A Message from Jason Furman

Alan Greenspan says that McCain's proposed fiscal policy is dishonest.

Jason Furman writes http://obama.3cdn.net/af1925f1032ea575fd_2hm6b995d.pdf:

MEMORANDUM

To: Interested Parties
Fr: Jason Furman, Obama Campaign Economic Policy Director
Re: Obama Campaign Agrees with Greenspan that McCain should abandon his tax cuts
Dt: September 13, 2008

On Friday, September 12, Former Federal Reserve Chairman Alan Greenspan told Bloomberg News that John McCain should not move forward with his $3.4 trillion in new tax cuts unless he can show how to pay for them.1 In answer to a question about whether the nation could “afford a tax cut of that magnitude” Greenspan said “unless we cut spending, no.” Greenspan went on to say “I’m not in favor of financing tax cuts with borrowed money.” We agree.

John McCain has listened to Alan Greenspan before. In December, 2007 after admitting that economics was “not something I’ve understood as well as I should have,” John McCain said that he “got Greenspan’s book” to study up on the economy.2 We hope that John McCain will study Chairman Greenspan’s advice once again, and either come up with a credible specific plan for how to pay for his tax cuts, or scrap his regressive, expensive tax plan altogether.

I. The Principal Concrete Step that John McCain and Sarah Palin Have Proposed in the Campaign To-Date Would Pay for At Most 5.8% His Tax Cuts: After claiming earlier this year that the nation had made “great progress economically” under the leadership of George W. Bush, John McCain doubled down on Bush’s Administration’s fiscal irresponsibility by proposing a set of new tax cuts that, according to the Tax Policy Center, would cost $3.4 trillion over the next decade.3 These tax cuts, which include an across-the-board reduction in the corporate tax rate, immediate expensing of business investment and complete repeal of the AMT even for the highest income earners, are more stacked against ordinary families than anything President Bush ever signed into law. Indeed, the typical middle class household would receive only $259 under the McCain plan while someone in the top 0.1% of earners – with average incomes of $8.9 million would receive $577,000 under McCain’s plan.4

When announcing his tax cuts in a speech on April 15, Senator McCain offered virtually no explanation of how he would pay for his new tax plan without increasing the deficit.5 While offering a number of vague commitments to slow spending growth and engage in bipartisan entitlement reform, the principal concrete proposal he unveiled would pay for only 5.8% of the cost of McCain’s tax plan. Eliminating earmarks would cover at most 5.8% of the cost of McCain’s tax cuts. John McCain speaks often about eliminating all earmarks from the federal budget and using that savings to offset his tax cuts. But the entire value of earmarks in the federal budget is about $18 billion per year.6 The Tax Policy Center estimates that in 2013 – the same year Senator McCain has promised to balance – McCain’s tax plans would cost $312 billion. Therefore even if McCain succeeded in eliminating all earmarks, it would offset only 5.8% of the cost of his tax plan.7

II. John McCain Has Repeatedly Backed Away from His Spending Cuts That His Economic Advisors Claim He Supports: In the wake of John McCain’s tax cut speech, his campaign was barraged by criticism that his tax cuts were unaffordable and would explode the deficit.8 In response, his economic advisors quietly rolled out an additional set of proposals designed to offset some of the cost of McCain’s tax plan. However, not only do these additional plans fail to even come close to covering the cost of McCain’s tax plan, but on numerous occasions, John McCain himself has disavowed the cuts that his own advisors had identified.

Ending the Pentagon’s Future Combat System? Advisors say yes but McCain says “No.” Senior McCain advisor Douglas Holtz-Eakin provided a McCain budget document to the Washington Post that included an unspecified commitment to cut discretionary spending by $160 billion in 2013. The only specific discretionary cut that the McCain document identified was cutting Pentagon procurement programs, including the “Future Combat System that “should be ended” according to the document.9 However, just this past week Senator McCain criticized Barack Obama for wanting to slow growth in the same Future Combat System, explaining that “[t]his is not a time to slow our development of Future Combat Systems.”10

Eliminating special Tax Breaks for Oil and Gas Companies? Advisors say yes but McCain says “No.” Senior McCain advisor Douglas Holtz-Eakin also claimed in the McCain budget memo that John McCain would eliminate a range of special tax preferences for oil and gas companies to help offset the cost of his proposals. Together, these provisions would save about $3 - $4 billion per year.11 However, when John McCain was given an opportunity to support the recent bipartisan Gang of 10 energy proposal, he balked, with his advisors saying that he opposed the provisions that would take away tax breaks from oil companies.

Eliminating Overpayments to HMOs in Medicare? Advisors say yes but McCain says “No.” Senior McCain aide Douglas Holtz-Eakin has claimed that McCain would eliminate the approximately $15 billion per year in overpayments to HMOs in the Medicare Advantage program, claiming that HMOs ought to “compete on a level playing field” with traditional Medicare.12 However, when John McCain had a chance to support a plan this summer to increase payments to doctors in the Medicare program that would have been paid for by modestly reducing these overpayments to HMOs, McCain said no. In siding with President Bush and the insurance industry, McCain made the misleading claim that it would place “2.3 million seniors at risk of losing the private health care coverage of their choice.”13

Reducing Funds for No Child Left Behind? Advisors say yes but McCain says “No.” McCain’s education advisors have said that John McCain believes NCLB is “adequately funded”14 and that his plan to freeze discretionary spending in the first year of his presidency “applies to education programs, including the largest program under the NCLB law, Title I.”15 However, when speaking to the NAACP on July 16, Senator McCain engaged in the following exchange with a questioner – Q: “Do you promise to provide full federal funding to the public schools so that we can satisfy the mandates that have been created by the No Child Left Behind?" MCCAIN: "I will. I will make, I will fully fund those programs. "16

III. To Actually Pay for His Tax Cuts Without Increasing the Deficit, McCain/Palin Would Have to Cut Medicare by More than 50% or Social Security by 38%: The Tax Policy Center estimates that McCain’s tax plan would add $3.4 trillion to the deficit over ten years. In 2013 – the year that Senator McCain has promised to balance the budget – Tax Policy Center estimates that McCain’s tax plans would add $312 billion to the deficit. That means that just to cover the cost of his tax cuts in that year, Senator McCain would have to cut $312 billion in spending. To put that in perspective, that is the equivalent of cutting Medicare by 57%, or Social Security by 38%.

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1. See http://www.bloomberg.com/apps/news?pid=20601070&sid=aKZG._gG2NVI&refer=politics.
2. See http://www.boston.com/news/politics/politicalintelligence/2007/12/mccain_its_abou.html.
3. See http://www.taxpolicycenter.org/publications/url.cfm?ID=411749.
4. See http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=1891&DocTypeID=1.
5. See http://www.johnmccain.com/Informing/News/Speeches/9bb4e69a-36cc-4ca3-b40d-0cdd41a1b812.htm.
6. Citizens Against Government Waste, 06/08.
7. Senator McCain has even backed off his commitment to eliminate all earmarks from the federal budget. He has said that certain foreign aid projects including aid to Israel as well as support for military housing would not be eliminated, and suggested that “worthy, well-vetted earmarks could still pass muster.” Politico, 4/24/08.
8. See NYT, 6/18/08; Boston Globe 7/11/08; Washington Post 7/14/08.
9. See http://www.washingtonpost.com/wp-dyn/content/article/2008/07/13/AR2008071301643.html.
10. See http://www.armytimes.com/news/2008/09/defense_mccain_FCS_091208/.
11. See http://www.washingtonpost.com/wp-dyn/content/article/2008/07/13/AR2008071301643.html.
12. See http://blogs.usatoday.com/onpolitics/2008/05/mccain-advise-1.html.
13. Statement from Senator John McCain, 7/9/08
14. AJC, 6/16/08.
15. Education Week, 6/12/08.
16. CSPAN Live Online, McCain Q&A and NAACP, 7/16/08.