No More of the McSame!

Here is a great two-part check on McCain;s budget statements from Fact Check dot org. The articles also serve as a reminder as to the fiction of Supply Side (”Trickle Down”) economics.

The Budget According to McCain: Part I
May 13, 2008
Updated: May 16, 2008

Think it’s all about cutting earmarks? Think again.

Summary

McCain’s big promise is that he can balance the budget while extending Bush’s tax cuts and adding a few of his own. He likes to leave the impression that this can be done painlessly, for example, by eliminating “wasteful” spending in the form of “earmarks” that lawmakers like to tuck into spending bills to finance home-state projects. We found that not only is this theory full of holes, it’s not even McCain’s actual plan. In this story we examine the spending-cut side of McCain’s budget program. In Part II, we’ll look at what McCain has said about taxes.

McCain’s pronouncements on cutting spending, and even on the growth in the size of the federal government, are dubious at best:

* McCain seems to say that he can save $100 billion by cutting out earmarks. But budget experts say that cutting earmarks would actually save very little. And questioned more closely, McCain’s campaign now says that his planned savings have nothing to do with eliminating earmarks.

* With earmarks out as a potential source of savings, McCain hasn’t said what he’d cut out of the discretionary budget to get to $100 billion. He’s even indicated that defense spending might increase. If defense spending is off the table, saving $100 billion would require 18.5 percent across-the-board cuts in every other discretionary program, including things like elementary and secondary education, veterans’ health benefits and highway construction. The alternative would be severe cuts in a few programs, as yet unnamed.

* McCain says that “just in the last few years” the government has puffed up “by 40 percent, by trillions.” Actually, it has taken federal spending a decade to grow 40 percent, and even longer to grow by “trillions.” In inflation-adjusted dollars, federal spending is projected to come to $2.45 trillion in fiscal 2009, including $1.4 trillion for Social Security, Medicare, military spending and veterans programs. The last time the budget was “trillions” smaller was 1951.

Update, May 16: In our original article, we did not specify in the summary that the $2.45 trillion in federal spending is measured in inflation-adjusted dollars, with 2000 as a baseline. Also, we have changed the summary to reflect that the estimate is for fiscal year 2009, as we say in the Analysis section; the spending levels are still being developed by Congress.

Also, we should not have said that student loans were part of the discretionary budget, as we did originally. They are not. And we have changed the term “assistance to veterans” to be more specific, since some veterans programs are mandatory and some are discretionary.

Analysis

Beginning, appropriately enough, with an April 15 speech, presumptive Republican presidential nominee John McCain began unveiling a series of economic proposals. He elaborated on his plan in an April 16 interview with Andrea Mitchell on MSNBC and again in an April 20 appearance on “This Week with George Stephanopoulos” and has continued repeating many of his claims on the stump. In the first of our two-part article on McCain’s budget and tax proposals, we look at his plan to reduce government spending.

Full story here…

The Budget According to McCain: Part II
May 14, 2008

The new McCain loves tax cuts. But many of his claims about them are off.

Summary

In our last installment we looked at McCain’s pronouncements on spending cuts to help balance the budget. In Part II, we examine what he’s said on a subject that might be more pleasing to many Americans: lowering taxes. We found exaggerations and distortions here, as well.

* McCain says that eliminating the Alternative Minimum Tax will save “more than 25 million middle-class families more than $2,000 every year.” But McCain’s “middle class” includes families making up to $200,000 per year, and the $2,000 figure is an average. Those earning more money will see the lion’s share of the savings. McCain also leaves out the fact that the proposal could cost as much as $1.6 trillion over 10 years.

* By the measure most economists prefer, McCain is wrong in his claim that Sens. Clinton and Obama want to implement “the single largest tax increase since the Second World War;” it would be the fifth largest. At a more basic level, it’s misleading to tag Clinton and Obama for something that was scheduled during the Bush administration – the expiration of the 2001 and 2003 Bush tax cuts, which by law will occur at the end of 2010.

* McCain also repeats the mantra that cutting the capital gains tax rate will increase government receipts. In fact, rate cuts produce a spike in revenue, but it’s only temporary. McCain also falsely claims that higher capital gains tax rates will affect 401(k) plans.

* McCain was the first to announce the now widely discredited proposal to suspend federal gas taxes. The proposal wouldn’t lower prices at the pump and would result in (effectively) an $8.5 billion windfall to oil companies.

Analysis

In an April 15 speech, McCain unveiled a set of proposals that he says would reduce spending, lower taxes and still leave the government with enough money to balance the budget. We’ve already tackled McCain’s pledge to cut discretionary spending by $100 billion. In this second part, we examine his plan to lower your taxes.

Alternative Middle-Class Cuts

McCain says his plan to eliminate the Alternative Minimum Tax (AMT) would be a “middle-class tax cut.” That depends on what your definition of “middle class” is.

McCain (April 15): “I will also send to the Congress a middle-class tax cut – a complete phase-out of the Alternative Minimum Tax to save more than 25 million middle-class families more than 2,000 dollars every year.”

Douglas Holtz-Eakin, McCain’s economic adviser, confirms that the senator is referring to taxpayers making up to $200,000 a year. According to projections by the Tax Policy Center (TPC), 26.6 million of those paying the tax in 2010 will make up to $200k, while 5.8 million will make more than that. TPC figures also show that the majority (64 percent, or 20.9 million) of AMT taxpayers in 2010 will earn more than $100,000 a year. The AMT was originally devised in 1969 after 155 taxpayers with incomes over $200,000 escaped paying any federal income taxes. But because the tax isn’t indexed to inflation, it has been affecting a greater percentage of taxpayers in most income classifications each year; that $200,000 threshold would be worth $1.2 million in today’s dollars. Bush’s tax cuts have caused the AMT to affect more people than it otherwise would: Taxpayers are subject to the AMT when the amount they owe under the “regular” tax system dips below the amount they would pay under the AMT, so cuts in the regular tax rate can actually increase the number of people who must pay the AMT. In fact, the estimated percentage of taxpayers subject to the AMT will have more than doubled in 2010 because of the Bush tax cuts.

Holtz-Eakin also told FactCheck.org that the families to which McCain refers would save an average of $2,000 a year. That means some would save more and some would save less. Those in higher income groups pay much more of AMT taxes than do those with lower earnings, and they would reap more of the benefits of repealing the tax as well. About 90 percent of the tax benefits of doing away with the AMT in 2007, for instance, would have gone to households in the $100k and above group; 55 percent would have gone to households earning more than $200k. We’ve charted the Tax Policy Center’s data on who will pay the AMT in 2010 and how much of the AMT tax burden they’ll bear:

Full story here…