Maverick McCainomics Could Alter Our Fiscal Future
Uncle Sam has plenty of dough. That's the core belief at the center of McCainomics. Or maybe we should call it "maverick economics," since John McCain's approach toward taxes and government spending has the potential to change the rules of the Washington budget game. Actually, it has the potential to change the game itself and perhaps create a long-term solution to America's fiscal problem—with trillions left over. See, that's what the Wall Street Journal didn't seem to understand when one of its reporters wrote the following last week:
Sen. John McCain is proposing tax cuts that would either cause the federal deficit to explode or would require unprecedented spending cuts equal to one-third of federal spending on domestic programs.
The skeptical, if not incredulous, tone of the article led McCain economic adviser Douglas Holtz-Eakin to write a response over at National Review Online:
Nowhere in the article does [Laura Meckler, the WSJ reporter] mention that John McCain has explicitly addressed entitlement spending and the need for action to cut spending today.... By addressing entitlements now, John McCain can reduce federal spending today and prevent Meckler's doomsday scenario.
The fiscal knot that a President McCain would have to untie to meet his promise to extend the Bush tax cuts, cut corporate taxes, eliminate the alternative minimum tax, and create an optional two-rate income tax system—while also getting America's fiscal house in order—may seem like one of Gordian difficulty.
1) The Congressional Budget Office will treat all McCain's tax cuts as pure revenue losers—an argument the media will completely buy into. And even the McCain campaign isn't making the argument that his tax cuts would come close to fully paying for themselves through the increased revenue that comes from higher economic growth. (A good thing since Team McCain doesn't believe much in supply-side effects.) With the corporate tax rate cut, for instance, the campaign thinks it can recoup $30 billion of the $100 billion in lost revenue. So in isolation, McCain's tax cut proposals would increase the budget deficit, which may be half a trillion bucks or more in 2009.
2) Assuming he isn't going to slash the Pentagon's budget, McCain realistically can't cut nondefense discretionary spending enough to pay for his tax cuts. In 2007, nondefense discretionary spending was $458 billion, or 3.3 percent of gross domestic product. If McCain was able to cut the $160 billion or so in excess spending he says he could find in the budget—whether through eliminating earmarks or other reductions—that would cut spending on education, border security, technology investment, and other discretionary items to around $300 billion, or 2.1 percent of GDP. Now the low point for the past four decades was 3 percent GDP in 1999.
Yet even that skimpy amount of spending would still leave a huge budget gap. Just extending the Bush tax cuts, for instance, would add an average of $280 billion a year to the budget deficit from 2011 to 2018, according to the old-fashioned, static analysis of the CBO. So using the campaign's own economic logic, McCain would pretty much have to eliminate all nondefense discretionary spending to pay for his tax cuts.
So where is the money going to come from? Just as Holtz-Eakin said: from entitlement programs. Total government revenues, about 18.8 percent of GDP, are well within historical norms. Last year, the government took in $2.6 trillion, including $1.2 trillion in income taxes (vs. $794 billion in 2003 before the economic recovery and second round of tax cuts kicked into gear). What America needs to decide is how much money it wants to spend on entitlements—and it is that critical debate that McCain seems intent on pushing.
Let's focus just on Social Security, since the fixes there are pretty straightforward. Two of the most common solutions to the program's long-term solvency problem are extending the retirement age and indexing benefits to inflation rather than to wages. Implementing those two solutions would actually result in more money going into Social Security than is needed to fund scheduled benefits. There would be money left over to help reduce taxes or increase spending on education or energy or whatever.
As Andrew Biggs of the American Enterprise Institute explains it, Social Security has a $5 trillion deficit over the coming 75 years: "This amount is a present value, which means that if you had $5 trillion today—earning interest at the government bond rate—you could draw it down over time to pay full benefits for 75 years." Now if you did a combination of price indexing starting in 2015 and extended the retirement age to 70 by 2050, that $5 trillion deficit turns into a $2.87 trillion surplus.
Of course, Medicare is an even bigger problem than Social Security. But look at it this way: The current projected 10-year annual growth rate for all mandatory spending is 5.7 percent. If that amount were reduced to 4.7 percent, notes Chris Edwards of the Cato Institute, we would save $253 billion in 2018 alone.
Now McCain and his advisers have not said specifically how they want to reform Social Security. And certainly a Congress controlled by Democrats would have other ideas. Plus, there is a good chance that the McCain campaign is actually underestimating the economic impact of its tax cut ideas—if they went into effect—and the revenue they might produce. (Don't forget that the budget was on a glide path toward being balanced until the housing implosion and credit crunch dramatically slowed the economy.)
The state of the economy and the budget, and the political makeup of Congress, would also determine the direction of McCainomics. But there is at least a direction that leads to a result where taxes are kept low and America's social insurance system is kept solvent.
Tags: economics | presidential election 2008 | federal budget | John McCain | federal spending
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A noneconomic thought. The above posting is the exact reason why polticians will not reform Social Security or Medicare. You are fooling yourself if you somehow think that cutting Social Security will reduce the wealth of future generations, especially when we don't have the money in our savings accounts, but instead are sitting in the coffers of the government. Also, the Supreme Court has already ruled that us Americans who are to benefit from this system have no legal claim to any of the benefits in the Medicare or Social Security system (and if you don't have a legal claim to something, by technicality you do not have wealth). You don't need to have a degree in economics to know that there are less youngsters paying into Social Security and Medicare than there are old folks pulling money out. You do not need a degree in economics to know that our society isgetting older. These are facts. And when you have two systems that rely upon payroll taxes to finance its benefits, and when you have a population which is entering its twilight working years, you will have a fiscal problem.
No, what is dangerous is that people like the poster above have been hoodwinked into believing that the only way that people can escape poverty is by turning over the wealth that they have built up for years to the government for it to spend the money how it sees fit (I bet the above poster does not agree with the Iraq War, yet the government is paying for although many of its citizens don't agree with it. Well, this is what happens when you give your money to the government and allow it to spend it.) Oh, it's also surprising that in the poster's list of wealthy individuals, he studiously forgets to include the Clinton's $109 million estate and the Obama's $4.1 million estate. But of course, certain types of rich people are okay, I guess.
A "noneconomic" thought, indeed.
I would invite Chris above to explain to us how exactly how HE believes that elder care, especially medical care, should be managed. Savings accounts, he says?
As for Hillary and Barack paying estate taxes? Yes, of course. They'll be first in line to see to it we have such laws.
The fact of the matter is, Daniel David, I DON'T know how to manage the program because I realize that trying to manage something that complex cannot simply be solved by "taxing the rich". It will require a combination of several things, such as the elderly's kids doing the TRUE moral thing and taking care of their OWN elderly parents and grandparents and cutting back spending and saving money, and also, in the most extreme cases where people cannot take care of themselves, the government should provide some assistance. In today's society, everyone's problems should become someone else's, but I shouldn't be surprised. After all, aren't all of the candidates promising to take care of everyone, even though they know there is no way in hell that it can be done?
Anyway, it is truly surprising that people continuously want to have the government solve our problems. I believe the government was supposed to free us from want and fear, but we see how that turned out. I believe the government was supposed to provide free education so everyone gets an opportunity to get ahead, but we see how that turned out. I believe the government was supposed to eradicate poverty, but we see how that turned out. I believe the government was supposed to eliminate drugs, but we see how that turned out. Everyone wants the government to provide "free" healthcare, but it can barely manage the Medicaid, Medicare, S-Chip, and VA programs. It's truly a shame that people, for the sake of false security, are willing to give the government more of their economic freedom away. But I digress.
No government on earth can provide "free" health care. None of them are. But most of the democratic ones we count as allies have legislated moral triumphs for their PEOPLE that amount to nothing more than citizen voters properly limiting the monopolizing activities of for-profit CORPORATIONS in health care.
Americans are BEHIND the curve of what democracy should accomplish in this regard, not somehow still "ahead" as our corporate spinners prod us to imagine.
The arrogance of conservatives' claims about "best in the world" never actually defines best "what", and for benefit of exactly "whom". Both need clarification.
Government could outlaw the direct-to-consumer corporate advertising of drugs that only doctors can prescribe. Government could limit the scope of what can be patented by corporations for medical purposes. Government could outlaw corporations from taking bets for profit on whether you get sick or not (that thing we politely call "underwriting".)
Government could legislate that all hospitals are operated in the not-for-profit corporation model and establish "staff" standards in hospitals that assure people have time for handwashing and other cleanliness to lessen the incredible national waste we now endure with "staph" infection as well as commonplace medication errors-- both due to nothing but over-rushing and carelessness.
Government could outlaw corporations from accepting any form of indebtedness from individuals for health care services, including on credit cards (eliminating personal "medical" bankruptcy). By the same token, government--with a single-payer plan--could ensure that individual and corporate providers are always, always paid for their services and never stuck with uncompensated care.
Government could outlaw incorporated providers from banding together in "networks" (aka cartels) for purpose of restricting real choice and competition. Government could wholly abandon the patchwork of Medicaid, Medicare, S-Chip and VA programs, resulting in citizens demanding and designing a program that is not means-tested, or age-tested, or veteran-tested, and that works better for both citizen patients and citizen health workers.
Government could declare that although CITIZENS have a Constitutional right of free speech, defended forever, that CORPORATIONS are paper entities not even mentioned in the Constitution and that they do not have the same degree of free speech rights as citizens, thereby limiting their so-called "right" to run ads against the reforms we all know we need. "Harry and Louise" were fictional characters hired in the 1990s by corporate profiteers to lie to you from a TV megaphone with endless repetition. That continuing capability is at root of why most Americans answer the poll question year after year that America is on the "wrong track." We citizens can do better, and when Republicans are defeated and deposed from their insistence that corporations are better than you, we just might do so.
David, the problem is that government "could" do all of the things you have stated above. But that goes to my exact point. In order for government to do things that you want them to do, you must give them the power to do so. Now, I somehow bet that you are against the many so-called civil liberty violating acts the Bush Administration has enacted since 9/11. Yet, you are freely willing to allow the government to try to regulate away competition and risk in the medical sector. As I mentioned above, we have the government do so many things now, and the government has failed. Failed. No sir, Republicans and conservatives do not believe that corporations know better than individuals when it comes to making choices. However, Republicans and conservatives do recognize that corporations can assist in helping make reforms in their own industry than the government, which can't even manage the task it is given, namably passing a budget and providing security. What in theworld does the government know about providing healthcare? It's absolutely sad that people have become so drunk on the Kool-Aid of government knowing everything, that they can no longer recognize that having the government provide so-called "solutions", however well-intentioned they may be, ultimately hurt the people they are trying to help.
By the way, stop trying to dump this in the lap of Republicans. Republicans aren't the ones who are preventing nationalized healthcare from being implemented. I believe that the Democrats had a solid majority during the 50s, 60s, 70s, and the 80s. All during that time they had ample opportunity to pass nationalized health care. However, it was never done. Now, I don't think it was because the Democrats was in the pockets of insurance and pharmaceutical companies. No, I think the reason we don't have nationalized healthcare is because most Americans, outside of zealot liberals and Democrats, don't want it. We'll see again if there are any changes to the healthcare system if Hillary Clinton or Barack Obama gets in and there are majorities in Congress. I'm willing to bet there will not be major changes to the system, and, if there are, won't be enacted for several years.
The "political" angle
Actually, Chris, I think I will continue to blame the Republicans for lack of progress on reforming health care to the advantage of citizens instead of corporations.
Though you'd have us believe that liberals have had ample opportunity to address the issues from government, I believe that since the Carter administration ended in 1980 that Democrats have held The White House and Congress together only during 1993 and 1994----specifically the era during which corporations resorted to hiring the ACTORS "Harry & Louise" to poison public opinion with scripted lies paraded as though they were the concerns of ordinary people. As long as the CORPORATIONS had their Republican minions sitting on either the presidential veto or the Senate filibuster, they were amply "protected."
As for "most Americans" opposing health care stuctures that are protecting the citizens of many other nations from personal medical bankruptcy, it simply ain't so.
Most Americans, even those who imagine themselves "safe" because they or a spouse are employed at places that still have reasonable group plans, are CLUELESS how exposed they are to losing everything with just minor changes in circumstances, or diagnoses, or even the financial health of their employers.
I'd be interested in hearing how many former employees of Enron you can find who oppose national tax-funded health care. I'd also be interested in how many public-sector employees you can find who would oppose it if you told them they can no longer have their public-sector unions to protect them with cushy plans on the public dime--the type that are disappearing every day in the private sector. I'd be interested in knowing how many Mom & Pop self-employed entrepreneurs you can find who would oppose it.
By the way, would you care to disclose your personal health care arrangements so we can all understand why you feel so assured about your own future?
I see above you think that cuts in entitlement spending will "reduce the future wealth of seniors' children and grandchildren and great grandchildren."
Providing these entitlements will cost over $5 trillion in the coming decades, and you argue that cutting benefits will take away wealth of the next generation. When the government sends out these checks, where does it get the money? it BORROWS it.
You worry about the wealth of future generations, yet if we do not cut entitlements, the future generations will be drowning under trillions in debt it has to pay back. This doesn't take an advanced degree to understand.
How about blaming the right culprits?
Dennis, I believe if you'll take an honest look at the combined federal budget of the last seven years you will find that the "entitlements" of Social Security and Medicare were entirely paid for by themselves from their dedicated payroll taxes, AND that surpluses remained for the programs each and every year.
Considering that the entitlement surpluses actually served to supplement the combined federal budget, the $4,000,000,000,000.00 otherwise borrowed and added to the national debt is MORE THAN entirely due to the combination of the "Bush" tax cuts of 2001 and 2003 plus the two wars that were launched without voter approval of how they would be paid for.
The future generations ARE ALREADY drowning under trillions of debt to be paid back. And although McCain and the Republicans are more than willing to blatantly lie about the causes of this, I'm not willing to believe their falsehoods, and you shouldn't be.
Speaking of things not requiring an advanced degree to understand, the political problem of the moment with entitlements is that more than $2,000,000,000,000.00 has been borrowed by the more-wealthy payers of income tax FROM the less-wealthy payers of payroll tax (from the "Trust Funds"), and now the former are now unwilling to pay it back and looking for politicians who will let them skate away. McCain so far appears to be willing to participate in the scam and with luck will be soundly defeated by those dumb degree-lacking voters.
David, for your information, I am currently unemployed and am a full time student, my wife is bringing in one income, we have two kids, a mortgage that is crippling, mounting debt, and dwindling savings. Yet, we do not want more government intervention. I do not blame the Bush Administration for my circumstances, nor do I blame the Democratically controlled Congress. We do not go begging to the government to give us assistance and we sure don't want the government's healthcare. My wife's insurance has a $150 co-pay for emergency care and a $1,000 deductible if any of us are admitted to the hospital. Yet, I am willing to pay that because it is by far more superior to anything the government can ever give us. The government does not have all of the answers, and the answers that the government has provided in response to myriads of issues have been poor. You cannot expect the government to provide free education, free healthcare, housing assistance, food assistance, energy assistance, disability, defense, intelligence, transportation, etc., etc., etc. without it messing up.
And why is it that Democrats and liberals try to place blame on everyone else? As I mentioned before, the Democrats have had control of Congress for far more years than the Republicans can dream of, yet we still have these problems. No, it is not the Republicans and John McCain that is lying to you, it is Democrats and liberals that is lying to themselves thinking that the government can be a "god" to all people when it cannot even function efficiently itself. When you get 536 people in one room, you don't get solutions, you get a 536 different answers to the same problem.
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McCain Hopes to Widen the Wealth Gap
Please, please pardon me for SHOUTING at you in a blog, but some things need serious straightforward publicity and are worth YELLING about.
Cuts to Social Security and Medicare and Medicaid REDUCE THE FUTURE WEALTH OF SENIORS' CHILDREN AND GRANDCHILDREN AND GREAT GRANDCHILDREN. THIS EFFECT CAN AND WILL OCCUR TO TENS OF MILLIONS OF THE LOWER MIDDLE CLASS, REDUCING THAT CLASS FOREVER, IF REPUBLICANS GET THEIR WAY. That's because all "modest" inheritances evaporate from entire extended families if CORPORATE MEDICINE is permitted to vacuum up every last cent from the frail elderly. Families believe in God and grandparents and they will literally "give their all" to take care of the folks, buying overpriced care from CORPORATE providers who monopolize medicine.
This is "moral hazard" in reverse, where people try to "do right" and are systematically robbed and hoodwinked. Your "single-payer" government plans are citizens' only firewalls against this happening to millions of people.
John McCain says it's more important to completely remove estate tax for the heirs of Bill Gates, Donald Trump, Warren Buffet, Tom Cruise, Britney Spears, Michael Jackson, Tim McGraw, Dale Earnhardt, (etc. etc.---a "cast" of thousands) AND FROM HIS WIFE, CINDY'S, $100,000,000.00 BEER ESTATE, than to prevent a permanent shrink of America's middle class. JOHN McCAIN IS EITHER WRONG, OR LYING, OR BOTH. Wake up and smell the coffee---while you, your kids, your grandkids, and your great grandkids can still afford a cup of it.
Something else worth noting. THINK about this. Some economists say we should index Social Security benefit hikes to the increase in "inflation" (as measured by the CPI) instead of the supposedly higher increase in "wages."
THIS CAN ONLY WORK BECAUSE YOUR CPI "INFLATION" IS MANIPULATED AND MIS-REPORTED TO YOU BY YOUR GOVERNMENT. Do you think wages are going up faster than inflation? You KNOW they're not. Why would you stand by and let a bunch of liar "economists" dupe you with this? Because they have higher level college degrees? Don't buy nonsense. Elect Democrats and stand your ground.
Apr 29, 2008 12:24:57 PM [permalink] [report comment]