Thursday, July 24, 2008

More Reflections on the Tax Duel

Several followups to yesterday's post on the tax policy debate between the Obama and McCain economic policy advisers:

1) Around the blogosphere I've seen people fault Goolsbee for not offering a detailed accounting of Obama's spending proposals, when the question came up at the end of the Q&A. Contrary to other reports, he didn't duck the question. He said three things: a) he couldn't give an exact projected deficit figure under the Obama proposals off the top of his head, b) nevertheless, the nominal deficit in 2013 under Obama's proposals would be less than in 2009, and c) for the forum on tax policy he came with numbers in hand to talk about taxes, but he would be very happy to come back to the Urban Institute for a forum on the candidates' spending proposals.

2) It is flabbergasting that some policy wonks and journalists treat what McCain and company say about fiscal policy as if they were serious attempts to grapple with policy. You could take all of Obama's tax and spending proposals and enact them tomorrow and the sun would continue to rise and set every day, and the world would be a better place. But if you tried to actually do something like what McCain has said he will do to the tax system, and balance the budget by 2013, as be insists he will do, ... well, we don't know because these proposals
are truly unthinkable. The only way he could make these promises add up would to largely dismantle Medicare and Social Security, while continuing to collect the payroll tax dedicated to the programs. It is inconceivable that Americans would stand for this. So, we know with certainty that McCain's proposals will never be enacted and simply cannot be taken at face value. So what was Goolsbee to do? Just engaging in a polite side-by-side discussion of the two candidates' proposals risks giving the false impression that McCain has a proposal worthy of critique. Goolsbee took the only tack available to him, with a frontal, take-no-prisoners assault on McCain's proposals. To his immense credit, Goolsbee was able to rhetorically shred McCain's program while still coming across as a good-natured guy.

3) TaxVox's Howard Gleckman is one of those wonks who's gives McCain far more credit than he's due, by way of his "pox on both their houses" analysis. In this post, he says that "McCain’s primary policy goal is economic growth, Obama’s is progressivity." Leaving aside whether this is an accurate characterization of Obama's primary tax policy goal, the difference is that Obama's goal would clearly be achieved by his plan, while McCain's goal--even in some bizarro alternative universe where he was able to put all his proposals in place--has no relation to his "plan." To the contrary, actually trying to implement the McCain proposal would spell doom for the economy. Taking him at his word (see #2 above), he's going to balance the budget by 2013. This would amount to a huge contractionary swing during a period when the economy is struggling to pull out of a possibly severe recession. Whatever the possible merits of a balanced budget, now is not the moment to be pushing to achieve one in the near term. Let's say we pretend that McCain didn't promise to balance the budget--then his program would be if anything a net negative for growth over the long term. While some research suggests that lower taxes paired with lower spending promotes growth (although this depends on particular circumstances, etc.), there is NO evidence for the proposition that tax cuts financed by debt promote growth.

Thats all I have for the time being. I'll be on vacation for the next week and a half, soaking up some sun and tackling my first triathlon. Hopefully some of my colleagues will man the store while I'm gone.


donna said...

I think its ridicuouls to try and pormote growth without being progressive. The conservative economic policies have failed, big time. There is no more growth in them, only more debt. McCain will massively increase our debt and bankrupt us. We literally can't afford to elect him.

Despite Cheney, deficits DO matter.

MattYoung said...

How was it that Obama's economic advisers did not point out the contradiction of his energy subsidy to poor people? (Taking oil taxes and using them for redistribution)

I thought we had agreement that energy policy should favor energy conservation, not poor, not cash starved states, not housing bailouts, but conservation.

It is now fact that Obama's advisers let him come out with this contradictory proposal that put cap and trade way off to the back burner, that both sides intend to steal the global warming fees using the legislature.

If every solution that Obama proposes for real problems have to be tinged with income redistribution, then the legislature will be frozen well into his first term. His advisers know this, yet they persist.