K
Kickin' Ass and Takin' Names
Guest
What Is McCain's economic agenda?
By Jared Bernstein
The American Prospect online
March 17, 2008
NEXT TIME you catch a John McCain interview, watch for what, at least
to my ears and eyes, is a fascinating, albeit subtle, shift. When he's
talking about almost anything other than the economy -- foreign
policy, the war, Congress, immigration -- he exudes the typical
confidence of a veteran Washington player. He deftly shifts the
question to his turf, he ardently hits his message points . . . just
about what you'd expect, actually.
But when the topic turns to the economy, his whole demeanor changes.
His body language becomes uncomfortable; he almost seems to shrink a
little. His edgy smile becomes forced, his words a bit -- sometimes
more than a bit -- hesitant. Putting aside your views on his positions
and evaluating his performance on form only, when he's on the other
topics, he's a basketball player driving the lane. On the economy,
he's looking to pass ASAP.
Big and Small Mistakes
In economic discussions, he makes mistakes, both small and not so
small. He famously admitted that economics is not his strong suit,
though he assured us that he owns Greenspan's book. I've heard him
speak of the "alternate" minimum tax (it's "alternative" -- can you
imagine Hillary Clinton getting that wrong?). In a recent interview in
The Wall Street Journal, he was unaware that his Web site endorsed a
different plan regarding Social Security than the one he was touting
to the interviewer. It's hard to imagine a discrepancy like that
regarding the war.
He missed the current downturn -- though he's far from alone on that
count -- by a long shot, stressing the strengths of the economy's
"fundamentals" as recently as January (now he apparently believes
we're in or headed for a recession but still can't resist the "strong
fundamentals" nonsense).
Off-Base Answers
McCain's answers to questions regarding the policy responses to the
current downturn are way off base, far worse than you'd get from say,
Secretary Henry Paulson or even George Bush. In a recent Wall Street
Journal interview, when asked what measures would best deal with the
current downturn, he touted making the Bush tax cuts permanent in 2010
and cutting corporate tax rates. Other than Larry Kudlow and The Wall
Street Journal's editorial page, I can't imagine many folks would be
inspired by that plan.
So he isn't exactly Adam Smith. But I still think there's a lot for
the electorate to consider regarding McCainonomics. Given his
predilection to follow the George W. Bush agenda, some critics have
labeled him "McSame," attempting a guilt-by-association strategy.
There's a lot to be said for that strategy. His voting record reveals
him to share Bush's deregulatory zeal, but I don't think it's that
simple.
In his heart, I think candidate McCain wants to fundamentally alter
the economic landscape of government's role in the economy by deeply
cutting non-defense spending, from discretionary programs to
entitlements. He gets there not because he's heartless but because
that's the unforgiving combination of his arithmetic and his
ideology.
No Mathematician
Perhaps one shouldn't expect candidates' numbers to add up. Tally up
Clinton and Barack Obama's expenditures on health care and tax cuts
and you will find that they both spend more than they raise. But
McCain's numbers are out of whack by orders of magnitude beyond those
of either Democratic candidate.
Here's the gist of it: Despite his earlier opposition, he now wants to
make the Bush tax cuts permanent. Price tag: more than $2 trillion
over 10 years. He wants to repeal the alternative minimum tax. Price
tag: "up to $2 trillion" according to the Center on Budget and Policy
Priorities (CBPP). He wants to keep the war going ad infinitum, at a
cost of between $100 billion and $150 billion per year, according to
CBO estimates.
Then there is his health-care plan, which ends the employer tax
exemption for the cost of covering employees, and uses the proceeds to
subsidize the purchase of health coverage in the private market. The
costly part has to do with the poor, the old, and the sick. As health
economist Jon Gruber noted, "his plan will require huge subsidies he's
not talking about."
Corporate Tax-Cutter
Oh, and did I mention he wants to cut the corporate tax rate too, from
35 percent to 25 percent, and allow businesses to fully write off
capital investments as soon as they make them? Bob Greenstein, the
director of the CBPP, is not prone to hyperbole. But he called
McCain's program "one of the most fiscally irresponsible plans we've
seen by a presidential candidate in a long time." According to Len
Burman of the Brookings Institution's Tax Policy Center, McCain's tax
cuts would shrink federal revenues by 25 percent over 10 years, at
which point they would account for about 15 percent of GDP, compared
to 19 percent last year.
Now, I understand that this is absolutely sweet music to the ears of
the Grover Norquists of the world--the "starve the beast" contingent.
But let's play all this cutting out a bit further, turning to the
spending side of the equation. Note that McCain made the "no new
taxes" pledge, though he recently backtracked slightly. (He told The
Wall Street Journal, "I'm not making a 'read my lips' statement ... but
I'm not saying I can envision a scenario where I would [raise taxes],
OK?")
For all of his nervousness around economic issues, when McCain moves
into "government-waste, spend-cutting mode" he relocates his mojo. He
has clearly seen the government waste money over his long tenure, and
he clearly doesn't like it. I don't either. But the cuts he has
articulated don't even start to begin to commence to fill the budget
hole he creates.
Two Problems
His most common target is earmarks -- those provisions quietly
embedded in legislation to steer funding to some desired project or
constituency. But there are two problems here, one big, one little.
The big one is that the total earmark bill is much too small to pay
for even a tiny fraction of McCain's agenda. Most estimates score them
at around $20 billion per year, though the McCain folks say they can
get up to $60 billion. That's a few months in Iraq, John.
Second, of course it's the case that there are lots of earmarks that
should go, and that the process should be much more transparent. But
once it is, we will find out that a number of these projects are
important and worthy. McCain himself was cutting up recently about an
earmark to do research on bear DNA: "I don't know if it was paternity
issue or criminal, but it was a waste of money." Problem is, The New
York Times pointed out that scientists were doing the research to
estimate the bear population, "a prerequisite for sensible
administration of the Endangered Species Act." I'd bet you that for
every 10 "bridges to nowhere" there are at least a few of these good
earmarks (a friend of mine promotes earmarks for the Special Olympics
and cancer research).
So, let's review: McCain is shaky on economic policy, has quite
massive plans to cut taxes while kicking up spending on health care
and the war, is loathe to raise taxes, and is articulating only tiny
spending cuts. Or is he?
A Deep Cutter
John McCain, along with his top economic adviser, economist Doug Holtz-
Eakin, talk a lot about "entitlement reform." What does this mean?
First, let me say that I am a huge admirer of Holtz-Eakin, an
economist and former CBO director who is congenitally incapable of
cooking books or spinning numbers. I suspect that's one reason why he
and McCain appeal to each other (yes, the "straight-talk express" has
been off track lately, but I think McCain actually has a pretty low
tolerance for economic spin). And both of them must know that they
can't implement their agenda without deep cuts, both on non-defense,
domestic spending, and on entitlements, especially Medicare.
As Holtz-Eakin put it a few years ago in an opinion piece for The
Washington Post, a serious fiscal approach "should rethink the package
of support for old-age medical care, long-term care services and
retirement income."
Much like the material on McCain's Web site, that sounds innocuous
enough. It also has the benefit of being true. Absent a "rethink,"
Medicare will swamp the federal budget. This increase in health
spending as a share of government spending is itself a symptom of the
unsustainable rise in economy-wide health-care costs, i.e., this is
not exclusively a "Medicare" or public-sector problem. (Social
Security poses less of a fiscal challenge; it can be put on a sound
funding basis with a few reasonable changes.)
The Meaning of Words
But here's the rub: Words like "reform," "rethink," and "making tough
choices" sound a lot different than words like "cut, and cut deeply."
Holtz-Eakin has integrity, and he likes his numbers to add up. He
knows that they can't do what they say they're planning to do without
going after entitlements big time. As he put it the other day in The
Wall Street Journal, "You can't keep promises made to retirees" (to be
fair, he also noted that "you can pay future retirees more than
current retirees").
In fact, you can keep those promises. It won't be easy, and he or she
who chooses to do so will need the vision to make the case, along with
the political skill and will to make it happen, part of which is about
reintroducing competence and faith in government. That means ending
the war, raising the revenues needed to meet social needs, and
reforming the health-care system with an emphasis on risk-pooling and
cost controls.
A Fork in the Road
When it comes to economic stewardship, this election is truly a fork
in the road. There are surely those who want to travel McCain's route,
deeply cutting the size and obligations of the federal government in
order to pay for tax cuts and war. But I think there are more of us
who recognize that this path is a dangerous one.
We've seen the outcome of Bushonomics. Its inattention to good
government and its deregulatory zeal are evident from Katrina to Iraq
to the current recession. Its reverse Robin Hood tax policies have
exacerbated market-driven inequalities. Yet, much to some
conservatives chagrin, Bush was never willing or able to pursue a true
slash and burn approach to fiscal policy. His privatization plans
failed, he laid nary a finger on the entitlements (other than to
expand Medicare), and his tax cuts will not be made permanent by the
time he leaves D.C.
As I see it, McCain wants to change that. He may come across as
fumbling in interviews, but to see where he is headed, you have to
blend an understanding of his campaign platform, his advisers, and his
ideology. What you're left with is a plan to considerably shrink that
part of government that functions to enhance economic security at a
time when we arguably need a lot more of it.
(c) 2008 by The American Prospect, Inc.
Jared Bernstein, a former deputy chief economist for the U.S. Labor
Department, is a senior economist at the Economic Policy Institute. He
is the co-author of seven editions of The State of Working America and
the author of All Together Now: Common Sense for a Fair Economy.
http://tinyurl.com/6juwqf
By Jared Bernstein
The American Prospect online
March 17, 2008
NEXT TIME you catch a John McCain interview, watch for what, at least
to my ears and eyes, is a fascinating, albeit subtle, shift. When he's
talking about almost anything other than the economy -- foreign
policy, the war, Congress, immigration -- he exudes the typical
confidence of a veteran Washington player. He deftly shifts the
question to his turf, he ardently hits his message points . . . just
about what you'd expect, actually.
But when the topic turns to the economy, his whole demeanor changes.
His body language becomes uncomfortable; he almost seems to shrink a
little. His edgy smile becomes forced, his words a bit -- sometimes
more than a bit -- hesitant. Putting aside your views on his positions
and evaluating his performance on form only, when he's on the other
topics, he's a basketball player driving the lane. On the economy,
he's looking to pass ASAP.
Big and Small Mistakes
In economic discussions, he makes mistakes, both small and not so
small. He famously admitted that economics is not his strong suit,
though he assured us that he owns Greenspan's book. I've heard him
speak of the "alternate" minimum tax (it's "alternative" -- can you
imagine Hillary Clinton getting that wrong?). In a recent interview in
The Wall Street Journal, he was unaware that his Web site endorsed a
different plan regarding Social Security than the one he was touting
to the interviewer. It's hard to imagine a discrepancy like that
regarding the war.
He missed the current downturn -- though he's far from alone on that
count -- by a long shot, stressing the strengths of the economy's
"fundamentals" as recently as January (now he apparently believes
we're in or headed for a recession but still can't resist the "strong
fundamentals" nonsense).
Off-Base Answers
McCain's answers to questions regarding the policy responses to the
current downturn are way off base, far worse than you'd get from say,
Secretary Henry Paulson or even George Bush. In a recent Wall Street
Journal interview, when asked what measures would best deal with the
current downturn, he touted making the Bush tax cuts permanent in 2010
and cutting corporate tax rates. Other than Larry Kudlow and The Wall
Street Journal's editorial page, I can't imagine many folks would be
inspired by that plan.
So he isn't exactly Adam Smith. But I still think there's a lot for
the electorate to consider regarding McCainonomics. Given his
predilection to follow the George W. Bush agenda, some critics have
labeled him "McSame," attempting a guilt-by-association strategy.
There's a lot to be said for that strategy. His voting record reveals
him to share Bush's deregulatory zeal, but I don't think it's that
simple.
In his heart, I think candidate McCain wants to fundamentally alter
the economic landscape of government's role in the economy by deeply
cutting non-defense spending, from discretionary programs to
entitlements. He gets there not because he's heartless but because
that's the unforgiving combination of his arithmetic and his
ideology.
No Mathematician
Perhaps one shouldn't expect candidates' numbers to add up. Tally up
Clinton and Barack Obama's expenditures on health care and tax cuts
and you will find that they both spend more than they raise. But
McCain's numbers are out of whack by orders of magnitude beyond those
of either Democratic candidate.
Here's the gist of it: Despite his earlier opposition, he now wants to
make the Bush tax cuts permanent. Price tag: more than $2 trillion
over 10 years. He wants to repeal the alternative minimum tax. Price
tag: "up to $2 trillion" according to the Center on Budget and Policy
Priorities (CBPP). He wants to keep the war going ad infinitum, at a
cost of between $100 billion and $150 billion per year, according to
CBO estimates.
Then there is his health-care plan, which ends the employer tax
exemption for the cost of covering employees, and uses the proceeds to
subsidize the purchase of health coverage in the private market. The
costly part has to do with the poor, the old, and the sick. As health
economist Jon Gruber noted, "his plan will require huge subsidies he's
not talking about."
Corporate Tax-Cutter
Oh, and did I mention he wants to cut the corporate tax rate too, from
35 percent to 25 percent, and allow businesses to fully write off
capital investments as soon as they make them? Bob Greenstein, the
director of the CBPP, is not prone to hyperbole. But he called
McCain's program "one of the most fiscally irresponsible plans we've
seen by a presidential candidate in a long time." According to Len
Burman of the Brookings Institution's Tax Policy Center, McCain's tax
cuts would shrink federal revenues by 25 percent over 10 years, at
which point they would account for about 15 percent of GDP, compared
to 19 percent last year.
Now, I understand that this is absolutely sweet music to the ears of
the Grover Norquists of the world--the "starve the beast" contingent.
But let's play all this cutting out a bit further, turning to the
spending side of the equation. Note that McCain made the "no new
taxes" pledge, though he recently backtracked slightly. (He told The
Wall Street Journal, "I'm not making a 'read my lips' statement ... but
I'm not saying I can envision a scenario where I would [raise taxes],
OK?")
For all of his nervousness around economic issues, when McCain moves
into "government-waste, spend-cutting mode" he relocates his mojo. He
has clearly seen the government waste money over his long tenure, and
he clearly doesn't like it. I don't either. But the cuts he has
articulated don't even start to begin to commence to fill the budget
hole he creates.
Two Problems
His most common target is earmarks -- those provisions quietly
embedded in legislation to steer funding to some desired project or
constituency. But there are two problems here, one big, one little.
The big one is that the total earmark bill is much too small to pay
for even a tiny fraction of McCain's agenda. Most estimates score them
at around $20 billion per year, though the McCain folks say they can
get up to $60 billion. That's a few months in Iraq, John.
Second, of course it's the case that there are lots of earmarks that
should go, and that the process should be much more transparent. But
once it is, we will find out that a number of these projects are
important and worthy. McCain himself was cutting up recently about an
earmark to do research on bear DNA: "I don't know if it was paternity
issue or criminal, but it was a waste of money." Problem is, The New
York Times pointed out that scientists were doing the research to
estimate the bear population, "a prerequisite for sensible
administration of the Endangered Species Act." I'd bet you that for
every 10 "bridges to nowhere" there are at least a few of these good
earmarks (a friend of mine promotes earmarks for the Special Olympics
and cancer research).
So, let's review: McCain is shaky on economic policy, has quite
massive plans to cut taxes while kicking up spending on health care
and the war, is loathe to raise taxes, and is articulating only tiny
spending cuts. Or is he?
A Deep Cutter
John McCain, along with his top economic adviser, economist Doug Holtz-
Eakin, talk a lot about "entitlement reform." What does this mean?
First, let me say that I am a huge admirer of Holtz-Eakin, an
economist and former CBO director who is congenitally incapable of
cooking books or spinning numbers. I suspect that's one reason why he
and McCain appeal to each other (yes, the "straight-talk express" has
been off track lately, but I think McCain actually has a pretty low
tolerance for economic spin). And both of them must know that they
can't implement their agenda without deep cuts, both on non-defense,
domestic spending, and on entitlements, especially Medicare.
As Holtz-Eakin put it a few years ago in an opinion piece for The
Washington Post, a serious fiscal approach "should rethink the package
of support for old-age medical care, long-term care services and
retirement income."
Much like the material on McCain's Web site, that sounds innocuous
enough. It also has the benefit of being true. Absent a "rethink,"
Medicare will swamp the federal budget. This increase in health
spending as a share of government spending is itself a symptom of the
unsustainable rise in economy-wide health-care costs, i.e., this is
not exclusively a "Medicare" or public-sector problem. (Social
Security poses less of a fiscal challenge; it can be put on a sound
funding basis with a few reasonable changes.)
The Meaning of Words
But here's the rub: Words like "reform," "rethink," and "making tough
choices" sound a lot different than words like "cut, and cut deeply."
Holtz-Eakin has integrity, and he likes his numbers to add up. He
knows that they can't do what they say they're planning to do without
going after entitlements big time. As he put it the other day in The
Wall Street Journal, "You can't keep promises made to retirees" (to be
fair, he also noted that "you can pay future retirees more than
current retirees").
In fact, you can keep those promises. It won't be easy, and he or she
who chooses to do so will need the vision to make the case, along with
the political skill and will to make it happen, part of which is about
reintroducing competence and faith in government. That means ending
the war, raising the revenues needed to meet social needs, and
reforming the health-care system with an emphasis on risk-pooling and
cost controls.
A Fork in the Road
When it comes to economic stewardship, this election is truly a fork
in the road. There are surely those who want to travel McCain's route,
deeply cutting the size and obligations of the federal government in
order to pay for tax cuts and war. But I think there are more of us
who recognize that this path is a dangerous one.
We've seen the outcome of Bushonomics. Its inattention to good
government and its deregulatory zeal are evident from Katrina to Iraq
to the current recession. Its reverse Robin Hood tax policies have
exacerbated market-driven inequalities. Yet, much to some
conservatives chagrin, Bush was never willing or able to pursue a true
slash and burn approach to fiscal policy. His privatization plans
failed, he laid nary a finger on the entitlements (other than to
expand Medicare), and his tax cuts will not be made permanent by the
time he leaves D.C.
As I see it, McCain wants to change that. He may come across as
fumbling in interviews, but to see where he is headed, you have to
blend an understanding of his campaign platform, his advisers, and his
ideology. What you're left with is a plan to considerably shrink that
part of government that functions to enhance economic security at a
time when we arguably need a lot more of it.
(c) 2008 by The American Prospect, Inc.
Jared Bernstein, a former deputy chief economist for the U.S. Labor
Department, is a senior economist at the Economic Policy Institute. He
is the co-author of seven editions of The State of Working America and
the author of All Together Now: Common Sense for a Fair Economy.
http://tinyurl.com/6juwqf