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McCain on Bush’s Sad Fiscal Legacy

July 28th, 2008 . by economistmom

In a story to appear in Tuesday’s Washington Post, by Jonathan Weisman, Senator McCain comments on the $482 billion deficit the Administration now forecasts for fiscal year 2009:

Both presidential candidates used the new budget forecasts to bash Bush’s fiscal legacy, with McCain taking the biggest swing. The presumptive Republican nominee called the 2009 deficit “a sad legacy.”

“There is no more striking reminder of the need to reverse the profligate spending that has characterized this administration’s fiscal policy,” he said.

If Senator McCain really feels that way, then why is he proposing to continue said fiscal legacy–and beyond–with his platform of “super sized” Bush tax cuts?  Apparently the McCain campaign doesn’t recognize that the largest contributors to the “sad” fiscal legacy of the Bush Administration are the 2001 and 2003 tax cuts that have cost trillions of dollars and are far more profligate than any of the spending Senator McCain thinks he can get a handle on.

In a letter last year to House Budget Committee Chairman John Spratt, CBO wrote that the 2001 and 2003 tax cuts would contribute $245 billion toward a fiscal year 2009 deficit–which we now know represents more than half of it.  And in response to anyone who might criticize that estimate as being based on “static analysis,” note that the same letter discusses what accounting for the “dynamic” effects of the tax cuts does to the cost:

That [CBO] analysis [of the potential macroeconomic feedback effects on the cost of the 2001 and 2003 tax cuts] found that, on average, the economic effects of the budget’s proposals could add up to 2 percent to their cost or offset up to 9 percent of their cost.

So in other words, CBO’s analysis suggests that the best case scenario with dynamic feedback is that the Bush tax cuts contributed “only” $223 billion to the FY2009 deficit–or slightly less than half of it (46%).  (This is consistent with the Bush Treasury Department’s own dynamic analysis, which suggested at most a 10% offset–and only if the tax cuts were paid for with spending cuts, which we know they were not.  Here is a link to a Congressional Research Service memo by Jane Gravelle which translated the output effects presented in the Treasury analysis to the revenue offset.)

So if Senator McCain is looking for ways to cut the deficit in half, I’d suggest he do some self reflection and not just hunt down those evil earmarks. 

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