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I.O.U.S.A. is the front page Business section story in the Washington Post today!  Alas, no naming of The Concord Coalition or our star Bob Bixby; Bob is basically dubbed a stunt man–and Dave Walker gets “action hero” billing.  As writer Frank Ahrens puts it:

…Early reviewers have dubbed the film “An Inconvenient Truth” for the economy, meaning it’s not exactly the feel-good movie of late summer 2008.

Except for budget wonks in love, it hardly counts as a date movie. The film’s thrilling action sequence has a guy going to a refrigerator for a Tab. There are no car chases and nothing blows up.

Except, possibly, for the entire economic future of the United States.

“I.O.U.S.A.” offers up as its action hero David M. Walker, former head of the Government Accountability Office. With movie-star looks that scream “accountant” rather than “Terminator,” Walker has been the Cassandra — or Chicken Little — of America’s growing deficit for some time…

Check out the reference to Arthur Laffer later in the article, who is held up as if he’s the only kind of naysayer when it comes to the “heading off a credit cliff” message.  That won’t make entitlement-status-quo types happy…  (Laffer is not interviewed in the movie although there are old clips of him from the “Reaganomics” days.)

And here’s the reminder of where and when at the end of the Post article:

The film will debut in 400 theaters around the country on [Thursday] Aug. 21, followed by a live video town hall meeting from Omaha, featuring Walker, Peterson and Buffett. The next day [Fri., Aug. 22], the film opens in 10 cities, including Washington.

You can go to the Fathom Events (the promoter’s) website to find out if the special premiere/town hall event will be coming to a theatre near you.

Thanks to Jeffrey for pointing out an opinion piece by Martin Feldstein in today’s Wall Street Journal, entitled “The Tax Rebate Was a Flop.  Obama’s Stimulus Plan Won’t Work Either.”  Feldstein points to what he considers a disappointing effect of the stimulus checks on household spending (emphasis added):

Recent government statistics show that only between 10% and 20% of the rebate dollars were spent. The rebates added nearly $80 billion to the permanent national debt but less than $20 billion to consumer spending. This experience confirms earlier studies showing that one-time tax rebates are not a cost-effective way to increase economic activity.

Feldstein cites recent aggregate (GDP) data as well as a household-level analysis by Christian Broda (U. of Chicago business school) and Jonathan Parker (Northwestern U. business school), all of which show that consumers don’t seem to be consuming that much.

Feldstein’s disappointment comes out of a narrow measure of fiscal policy “success” in this context as how much of an immediate, short-term boost to consumption is provided.  That is indeed the concept of countercyclical “fiscal stimulus,” and that’s indeed how we came to giving out those stimulus checks.  I’m just not sure how one starts with that definition of an effective stimulus, however, and gets to a call for more tax cuts for the rich.  (A more effective stimulus, as Feldstein himself acknowledged before the stimulus was passed, would have steered a larger proportion of the stimulus dollars to lower-income households, via food stamps, for example.)

But there’s always a tradeoff in pursuing short-term boosts to the demand-side of the economy, because if consumption is encouraged, then saving is necessarily discouraged (at least temporarily).  We can’t immediately increase both consumption and saving at the same time.  Only through saving can we over the longer run increase consumption and saving at the same time (through higher incomes).

So how bad is it that only about 20% of the stimulus checks were immediately spent?   I prefer to look on the bright side.  First, Broda and Parker point out that the 20% is only within the first month after receipt and that their calculation does not include any potential multiplier effects (as those extra sales dollars translate into incomes for businesses and households and get spent again).  Second, this immediate response is similar, or maybe even slightly higher than, the experience with the 2001 tax rebates, which Broda and Parker point out “have been credited with helping end the 2001 recession”–and which over six months eventually produced additional spending that was about two-thirds of the rebate checks.

But mostly, the bright side is that eventually, over even more than six months I mean, the stimulus checks will be spent, even if they’re immediately being saved.  Spreading out the consumption made possible by the checks is not at all a bad thing for the economy in a broader-than-immediate-stimulus sense.  What it means is that the stimulus checks were partly good for the short-term economy, and partly good for the longer-term economy.  In an economy that faces current problems that are clearly not just cyclical in nature, it seems quite prudent to diversify our policy portfolio among pro-growth (longer-term) as well as pro-consumption (shorter-term) fiscal policies.  And in an economy that’s so “gloomy,” would you really expect (smart) households to gleefully run into the stores with their rebate checks, to shop til they drop?

The fact that the stimulus package was deficit financed was already a dent into national saving, which was always a worry that thankfully kept Congress and the Administration focused on the “three Ts” (timely, targeted, and temporary) as criteria for cost-effective stimulus.  To the extent that the stimulus checks “fail” to deliver immediate consumption, they “succeed” in providing some offsetting increase in personal saving (or decrease in personal indebtedness) and hence some increase in future consumption.  And no matter how they are used, the stimulus checks have provided a small boost to the incomes of tens of millions of American families who were surely made better off by them.  In that sense the stimulus checks will probably prove to be worth the price of $100 billion in additional debt, especially if we’re convinced the policy hasn’t jeopardized our prospects for economic growth over the longer run.

Feldstein segues from his critique of the tax rebates to a critique of the Obama tax plans this way (emphasis added):

The small rise in spending in response to these tax rebates is similar to what previous studies of one-time tax cuts found. It also corresponds to what both basic economic theory and common experience imply. Although someone who receives a permanent annual salary increase of $1,000 typically would increase his annual spending by an almost equally large amount, a $1,000 rise in wealth caused by a share price increase or a tax rebate would raise spending only gradually over a number of years.

All of the evidence on one-time tax rebates implies that the Obama plan to send $1,000 rebate checks would do little to raise consumer spending and stop the decline in employment. If the past is an indicator of what would happen, the $65 billion he proposes to spend on this plan would raise consumer spending by only about $10 billion, or less than one-tenth of 1% of GDP.

The distinction between one-time tax rebates and permanent changes in net income is also important for the debate about Mr. Obama’s proposal to raise income and payroll taxes. Because those tax increases would be permanent, they would cause a substantial reduction in consumer spending and aggregate demand. Moreover, as taxpayers begin to focus on the possibility of such a future tax hike, they will reduce spending without waiting for such legislation to be enacted. If Mr. Obama is looking for a way to stimulate the economy, he could begin by discarding his proposal to increase future taxes.

This is an odd line of reasoning coming from Marty Feldstein, who’s one of the best supply-side fiscal policy experts around, because he throws out all considerations of the supply side in this critique of the Obama strategy.  First, of course a permanent annual salary increase of $1,000 (to be repeated over and over again) would surely increase consumption by more than a one-time $1,000 check, as in both cases the consumer tries to spread it out over time–and of course it would cost a lot more as well.  (If you’re going to compare the economic benefits of a permanent tax cut with those of a one-time tax rebate, you have to consider as well the cost of the tax cuts and how they are financed.)  Second, it’s not clear that Senator Obama would define “success” in his $1,000 rebate proposal the same way that (supply-sider?) Feldstein would–whether Obama views the goal or purpose of the rebate as having households immediately spend the money, rather than just having households immediately have the money (to spend over time as they choose).  Finally, opposing Obama’s proposals to increase taxes (or not extend tax cuts) on supply-side grounds is one thing that can be debated, but it’s more than a little surreal to see Feldstein suggest here that such tax increases would be bad for the economy on demand-side grounds because they would decrease consumption (i.e., increase national saving).

It’s time to more thoughtfully consider the balance between short-term and long-term fiscal policies, in dealing with an economy that clearly has a mix of short-term and long-term challenges.  As reported in this AP story by Martin Crutsinger, Congress will consider another round of stimulus when they return in September.  See if you can spot the evidence of how much the economy is weighing on the minds of policymakers–and the press–in this part of Martin’s story: 

House Speaker Nancy Pelosi says the House will vote on a second stimulus package when it returns in September from its August recession. The Bush administration opposes it in part because it could drive the budget deficit higher.

The short answer is “no.”

My last two posts mentioned a National Journal interview of House Appropriations Committee Chairman, David Obey (D-Wisconsin), and his critique of fiscal hawks as preoccupied with the federal budget deficit when there are much more pressing “deficits” to attend to.   As Chairman Obey puts it (my emphasis added):

I am very, very tired of one-dimensional politicians who simply talk about the deficit. In fact, we’ve got a hell of a lot of deficits. We’ve got a budget deficit. We’ve got an education deficit. We’ve got a health care coverage deficit. We’ve got a scientific research deficit. We’ve got an infrastructure deficit. This country has neglected for a long time so many of the basic investments that we need to make this country strong over time. And we also have an equity deficit, a fairness deficit. I want to know that we’re going to attack all of them.

The number that counts economically is not the year-to-year deficit number. If you have the heart of a CPA, then that’s the only thing that matters to you. But if you are a public policy person trying to figure out how to strengthen this country and how to strengthen the ability of this economy to produce for everybody in the economy, then you need to look at things in a hell of a lot broader way.

Chairman Obey goes on to explain that:

…When Henry Ford decided he was going to mass-produce cars, what’s the first thing he did? The first thing he did was to raise the wages of his workers to five bucks a day. He did that not because he was altruistic, he did that because he knew that you had to pay people good wages in order to get quality workers. Secondly, he knew that you had to create the ability for consumers to actually buy things. The economy doesn’t function if people can’t buy things, if they can’t afford to. And so he took the action that most businessmen should have taken in stimulating the ability of consumers to afford to buy whatever is produced. That example was not followed by a hell of a lot of people.

Well, yes, I know… you can see there’s a “hell of a lot” of Chairman Obey’s attitude in that interview…

But the point is that Chairman Obey is suggesting that having fiscal responsibility as a policy goal runs contrary to those other goals–such as adequate investments in our public goods and services, and a higher standard of living that’s broadly shared among Americans.

And Joe Klein, in this week’s Time magazine, seems to be suggesting a similar tradeoff, in his column on “The Recession Election” (again, my emphasis added):

[O]n July 28, Barack Obama held an economic summit with his covey of advisers — people like Bob Rubin, Larry Summers, Warren Buffett, Bob Reich; experts who seemed a sedimentary layer more recent than McCain’s crowd but still more a part of the past than of the future. They had cleaned up the Reagan-era mess. They had actually balanced the budget and created a surplus. They had — contra voodoo — raised taxes and yet produced an economic boom. There was a fair amount of argument behind closed doors, I’m told, between the two groups that sparred at the dawn of the Clinton era, the deficit hawks and the populists. In the end, though, there was a general agreement on the need for more government activism. Obama isn’t even pretending to balance the budget. His claim to pay for the things he proposes rests on loaves-and-fishes premises, especially the prospect of a Congress mesmerized into acquiescence on controversial issues like raising taxes to Clinton-era levels and closing corporate loopholes. But Obama’s economic proposals — especially the $21 billion per year he wants to spend on alternative energy and infrastructure projects — represent an acknowledgment that the economic conversation has to change, that the old order faileth.

I disagree with the suggestion that fiscal responsibility means setting aside those other priorities–in fact, I believe that those other priorities are exactly why fiscal responsibility is needed.  What our government needs to be spending more federal resources on–be it infrastructure, health care, education, or income security–is a separate consideration from how that additional spending should be financed.  There’s no reason to think that deficit-financing is a necessary part of a more “activist” government that “does better” for the people–even if such government is defined as bigger as well as better.  In fact, those other economic goals Chairman Obey lists–greater investments, higher real wages, and increased standards of living, are all best accomplished through higher national saving–i.e., reducing budget deficits, not increasing them.

Fiscal policies that require deficit financing in the proper execution of their economics are rare, unless you’re talking about short-term (countercyclical) fiscal stimulus rather than fiscal policies designed to produce longer-term economic benefits.   (Even then, in theory at least, one could design a countercyclical fiscal policy that did not add to the budget deficit, by simply redistributing income from the rich to the poor.  It’s also likely that short-term stimulus that is fiscally responsible over the longer term would have a bigger short-term stimulative effect than a similar policy that involves longer-term increases in the deficit.)

Now, I will admit it may be true that fiscal policies execute better politically when deficit financed, as that seems to create only “winners”–at least among current voters.  (That’s why deficit reduction is not a great issue to campaign on, even though it’s critical for the policy agenda of the next President, once he’s in the White House.)

Taking a fiscally-disciplined approach in pursuing those broader policy goals is likely to increase the chances that such policies will “succeed” in achieving those goals, even apart from the benefit from greater national saving and a richer economy from which to draw.  That’s because trying to live within a budget constraint forces more thoughtful policies, as we’re more likely to seek to maximize economic “bang per buck,” to prioritize our most critical spending needs, and to find the most efficient ways of raising revenue.

So fiscal discipline should not be considered a roadblock to better government, as in fact, better government can be encouraged by fiscal discipline.  Abandoning fiscal discipline would allow us to indiscriminately expand government, making it all the more likely that “bigger” would come without ”better”–and with the costs of those sub-optimal policies pushed off to our children and grandchildren.  A more thoughtful consideration of this better (and maybe bigger) government we desire would be one that comes up with a government we conclude is worth paying for.  And if at the same time such fiscal responsibility helps keep national saving and our economy strong, then paying for it becomes even easier over time.

Here’s something I wrote for the new-and-improved Concord Coalition website (check it out, although we’ve still got some immediate updating we’re working on)…this is for the “policy discussion” to support our I.O.U.S.A. (the movie) page.  This describes the “four deficits” that the movie is organized around:

America’s Four Deficits

The movie I.O.U.S.A. is organized around the “four deficits” that David Walker first spoke of while he was Comptroller General of the United States.  In a speech before the U.S. Naval Academy in March of 2007, Walker explained the interrelationship of these deficits-that “[t]ogether, these deficits have serious implications for our future role in the world, our future standard of living, our future domestic tranquility, and even our future national security.”  These deficits are:

• The Federal Budget Deficit: The U.S. federal government has been living beyond its means, spending more on public goods and services than it collects in tax revenues-the difference being the budget deficit. Although fiscal discipline coupled with a strong economy brought a return to surpluses in the late 1990s, since 2001 the fiscal outlook has deteriorated dramatically, and the federal debt-the cumulative sum of annual deficits since the start of our government-has increased by trillions of dollars. While the recent budget deficits are the result of a combination of extravagant tax cuts, a costly war, lack of effective budget controls, and a relatively weaker economy, the much larger budget deficits projected in the decades ahead are largely explained by a growth in entitlement spending that will outpace the natural growth in tax revenues, due to demographic changes (a swelling in the numbers of older Americans relative to younger Americans) coupled with rising per-capita health costs. Budget deficits are like the government’s “credit card”. They threaten future standards of living because the borrowed money must eventually be repaid, with interest, in the form of higher taxes or reduced government services-there is no such thing as a free tax cut or a free government program. In the meantime, today’s budget deficits represent negative public saving that directly subtracts from our national saving-and hence the size and strength of the U.S. economy going forward.
• The Savings Deficit: American households have been living beyond their means, too, with a personal saving rate (the difference between household income and household spending, as a share of income) that has been declining steadily since the early 1980s and has hovered right around zero (staying at less than one percent) since 2004. Easy credit offered by an under-regulated financial industry, recently stagnating real wages, and the “consumerism” endemic to American culture, may explain the trend. The problem is the near-sightedness inherent in such “deficit-financed” household budgeting, when families eventually find themselves lacking adequate resources for the costs of their children’s college educations, the care of their elderly parents, and their own retirements. The U.S.’s very low personal saving rate has been another factor that has kept the national saving rate, and growth in the economy, lower than it should be.
• The Trade Deficit: The U.S. government and American households have been able to live beyond their means because there are other nations who have lived far within their means. The U.S. buys more goods and services from other countries than it produces and sells to other countries, which is what is usually labeled the “trade deficit.” (The slightly broader concept of the “current account deficit” adds to the trade deficit the difference between the income the U.S. earns on its assets abroad and what the U.S. pays on its foreign-owned liabilities.) A global economy has allowed the U.S. to consume more than it produces, and to spend more than we earn, both of which allow an immediately higher standard of living, but at the price of accumulated debts to those countries on the other side of those transactions (this is the origin of Warren Buffett’s “Squanderville” and “Thriftsville” parable). The federal budget deficit has likely contributed to the trade deficit by providing an expansionary fiscal policy that has encouraged personal consumption and demand for imports; the budget deficit has also increased the demand for capital (credit), putting upward pressure on interest rates and the value of the dollar (which reduces the trade balance). The steady supply of capital from foreign investors to the U.S. has prevented U.S. interest rates from otherwise more steeply rising with our budget deficits and consumer loans. But our reliance on that foreign capital comes at the price of increased indebtedness to those foreign investors. When future generations of Americans are eventually paying back the bills that come due, most of the dollars will flow out of the U.S. rather than to other Americans-another factor that jeopardizes our future standards of living.
• The Leadership Deficit: Our leaders in the public and private sectors of the U.S. economy have allowed the other three deficits to emerge because they are viewed as the easy and personally profitable courses to take. In the public sector, politicians are encouraged to propose fiscally irresponsible policies-proposing what only sounds like free tax cuts or free public spending-in order to “profit” in their elections. Campaigning on fiscally-responsible tax increases or spending cuts seems like political suicide. In the private sector, business leaders seeking financial profit have been all too willing to lure consumers into getting into an indebtedness that they cannot afford. Only a change in public opinion-with ordinary Americans holding their leaders accountable-can persuade America’s leaders to “do the right (fiscal) thing” by aligning the “personal profit” motives with policies that are good for our nation as a whole.

These four deficits are interrelated and should matter to all Americans.  Economically, these deficits matter because reduced national saving jeopardizes the future strength of the U.S. economy and standards of living.  Ethically, these deficits matter because they result from choices made by current generations that involve large costs spread over future generations–Americans who as of yet have no political voice, except through their parents and grandparents.

Now don’t get me wrong; I do agree with Congressman David Obey (Chairman of the House Appropriations Committee) that there are other deficits that our nation needs to worry about as well.  I’ll try to follow up on that tomorrow (Monday).

Addendum:  Thanks to “johnchx” for pointing out that there are many ways to define personal saving.  Here is a link to a Bureau of Economic Analysis article on that issue, if you’re interested in understanding how the BEA measures it as well as how BEA’s measure differs from the Federal Reserve’s Flow of Funds measure.

A combative visitor to this blog has recently commented that I can be insulting, but no, he misunderstood me.  I would never attempt to use insults to talk about fiscal responsibility.  Not when I’ve seen how the professionals do it in the U.S. House of Representatives.  Here’s what has to be my favorite floor speech on fiscal responsibility (from November 17, 2005), by one of my favorite members on the House Budget Committee (my former workplace), Blue Dog Rep. Marion Berry (D-Arkansas):

Marion Berry on Adam Putnam’s fiscal irresponsibility

(Rep. Adam Putnam’s website is here, if you’re wondering if he really does look like… you know, who Rep. Berry says he does.)

Turn about is fair play though…even between politicians of the same party.  Here’s an excerpt from a very recent National Journal interview with House Appropriations Chairman David Obey (D-Wisconsin), who doesn’t seem very fond of fiscal hawks, which would certainly include the Blue Dogs like Marion Berry (…I’ll help you out with emphasis added):

…Looking ahead to 2009, Obey said in the interview that he foresees using the power of the purse to address longstanding national problems. He belittled the politician who focuses solely on the budget deficit as a “one-dimensional bookkeeper with a cardboard heart.”

“This country has neglected for a long time so many of the basic investments that we need to make this country strong,” Obey said. “Green-eyeshade actions aren’t going to fix your long-term debt or deficit situation. Making the right investments that will help the economy grow will help do that.”

The interview goes on with Congressman Obey discussing a few different deficits he feels are more important to focus on than the budget deficit.  I’ll follow up on that in a later post.

Thank you, Andrew Biggs, for this entry on your “Notes on Social Security Reform” blog, where you defend the Concord Coalition by pointing out how people hate us on both sides (while admitting one might characterize yourself as leaning toward one of those sides):

I’m a fan of Dean Baker (really). He’s a smart guy who sticks to his guns and pulls no punches, and his work is always interesting. He was ahead of the stock market and housing market bubbles, and called the over-valued dollar several years ago. (My portfolio thanks you.)

All that said, his rhetoric can get a bit overheated at times. Here I’m thinking of a recent column, entitled “Vicious Ideologue Renews Attack on Social Security.” If it were about, say, me I could understand the title.

But in fact the vicious ideologue in question is Pete Peterson, the investment banker and former Commerce Secretary who has long supported the Concord Coalition and now funds a foundation dedicated to, among other things, raising awareness of future entitlement shortfalls…

…I don’t know Peterson’s private thoughts. But I do know that the Concord Coalition, an organization Peterson has long been associated with, takes no position on whether entitlements should be fixed through increased taxes or reduced benefits. They merely argue that taxes and benefits must be equalized, and the sooner the better. (This opens them to attacks from folks like Peter Ferrara, who apparently agrees that they’re vicious ideologues, just of a different stripe.) Now, the political culture is such that Americans will likely want to fix these systems with fewer tax increases and more benefit cuts than Dean would prefer (and probably more tax increases and fewer benefit cuts than I would prefer). But that’s a different issue.

There’s more I could quibble with, but the larger point is ultimately we’re going to have to come together to reach a compromise on these issues, and it’s neither helpful nor, in my view, fair to make such strident attacks on other people character. This is a punch Dean should have pulled.

Alright–look out for our usual commentators now!

The blogosphere’s been all atwitter for the past few days, asking whether Senator McCain is a “flip-flopper” when it comes to his position on Social Security.  (I first caught on through Len Burman’s post on the TaxVox blog.)  But if one really listens to what McCain’s said, and who he thinks he’s saying it to, I don’t think it sounds like flip-flopping at all.  As example, from today’s ABC News blog (my emphasis added):

“In any negotiation that I might have, when I go in, my position will be that I am opposed to raising taxes. But we have to work together to save Social Security,” McCain said at a fundraiser Wednesday evening in Kansas City.

To his “conservative base,” McCain is pledging that his (starting) position is that he does not want any tax increases.  To his wise policy advisors and his “moderate base” (those who support him as the “maverick” on fiscal policy–who would like to believe that deep down he’s still that same John McCain who voted against the Bush tax cuts because of their fiscal irresponsibility), he reassures them that he knows that he can’t stand firm on his starting position on “no new Social Security taxes” if as President (versus someone just campaigning to be President) he expects to work with a Democratic Congress and actually accomplish something.

I have faith that a similar phenomenon is going on with the Obama campaign and their “no benefit cuts” position on Social Security.  It’s not an identical phenomenon though, because a President Obama would expect to be working with a Democratic Congress as well, so there’s a bit more danger of things staying “off the table.”

Here is the video of Judy Woodruff’s July 29th PBS interview with McCain economic advisor, Nancy Pfotenhauer, and Obama economic advisor, Jason Furman.  Your homework:  Can you spot the budget baseline issues?  Look for the two biggies, and try to answer these questions for yourself (perhaps looking at previous posts here at this blog as your notes):

• On ending/winning the war and using the “peace dividend” to reduce the budget deficit:  (i) how much deficit reduction is possible from said “dividend”, and how does that compare to the policies the candidates propose that would increase the deficit?; (ii) isn’t said ”dividend” implicitly already counted in the official budget baseline, since the war costs are not assumed to go on forever in the official baseline?…and (iii) no matter what the commitment of said “dividend” to deficit reduction, should that change our view of how the entirely deficit-financed war has adversely affected the budget outlook?
• On extending the Bush tax cuts:  (i) the current-law, official CBO baseline has the tax cuts expiring at the end of 2010, so how does letting only some of them expire ”save” the federal budget any money?  (In my opinion, Jason Furman gives an honest response.)  (ii) if McCain wants to extend all the tax cuts and add new tax cuts, what does that imply about the effect of his tax cut proposals relative to either the official baseline or the “Bush policy extended” baseline? …and (iii) are you satisfied with Nancy Pfotenhauer’s explanation of the spending cuts that reconcile the McCain tax cut proposals with their claim of reaching a balanced budget by 2013?  (Are you in disbelief, or horrified?)

Finally, look for the two mentions of the Concord Coalition–one for each advisor.  What did Pfotenhauer say to subtly diss Concord, without literally labeling us “irrelevant”? 

Will the special one-night screening and simulcast panel discussion of I.O.U.S.A. on Thursday, August 21st (one night before the theatrical release) be coming to a theatre near you?  Go to the Fathom Events website to find out; you can plug in your zip code.

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.