot of the fiscal restraint achieved during the Clinton Administration can’t be repeated–we can’t end the cold war again, for example. Plus, starting from the right policy foundation of fiscal discipline and the “virtuous cycle” that came from it, we also had at least a little good luck riding on some of that “irrational exuberance” that Greenspan used to talk about… Again, not likely to be repeated.)
Third, in referring to those “special spending provisions” and “subsidies” to those high-income individuals and corporations, does the McCain team include tax expenditures–all the spending the federal government does through the tax side of the budget? Somehow I doubt it, based on the language in the fiscal discipline section on “keeping taxes low,” and judging from the tax policy section of the plan (page 13) that doesn’t seem to include any plan to broaden the tax base but instead allows some tax rates to be kept Bush-Administration low and others to be made even lower. In other words, the tax proposals don’t provide for revenue-neutral, efficiency-enhancing tax changes (the types of changes characteristic of fundamental tax reforms), only revenue-losing, deficit-increasing ones–i.e., a continuation of Bush Administration tax policy.
Yet curiously, nowhere in their economic document does the McCain campaign specifically mention ”permanent extension of the Bush tax cuts”–which we know to be a key part of their economic platform, at least as constantly explained to their “base,” if not spelled out to the general public here (wink wink). Could it be that they don’t want to call attention to the fact that the “meat” of the McCain economic plan, when you get past the fluff (distractions?) of the waste, fraud, and abuse-type spending cuts (that don’t amount to “beans”), is really just continuing the Bush tax cuts?
There’s now a list of economists who endorse the McCain economic plan up on the Jobs for America website–including at least a couple whom I greatly respect. I would love for any of them to explain to me how they believe this plan realistically, and wisely, would eliminate the budget deficit in four years, and how any of them who might be less than thrilled with the Bush Administration’s record on fiscal policy can read between the lines (and fluff) of this McCain plan and see anything substantially different.
you said:
“First, the Clinton Administration did not achieve fiscal discipline by restraining spending and “cutting taxes.” ”
Capital gains taxes were cut. Fiscal discipline? You mean like HllaryCare? Only a Republican Congress stopped that abomination. If you think health care is expensive now, what do you think a Clinton budget would look like with socialized medicine? By fiscal discipline I think you mean the stalemate created by a Republican Congress and a Democrat President.
Also you said:
“Second, how is it “bipartisan” to continue to take the hard line that all the fiscal restraint has to come from the spending side of the budget? ”
And why does it always have to come from increased taxes? How about reduced spending because it is not the government’s money? The fact that our government is a poor steward for handling our money? That bigger government abridges our freedom and reduces our economic vitality?
you said:
“and that’s with all that spending on health care we know we’ll be doing and have little clue about how to control. ”
You mean the government, 3rd party payment system has no clue. The market would work if you let it but Democrats continue to cling to socialistic/Roosevelt policies of central planning. The real world has to make decisions and tradeoffs everyday. Only the gov’t assumes that there are no tradeoffs and we can spend our way out of any mess.
Diane,
As usual, great post.
And as usual, McCain leaves me longing for the McCain of 2000.
FYI http://www.nytimes.com/2008/07/08/us/politics/08econ.html?_r=1&ref=politics&oref=slogin
Check out the last paragraph. Looks like someone bought Holtz-Eakin a shiny, new shovel.
By the way, the article places Phil Gramm on the deficit hawk side. I know he was behind Gramm-Rudman in the 80s, but isn’t he more of a “free lunch”, “have our cake and eat it, too” kinda guy — i.e., a believer that if we keep cutting taxes, the combination of supposedly very large revenue feedback effects plus supposedly realistic spending cuts will supposedly reduce the deficit?
(I emailed you the above article before I saw that you had posted on the same topic today)
Why wouldn’t this work?
http://aei.org/publications/filter.all,pubID.27497/pub_detail.asp
I find it odd that in a document entitled “Jobs for America” McCain barely mentions the education system. In my opinion the largest ingredient for job creation in our country is improving the public school system, yet McCain only passingly refers to education in his section about trade, making no specific recommendations for what he would do to improve the quality of education our children receive.
This plan reminds me of the Obama campaigns proposals, lots of feel good rhetoric with little to no actual substance regarding how they would accomplish their stated goals.
My post on this topic mainly asked folks to read your excellent post. Bruce Webb commented that your blog has become required reading for him. For me too and it should be required reading for all voters.
I wonder if the economists listed on his site are lies as well. But in all seriousness, it’s almost amusing how he has one or two good ideas but so many bad ones that he ends up looking senile.
For example in the first section, I really, really like the rolling back corn of corn ethanol mandates. I’ve been waiting for the candidates to promise 0that since the campaign started. But right before that he talks about not only the gas tax holiday, but repealing the imported sugar cane ethanol tax. And before that he talks about reducing dependence n foreign oil. So he is encouraging the same problem that he promised to stop.
Anyway, the point is there are one or maybe even two ideas that I like here, but they’re mixed in with so much BS that I’m starting to like Obama’s economic plan much more.
‘…Phil Gramm on the deficit hawk side. I know he was behind Gramm-Rudman in the 80s, but isn’t he more of a “free lunch”, “have our cake and eat it, too” kinda guy…’
Not at all. In addition to the original GRH of 1986, he authored the revision to it in 1987 after the Supreme Court found the sequestration procedure in the original unconstitutional.
From there, he authored the spending controls in the Budget Act of 1990. Those controls were ultimately responsible for the budget surpluses of the late 90s.
McCain having him as an adviser is more telling than anything in this political press release.
Oh Lord - rightwing troll Patrick R. Sullivan has found this blog. Even EconomistMom as patient as she may be will soon tire of this troll. Meantime over at Angrybear - we hae Sullivan’s minny-me (GOP troll with FA as the name) trying to mock EconomistMom by noting that we did cut the cap gains tax rate in 1997. DUH FA - we all know that. I do declare - with all the money the GOP spin machine has - one would think they’d be able to hire better trolls. Oh yes, we balanced the budget by cutting nondefense spending as a share of GDP - NOT!
Patrick,
Anyone who is advocating huge, broad tax cuts as we face an enormous long-term fiscal imbalance cannot be accurately described as a deficit hawk, even if he were advocating sufficient specific spending cuts to sufficiently mitigate this imbalance (because cuts of that magnitude are not realistic politically), but particularly if he is not.
Of course, if you buy into the “tax cuts always increase revenues” nonsense, then you see no conflict. I don’t, so I do.
Brooks, you have completely ignored what I wrote in response to your claim about Gramm, in order to change the subject.
As for pgl, well I’m not surprised that the economist who refuses to grow up, disagrees with me…still. Who should I believe, him, or former Clinton OMB official Alice Rivlin writing in 1999:
http://www.brookings.edu/opinions/1999/1112federalbudget_rivlin.aspx
‘The stunning success of this decade began when President George Bush and the leaders of Congress hammered out an agreement in 1990 that raised some taxes and set explicit caps on future discretionary spending. The effect was not immediately apparent because the recession the next year cut revenues, but the groundwork for a falling deficit had been laid.’
From this press conference–3-1/2 years prior to her NY Times Op-ed quoted from above–it’s clear why Rivlin credits the spending controls in the Budget Act of 1990:
http://www.presidency.ucsb.edu/ws/index.php?pid=49464
‘ Three words describe this budget: balance, reform, investment. With respect to balance, the Clinton administration has a strong record on deficit reduction already. The deficit, as you all remember, was $290 billion in 1992, the year before we came on board. It was down in the last fiscal year to $164 billion, 1995. Our estimate for this year, 1996, is $146 billion.
….
‘ This budget lays out a plan for finishing the job — balancing the budget by 2002. We believe that our plan would reach balance in 2002, using the economic and other assumptions of the Congressional Budget Office. But we can’t be absolutely sure of that, so we have put in an insurance policy. If the Congressional Budget Office revises its economic outlook and its estimates in such a way that our budget does not reach balance in 2002, we propose additional discretionary spending, lowering of the discretionary caps sufficient to close three-fourths gap, whatever it is. Our budget will reach balance in 2002, even if the Congressional Budget Office changes the estimates.’
She, along with everybody else, was taken by surprise by the movement from deficit to surplus. Congress was ‘cutting’ spending, not knowing about the surge of tax revenues thanks to the dot.com bubble. They were required to reduce spending because of Phil Gramm’s input in 1990.
Keep talking bombastically, making personal attacks, and changing the subject, PRS. Somewhere, the person in a mirror cares. Why can’t you respond to the points in the post by economistmom?
The government has to both stop spending and increase taxes. Billion-dollar deficits are inane. This isn’t about democrat or republican - it’s about getting the job done.
Call it balanced, call it thorough, call it whatever you like — the sum total of governmental expenditures must be matched by the tax dollars brought in. Nothing off-balance-sheet, no kickbacks to Cheney, no tricks.
Republicans won’t do it because they don’t care about America - they care about Wall Street. Troll away, you crazy diamond!
Unsympatheric,
I responded, specifically, to a question asked by another poster. The way you can tell, is that I bothered to quote that question:
‘…Phil Gramm on the deficit hawk side. I know he was behind Gramm-Rudman in the 80s, but isn’t he more of a “free lunch”, “have our cake and eat it, too” kinda guy…’
I responded with specific, historical facts. Which were ignored by the poster to whom I was addressing.
Then, the Peter Pan of the economics profession, lost control of his emotions–his SOP–and challenged my analysis. To which I responded by pointing out that Alice Rivlin agreed with me. Quoting an Op-ed of hers in 1999.
Then I reinforced that quote with remarks from Rivlin at near the time of the turn from budget deficit to surplus, to show that she (and others in the Clinton Admin) was taken by surprise by that development; i.e. it wasn’t in their plan.
Now, my specific question to you: How does quoting Alice Rivlin constitute ‘talking bombastically’?
And, I hope EconomistMom appreciates the children she’s adopted.
Patrick,
Brooks, you have completely ignored what I wrote in response to your claim about Gramm, in order to change the subject.
Incorrect, and incorrect.
I acknowledged in my initial comment that Gramm was behind Gramm-Rudman (Gramm-Rudman-Hollings), so obviously I’m acknowledging that he has tried very hard to restrain/reduce spending. I listened to and considered your additional information, which didn’t add that much to what I had already acknowledged, but pointed out that there was overriding evidence supporting my suspicion that Gramm is an advocate of irresponsible tax-cuts, namely his support of McCain’s tax plans. As a note, I also vaguely recall Gramm advocating tax cuts and making the Bush tax cuts permanent over the years, which again supports my suspicion.
So, no I didn’t “ignore” what you said at all, and no, I wasn’t trying to change the subject. You flatter yourself way too much by presuming that I would need to avoid debate with you.
Brooks, you did ignore my central point–Gramm was the driving force for the spending caps in the Budget Act of 1990. You’re still ignoring it.
Patrick,
Work on the reading comprehenstion / listening skills. How many times do I have to acknowledge that Gramm has fought for lower spending before you’ll stop saying that I’m ignoring your point to that effect?
He did more than ‘fight for lower spending’, he actually achieved it. There isn’t a single politician in America who can claim more credit for the actual budget surpluses of the late 90s than Gramm.
And, to be pedantic, Gramm-Rudman-Hollings isn’t the same thing as the Budget Act of 1990. You’ve had no comment whatsoever about the effects of that.
Patrick,
Geez, Louise, are you putting me on or something?? Is this some experiment in which you try to be as obtuse and difficult as possible to observe my reaction?
I’m just about out of patience, but I’ll try again. GRAMM FOUGHT FOR LOWER SPENDING. I’LL ACCEPT, ARGUENDO, THAT HE ACHIEVED IT TO A SUBSTANTIAL EXTENT.
ok? Got it? Or do I need to type more slowly?
ok, now if you’re still with me, my point upthread still holds. His position now on taxes (and, if my recollection is correct, his past advocacy of tax cuts over the past several years) demonstrate to me that he is not fiscally responsible. Put simply (again), advocating huge tax cuts in the face of a huge, unsustainable long-term fiscal imbalance and the political limitations on spending restraint/cuts is fiscally irresponsible.
I don’t think I’ll go around in another circle with you on this matter. If you’re looking for a partner in some Abbot & Costello “Who’s on First” routine, find someone else (and do it with more wit so at least it’s somewhat amusing rather than just being simple, annoying obtuseness).
Brooks, re Gramm, to see who a guy is look at what he actually does over a long career, not what he says in a campaign.
Surprise, surprise, he doesn’t have McCain saying, “I’ll raise taxes and cut everybody’s favorite spending!” He wants to win, not lose.
Meanwhile on the other side even Krugman is complaining that Obama is promising national health care without promising the tax increase to pay for it. Obama wants to win too. (That’s playing to all the “national health care is free, all you have to do is cut out all the waste imposed by the insurance companies” votes on the left. And tax hikes don’t win votes anywhere.)
Shall I list the campaign promises Clinton threw overboard the week after the election?
Do we remember that in 1932 FDR’s campaign platform was to balance the budget by cutting waste and job holders from the federal government — and that in 1940 he was out making speeches saying “I’ve said it before and I’ll say it again and again and again, none of your sons will be going to any foreign wars”, even after he’d already started the shadow war in the Atlantic?
All this parsing of campaign economic platforms is pointless — *none* of it is serious economic proposals, all of it is posturing to secure the base and get the next marginal voter from the middle. Both sides.
It may be distasteful to some of us, but it’s the price of Democracy.
Jim,
Yes, you make a worthwhile point, BUT:
- just as sometimes campaign promises are sometimes abandoned (or substantially changed), they are also often pursued once in office (e.g., the Bush tax cuts), and I’d say that the latter is more often the case, and even in the former case, the promises mark a point from which deviation becomes increasingly difficult.
- If I recall correctly, Gramm has advocated tax cuts all along, both as a Senator and since, so it’s not just what he’s saying now to support a campaign.