The Intellectual Dishonesty of McCain's Economic Advisor

I've been out of the country the last couple weeks and haven't had a chance to discuss in more detail the talk I attended with McCain's economic advisor, Doug Holtz-Eakin. Since then, McCain has released a detailed tax program, and the Tax Policy Center has released their analysis of the program. Then Holtz-Eakin responded to the Tax Policy Center post here.

According to the Tax Policy Center, McCain's plan--which would perpetuate the Bush tax cuts, eliminate the alternative minimum tax, and sharply reduce rates on corporate profits--would cut government revenue by $500 billion a year. This is a huge drop that's just unthinkable. It would require either explosive government deficits or dismantling much of what the government does. Currently, federal spending is about 20 percent of GDP. Under McCain's plan, revenue would be only 16.8 percent of GDP.

Holtz-Eakin would then appear to have an impossible job: justifying something that can't be done. In this Tax Policy Center response, he tries to do something he also did in his talk, but which I didn't understand when I first heard it. Paul Krugman explains it in his column today and Ezra Klein caught it when we saw Holtz-Eakin speak. Let me try my own brief explanation:

The Congressional Budget Office does its budget forecasts based on current law. Current law shows the Bush tax cuts expiring. Holtz-Eakin argues that since everybody "knows" the Bush tax cuts will be extended, the baseline should assume that they will, and that McCain's proposal should be judged against this "realistic" baseline rather than current law. By this logic, McCain's tax plan doesn't lead to huge deficits which threaten the government's solvency--we were already there with the "baseline" scenario, so it's not McCain's fault.

This kind of bogus logic can make your head explode. By this line of reasoning, McCain won't be responsible for the consequences of extending our stay in Iraq for 100 or 1000 years--since we're there already, indefinite occupation of Iraq is just the baseline scenario.

Holtz-Eakin used to have some cred among policy wonks as a serious, honest economist. Looks like he's decided to flush that down the drain.

I still have a couple more things to say about the Holtz-Eakin talk (including his response to my question!) I will write about these in the next couple days.