Monday, February 25, 2008

Candidates on the March

in the wrong direction....

In the Senate, John McCain opposed the 2001 and 2003 tax cuts, but now he is out to prove that he has imbibed the supply-side kool aid with a tax plan that shows the zeal of the converted. Len Burman of the Tax Policy Center looks at it and says "McCain calls Bush, and Raises Big Time" -
Some conservatives back huge tax cuts because they think the government would just waste the money that would otherwise pour into government coffers. While it's true that a growing economy (and the voracious AMT) would cause federal revenues to grow to over 20 percent of GDP by 2018 under current law, the Post reports (based on my estimates) that Mr. McCain's tax cuts would slash tax revenues to 16.6 percent of GDP in 2018. By comparison, the postwar average of tax revenues was over 18 percent of GDP, and the federal government will face enormous pressures as the baby boomers begin to retire.
According to the CBO, federal government spending amounted to 20% of GDP in fiscal year 2007, so that would leave a big gap (especially if we have more war). McCain likes to talk up his opposition to Congressional "earmarks" for projects back home, but even eliminating them entirely would not make much of a dent in the deficit (they totaled $18.3 billion - less than one percent of federal outlays).

Newsweek's Daniel Gross thinks McCain doesn't really mean it. One can hope.

And hopefully the Democratic candidates don't really mean some of the things they're saying either. As the campaign rolls into Ohio, Obama and Clinton are fighting over who hates international trade more. Although there are more nuances than economists sometimes care to acknowledge - I have some sympathy with Dani Rodrik's defense of Clinton (see this previous post) - the Lou Dobbsian rhetoric is taking us further away from a serious discussion of the challenges, and opportunities, of a global economy. Or, as Lawrence MacDonald puts it on the Center for Global Development's blog: "Earth to Dems: Enough with the Trade Bashing Already."

As if trashing NAFTA weren't enough, Obama also has floated a proposal to give to give tax breaks to "Patriot Employers." Last week, Clive Crook described it as "barking" (which I believe is British for "insane"). He went on to say: "It would take a lot to persuade me that Obama is the wrong choice for Democratic nominee, but if he keeps this up he might do it." Indeed. Count me as one Ohio Democratic primary voter who is unimpressed.

Neither Democratic nor Republican trends are encouraging, but McCain's silliness (if sincere) is likely of more practical import than Democrats'. The scheduled expiry of the 2001 and 2003 tax cuts means that the next President definitely will face some serious decisions about tax policy. It is not clear that there will any decisive moments on trade in the foreseeable future: the current round of WTO negotiations seems hopelessly stalled, leaving us with mostly symbolic tussles over various and sundry small potatoes regional trade agreements.

Update (2/26): Willem Buiter and Anne Sibert say the "Patriot Employer" proposal is "reactionary, populist, xenophobic and just plain silly," but The Economist's Free Exchange blog thinks their criticisms are overstated. For a more optimistic take, see this New Republic article on Obama's policy advisors (he actually cares what experts think - wow!) (Hat tip: Greg Mankiw).

Update #2 (2/26): The Washington Post fact-checker looked the argument between Clinton and Obama over NAFTA (the North American Free Trade Agreement between the US and Canada) and concluded: "
You would not think it from the way they have been attacking each other, but Clinton and Obama are not all that far apart on NAFTA. They both believe in free trade, but they both argue that the U.S. has got a bad deal from the way NAFTA and other trade deals have been enforced. Both candidates have used quotes selectively to slam the other."

Update #3 (2/28): The NY Times' David Leonhardt thinks they don't really mean it. Also, Economists' View has more here, and here.

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