The Wonk Room

Bush’s Tax Cuts Look Even Worse In Light Of Federal Bailouts»

Tuesday evening, the Federal Reserve announced that it would lend troubled insurer AIG $85 billion, in return for a 79.9% stake in the company. This move comes on the heels of the bailouts of Freddie Mac and Fannie Mae, and just months after the bailout of Bear Stearns. CNBC has put the total tab for the recent government rescues by the Fed and the Treasury Department at $900 billion.

The rescues, while necessary to prevent a wider financial meltdown, will cause the already near-record federal deficit of $407 billion to explode. Before the bailouts, the projected federal deficit for 2009 was $546 billion. But when President George Bush came to office eight years ago, it was projected that America would have a budget surplus next year of $710 billion. So what happened?

As an analysis by the Center on Budget and Policy Priorities shows, 42% of the “fiscal deterioration” was due to the Bush tax cuts enacted in 2001 and 2003:

The key factors have been large tax cuts and increases in security-related programs. For fiscal 2009, some $1 trillion of the $1.3 trillion deterioration in the nation’s fiscal finances stems from policy actions, and tax cuts account for 42 percent of this $1 trillion deterioration.

Sen. John McCain (R-AZ), for his part, has proposed a doubling of the Bush tax cuts, which would blow an even bigger hole in an already-spiraling federal deficit. A Center for American Progress analysis concluded that McCain’s proposals would result in a deficit of $505 billion, before the government has to ante up for the bailouts. With America on the hook for $900 billion, and with the effects of Bush’s irresponsible tax cuts lingering, how will McCain pay for any of his proposals?

Digg It!

CBO Director: ‘A Big Part Of Why The Deficit Deteriorated’ Is Falling Corporate Tax Revenue»

Yesterday, the Congressional Budget Office (CBO) announced that the federal government will “run a near-record deficit of $407 billion for the budget year ending Sept. 30.”

Today, CBO Director Peter Orszag made an appearance on C-Span’s Washington Journal to explain some of his office’s numbers. He said that “a big part of why the deficit deteriorated” is that “corporate income tax revenue fell from 2.7% of the economy to 2.2% of the economy.” Watch it:

As the Wonk Room has already noted, U.S. tax revenue as a share of the economy is already below the Organization for Economic Cooperation and Development (OECD) average. Between 1998 and 2005, “about two-thirds of corporations operating in the United States did not pay taxes.”

In light of all this, Sen. John McCain’s (R-AZ) proposal to cut the corporate tax rate from 35% to 25% is simply not helpful. A cut means even less revenue, which won’t fix an already exploding deficit, and it doesn’t even create jobs like McCain claims it will.

Cutting the corporate rate only sends tax breaks - to the tune of $175 billion - to America’s corporations, which are already contributing less than they were just one year ago.

Pfotenhauer Slams Tax Policy Center As ‘Liberal’, Ignores Conservative Criticism of Tax Plan»

Today, during an appearance on Fox News, McCain adviser Nancy Pfotenhauer dismissed the Tax Policy Center’s conclusion that Sen. John McCain’s (R-AZ) tax plan would increase the deficit. Pfotenhauer argued that the center was a “liberal think tank” that did not analyze “the spending side” of McCain’s plan:

[We’ll] keep the growth rate in federal spending to about 2.4 percent. I love Austin’s statement that we are going to somehow balloon the deficit. First, the Tax Policy Center is a liberal think tank run by former Clinton-ites and Jason Furman worked there up until about two months ago. But set that aside. They don’t look at the spending side, they only look at the tax side.

Watch it:

But even conservative economists who have looked at the “spending side” of the senator’s plan, believe that his proposal would only add to the deficit:

- “The spending cuts are far too vague to be counted on for significant savings and, even if they were more specific, I can’t see how they would come close to offsetting the level of tax cuts he recommends.” [Robert L. Bixby, executive director of the Concord Coalition]

- “[But] I am worried that continuing the wars in Iraq and Afghanistan will tear apart our social fabric and defeat any economic proposal to reduce the deficit and stimulate growth. Guns are crowding out butter.” [Michael Connolly, Professor of Economics, University of Miami]

- “He’s not going to balance the budget.” [William Albrecht, professor emeritus at the University of Iowa]

In July, the McCain campaign falsely suggested that 300 economists agreed that the senator’s economic plan could reduce the deficit and balance the budget by 2013. When contacted by reporters many of those economists — Connolly and Albrecht included — actually expressed deep reservations about McCain’ pledge to reduce the deficit.

Cavuto On Holtz-Eakin’s Budget Double Talk: ‘I’m Begging You To Stop’»

On Thursday during an interview on Fox News, Neal Cavuto took McCain Senior Economic Adviser Douglas Holtz-Eakin to task for dodging simple questions on McCain’s economic plan:

CAVUTO: We have a candidate who claims that his opponent, his Democratic opponent, is a tax-hiker. Yet, we have a candidate, in your guy, John McCain, who cannot account for his spending with the aggressive tax cuts he`s planning. Which goes? Which is real?

Watch it:

Cavuto is right. On issue after issue, McCain’s campaign is trying to have it both ways:

– McCain wants “everything on the table” to fix social security, but says any slight tax increases on the rich are “out of the question.”

– McCain’s health care plan is either a budget busting expenditure or a tax hike on the middle class, but his campaign insists it’s neither.

– McCain’s tax cuts for corporations and the wealthy would blow a hole in the deficit, but McCain promises to balance the budget by 2013.

As Douglas Holtz-Eakin went on the attack instead of explaining his candidate’s plan, Cavuto shouted “I’m begging you to stop.” We know how you feel, Neal.

What The New McCain Ad Fails To Mention: He Raises Taxes On Middle Class, Give Huge Tax Breaks To Rich»

Our guest blogger is Adam Jentleson, the Communications and Outreach Director for the Hyde Park Project at the Center for American Progress Action Fund.

John McCain has released a new ad attacking Obama on taxes. Watch it:

Here are a few things that McCain’s new ad fails to mention.

If McCain’s health care plan raises taxes enough to avoid blowing a hole in the deficit — as his aides say it does — it would raise taxes by $1,119 on a family making $60,000 within five years. A family making $80,000 a year would see their taxes go up by almost $2,000 in the same period.

And while McCain proposes large tax cuts, they are even more skewed towards the elite than President Bush’s. Nearly half of his tax cuts would go to big corporations and the top 1 percent of taxpayers. More than 100 million families would not receive any tax cuts at all from McCain’s plan.

While Americans are paying nearly $4 a gallon for gas, McCain’s plan gives $4 billion in tax breaks to the 5 biggest oil companies in the U.S., including a $1.2 billion break for ExxonMobil.

In sum, McCain’s plan is the one that benefits the elite at the expense of the middle class. But don’t take our word for it – here is what the Tax Policy Center at Brookings has to say:

The two candidates’ plans would have sharply different distributional effects. Senator McCain’s tax cuts would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after-tax incomes by more than twice the average for all households. Many fewer households at the bottom of the income distribution would get tax cuts and those whose taxes fall would, on average, see their after-tax income rise much less. In marked contrast, Senator Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers. The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution, while taxpayers with the highest income would see their taxes rise.

Holtz-Eakin: Tax Cuts For The Rich Are ‘Not Anywhere’ In McCain’s Plan»

Yesterday, on CNN Late Edition, McCain Senior Economic Adviser Douglas Holtz-Eakin claimed that John McCain’s tax plan didn’t include tax cuts for the rich:

BLITZER: But is this true, the suggestion that [Barack Obama] saying you want to give a huge tax break to those Americans making $2.8 million a year and more, that’s true, right?

HOLTZ-EAKIN: No…Mr. Obama is talking about tax cuts for the wealthy. They’re not anywhere. What John McCain would do is reduce the corporate tax rates that’s sending jobs that have pension benefits, health benefits and important security for Americans, he’s cutting rates.

Watch it:

Holtz-Eakin is being wildly misleading. A recent analysis from the non-partisan Tax Policy Center found that McCain’s plan, which includes a dramatic AMT revision, a corporate tax cut, and a doubling of the dependent exemption, “would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after-tax incomes by more than twice the average for all households.” In other words, it’s a huge tax cut for the rich:

Another beneficiary of McCain’s plan: the McCains themselves. A recent paper by the Center for American Progress Action Fund found that John and Cindy McCain would save $373,429 under McCain’s tax plan.

Senator Obama, on the other hand, “offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers.”

As for the supposed benefits McCain’s rate cut for corporations would have, the Tax Policy Center found that the “larger future deficits [the cut would create] would reduce and could completely offset any positive effect.”

McCain’s reckless tax cuts for corporations and the wealthiest Americans, which he has still not explained how he would pay for, would create the largest deficits in 25 years and the largest debt since World War Two.

As Holtz-Eakin himself said, “you have to pay for that somehow or you’re George Bush III.“

Dear Ms. Fiorina, We Found Those Numbers You Were Looking For»

Our guest blogger is Adam Jentleson, the Communications and Outreach Director for the Hyde Park Project at the Center for American Progress Action Fund.

Today on CNN, senior McCain advisor Carly Fiorina was asked to explain why McCain’s answer to these tough economic times is to double Bush’s tax cuts with another $300 billion in cuts that go mostly to the wealthiest Americans, and give ExxonMobil a $1.2 billion per-year tax cut.

Her response:

I don’t know where he gets those numbers. It was $300 billion, it was $1.2 billion. … I can’t make Barack Obama’s numbers add up.

Watch it:

Mystery solved! Those numbers come from our analyses, which document McCain’s hugely expensive and highly regressive tax proposal, and show that his tax plan amounts to a nearly $4 billion-a-year windfall for the top 5 oil companies in the U.S. – including $1.2 billion for ExxonMobil.

If today’s interview is a sign that Carly Fiorina has been willfully ignoring the facts about the tax plan she’s shilling for, here are some other numbers with which she may want to acquaint herself:

– $175 billion: The amount of money that would go directly to corporations each year under McCain’s tax plan.

– $12.7 trillion: The size the deficit will be after two terms of McCain’s fiscal policies.

– $267 billion: The number of dollars in savings McCain still has to account for in order to pay for his massive, $300 billion tax cut.

– Top 1%: The taxpayers who will get more than half of the benefits under McCain’s tax plan – more than they got under Bush’s.

So Ms. Fiorina, next time you need a citation in a pinch, remember that our Resource Library is just a click away.

McCain Adviser Holtz-Eakin Ludicrously Asserts Obama Would Be A Third Bush Term»

Our guest bloggers are Center for American Progress Action Fund fellows James Kvaal and Robert Gordon.

Apparently the McCain campaign is feeling the sting of comparisons to George Bush. McCain describes himself as the strongest support of the war in Iraq. His answer to $4.00 gasoline is to cut oil company taxes by $4 billion a year. And McCain has embraced a Bush proposal to radically change our health care system. (These and other similarities are described in a memorandum released today by the Center for American Progress Action Fund.)

Swimming upstream, McCain policy advisor Douglas Holtz-Eakin now argues that it is Senator Obama – not McCain – who wants to continue Bush’s fiscal policies. Obama’s budget “is dedicated to the recent Bush tradition of spending money on everything,” he said.

This is exactly backwards. Consider:

– Like Bush, McCain has proposed massive tax cuts that primarily benefit high-income households. McCain’s $300 billion a year in tax cuts – over and above the cost of extending the Bush tax cuts when they expire in 2010 – would essentially double the size of the Bush tax cuts and make them even more regressive.

– Like Bush, McCain’s massive tax cuts and spending on security leaves little for other priorities. Over the past eight years, other types of discretionary spending have remained essentially unchanged after inflation and population growth. McCain would continue the pattern of putting huge tax cuts and defense spending ahead of other needs, like preschool and renewable energy.

– Like Bush, McCain rails against wasteful spending in the abstract but fails to target any actual programs. His promises to eliminate earmarks and freeze spending could save $30 billion a year or even less. That leaves him short the quite noticeable sum of $270 billion a year. (Holtz-Eakin told Bloomberg that McCain has a secret plan to balance the budget, but he hasn’t shared it with the Concord Coalition — or those of us at the Center for American Progress Action Fund, for that matter.)

– Like Bush, McCain is likely to drive up the national debt by trillions of dollars. Bush took a debt of $3.4 trillion – and headed down – up to $5.4 trillion. McCain’s budget plan would drive the deficit to $12.7 trillion.

Obama also has expensive proposals, such as his health care coverage plan and middle-class tax cuts. But he is clear where the money is coming from: higher taxes on high-income families, ending the war in Iraq, selling the right to emit greenhouse gases, and cutting subsidies to oil and gas companies, health insurers, drug companies, and the student loan industry.

That’s why the Wall Street Journal concluded that Barack Obama’s budget “adds up, probably.” But McCain’s plan, it concluded, “would either cause the federal deficit to explode or would require unprecedented spending cuts.”

Digg It!

Lieberman: McCain ‘Favors A Balanced Budget’»

On Wednesday’s edition of Your World with Neal Cavuto, Sen. Joe Lieberman (I-CT) defended John McCain’s fiscal intentions:

LIEBERMAN:…I think he favors a strong dollar and he favors a balanced budget, but he wants to see all the Bush tax cuts extended.

Watch it:

But even if McCain “favors” a balanced budget (just like President Bush does), he clearly favors tax cuts for corporations and wealthy CEOs even more.

McCain not only wants to extend Bush’s tax cuts for the rich, he wants to double them by cutting corporate taxes, creating new loopholes for big business, and ignoring the middle class.

Far from balancing the budget, McCain’s plan would create the largest deficits in 25 years and the largest debt since World War Two.

As McCain’s own Chief Economic Advisor Douglas Holtz-Eakin said on deficits: “You have to pay for that somehow or you’re George Bush III.”

McCain Adviser Holtz-Eakin On Deficits: ‘You Have To Pay For That Somehow Or You’re George Bush III’»

In an appearance on CNN’s Late Edition this weekend, Sen. John McCain’s (R-AZ) top economic adviser Douglas Holtz-Eakin dug into Sen. Barack Obama’s (D-IL) spending plan, claiming it would expand deficits:

Senator Obama’s plan is Washington in action. It’s $2 trillion more spending by the federal government. You have to pay for that somehow or you are George Bush III.

Watch it:

Earth to Holtz-Eakin: McCain’s proposed Bush-style tax cuts for corporations and the super-rich are far more fiscally reckless than anything proposed by either Democratic candidate. McCain’s plan would effectively double Bush’s tax cuts and create the largest deficits in 25 years and the largest debt since World War 2. As the New York Times wrote:

Fiscal monitors…estimate that, even taking into account that there are some differences between the proposals by Senators Hillary Rodham Clinton and Barack Obama, the impact of either on the deficit would be less than one-third that of the McCain plan.

Holtz-Eakin would have a leg to stand on if McCain had given any credible explanation of which programs he’d slash to balance his budget.

But he hasn’t.

The FactChecker at the Washington Post gave McCain’s plan to pay for his doubling of the Bush tax cuts by eliminating $100 billion in earmarks “Four Pinocchios” (the highest rating for deceit), calling it “largely fantasy” and “voodoo economics.”

So, in this case, we agree with Holtz-Eakin. Senator McCain, “you have to pay for that somehow or you are George Bush III.”

McCain Campaign Attacks Wonk Room, But Offers No ‘Alternative Figures’ On Deficit Projections»

Late last week, the Wonk Room reported a new analysis by the Center for American Progress Action Fund finding that John McCain would recklessly exacerbate the fiscal irresponsibility of the Bush Administration and create the largest deficit in 25 years.

When contacted by Slate magazine for a response to our deficit analysis, the McCain campaign offered this:

Spokesman Brian Rogers dismissed the CAP study as coming from “a left-wing Democratic front group” but did not provide alternative figures. “The fact that they falsely criticize Sen. McCain’s policy proposals is unfortunate, but it’s hardly surprising,” he wrote in an e-mail.

Well, needless to say, we don’t believe our analysis is false, and we are very open to a debate on its merits. Note that you can read our methodology in detail on page 3 of the report.

Unfortunately, despite supposed outreach to the lefty blogosphere and promises to run a different kind of campaign, the McCain camp seems more interested in attacking us than engaging in a substantive debate on our methodology or our conclusions.

We’ve contacted the McCain campaign for further comment on where they think our analysis went wrong, and we’ve been told that they’d “be in touch if they have a different comment” for us. We look forward to it.

McCain’s 2013 Economy: $780 Billion Deficit»

McCain’s “magic carpet ride” speech yesterday asked us to consider America in 2013 in the fourth year of a John McCain presidency.

We did. Here’s what we found:

In 2013, after McCain’s four years of Bush-style fiscal irresponsibility, tax breaks for corporations, and more tax cuts for the wealthy, America would have a $780 billion deficit (4.3% of GDP) and national debt of $8.5 trillion (47% of GDP). That’s over $1.5 trillion more debt than would be accumulated under a continuation of current Bush policies.

John McCain’s 2013: More of the same, but worse.

McCain’s Budget Would Create Largest Deficit In 25 Years, Largest Debt Since WWII»

Sen. John McCain promises that, as president, he would “cut taxes and balance the budget.” But his current economic plan would create deficits as deep as 5.7% of GDP by the end of a two term presidency — the highest federal budget deficit in 25 years — and would accumulate the biggest debt since the second World War, according to a new analysis by the Center for American Progress Action Fund. McCain’s current fiscal plan would recklessly exacerbate the fiscal irresponsibility of the Bush Administration further by gutting revenues far below the average level of the past 25 years.

For the past 25 years, deficits have never been more severe than 5% of GDP, with surpluses as high as 2.4% of GDP in the year 2000. Under McCain, yearly deficits would increase sharply, beginning with $505 billion in FY2009 (3.4% of GDP) and skyrocket to $1.2 trillion (5.7% of GDP) by FY2017. In 2018 these deficits would reach 6% of GDP, tied with the largest deficits since WW2 in 1983. Current Bush policies would keep the deficit in 2017 to $660 billion (3.1% of GDP).

According to the study, McCain’s economic plan, (which includes a corporate tax cut, a full repeal of the AMT, and an extension of the Bush tax cuts) would leave a debt of $12.7 trillion (the highest since 1951 when America was still holding debt from WW2) by the last budget of a two term presidency starting in 2009 (FY2017). This debt is $3.5 trillion more severe than the one resulting from an extension of current Bush policy, which would leave a debt of $9.2 trillion (43% of projected GDP).

McCain would slash government revenues, which have averaged 18.3% of GDP for the past 25 years, to their lowest levels since before 1962. Revenues would average only 16.3 percent of GDP for the duration of his two terms. Under current Bush policy, revenues would remain above 18 percent of GDP.

This analysis currently incorporates the most generous possible savings McCain has offered thus far: an $18 billion cut of wasteful earmarks and a $15 billion “freeze” in wasteful spending, with the savings grown at the rate of GDP growth over his presidency. These “savings,” which come no where near paying for his reckless tax cuts, already include “heavy cuts in after-school pro­grams, student aid, public broadcasting, and job training.” To fill the gaping remaining hole, McCain supporters have suggested policies that would lead to “massive cuts” in Social Security.

Read the full report.

McCain And The (Ir)relevant Concord Coalition»

Among other odd comments in his National Review article, Douglas Holtz-Eakin on Wednesday declared that the Concord Coalition, whose director had criticized McCain’s agenda, had “largely lost relevancy.”

Funny that Holtz-Eakin should pick out the Concord Coalition, a national bipartisan organization dedicated to fiscal responsibility. The co-founder and chairman of the Concord Coalition is Pete Peterson, an old friend of Senator McCain, an early supporter of his 2008 run and a member of the McCain campaign economic strategy team. When asked this January, during a GOP presidential debate, how he would make economic policy, McCain responded:

I as president, as every other president, [would] rely primarily on my secretary of the Treasury, on my Council of Economic Advisers, on the head of that. I would rely on the circle that I have developed over many years of people like… Pete Peterson and the Concord group.

Just four years ago, Peterson bestowed upon John McCain the Coalition’s annual Economic Patriot Award at an event sponsored by the Council on Foreign Relations. Peterson explained why he had set up the “Concord Coalition devoted to long-term fiscal responsibility and generational equity.” McCain in turn thanked Peterson for his “continued crusade for fiscal sanity and stability on behalf of our children and grandchildren.”

So has the Concord Coalition become largely irrelevant? Or have its principles and goals become largely irrelevant to Senator McCain’s newfound agenda of deficit-financed tax cuts and unbalanced budgets?

The McCain Deficit: Douglas Holtz-Eakin Continues To Debate With Himself»

Our guest blogger is James Kvaal, Domestic Policy Advisor at the Center for American Progress Action Fund.

The story so far: Senator John McCain has proposed $300 billion a year in tax cuts, but – as The Economist wrote – “the savings in government spending he promises will not come anywhere close to paying for the tax cuts.”

Yesterday, McCain economic advisor Douglas Holtz-Eakin defended his McCain budgeting over at the National Review, arguing that McCain’s proposals will restrain spending and promote economic growth.

But, as Ruth Marcus pointed out, two years ago Holtz-Eakin sounded very different. He said then that, realistically, “government will not be getting any smaller” due to widespread public support for government’s activities. Even a “tremendous effort” by Congress to eliminate wasteful spending totaled less than 0.07 percent of the economy. (McCain’s $300 billion tax cut equals approximately 2 percent of the economy.)

Maybe that is why Holtz-Eakin’s new argument focuses on McCain’s cuts to entitlement programs like Social Security and Medicare. But McCain has already proposed cutting Social Security and Medicare benefits to restore those programs’ solvency. Does he really want even more cuts — hundreds of billions of dollars more — to pay for his tax cuts, as Angry Bear wonders?

It seems more likely that Holtz-Eakin is changing the subject, preferring to discuss the long-run entitlement problem rather than the short-run deficit problem. But adding hundreds of billions, even trillions, to the debt now will only make our long-run problems worse.