Sunday, August 31, 2008

Do Obama's Tax and Spending Proposals Add Up?

The short answer is maybe, but we don't know, because the Tax Policy Center hasn't published a full analysis yet.

Here is what Obama said about paying for his spending proposals in Thursday night's speech:

Now, many of these plans will cost money, which is why I've laid out how I'll pay for every dime - by closing corporate loopholes and tax havens that don't help America grow. But I will also go through the federal budget, line by line, eliminating programs that no longer work and making the ones we do need work better and cost less - because we cannot meet twenty-first century challenges with a twentieth century bureaucracy.
Howard Gleckman, a former Business Week reporter, writes of the speech,
... heard all at once, this catalogue is breathtaking: universal health care, higher education for every child, more money for early childhood education, rebuilding the military, $150 billion for alternative energy research, and tax cuts for small business and for "95 percent of all working families."

Last night, he insisted he would pay for it all. But how? All he told us was that he'd end the war in Iraq, close corporate tax loopholes, and eliminate wasteful and obsolete government programs.

This is, of course, impossible.
On the word "impossible," he links to the Tax Policy Center's analysis of McCain and Obama's tax proposals. A naive blog reader might expect that Gleckman means to imply that the TPC analysis backs up his conclusion. But in fact TPC has only looked at the tax side. There has been no similar analysis of the candidates' spending proposals.

I haven't tried to sum up the costs and saving of the various proposals, because it's a complicated task, and no one would trust our accounting to be objective anyway. But just ending the Iraq War sooner rather than later would save a bundle: conservative estimates place the costs of the war at $120 billion a year, and some estimates--which take into account the long-term costs, chiefly care for veterans--are much, much higher.

TPC has estimated the costs of Obama's health care proposal in isolation--at $86 billion a year initially, and then increasing as takeup and premium costs increase. So at least initially, ending the Iraq war would more than "pay for" the health care program.

As Gleckman points out later in his post, Obama is also proposing to auction off carbon permits, which would potentially raise a great deal of revenue, depending on how the auction is set up, whether part of the revenue is returned as a dividend, etc. Throw this in with eliminating some wasteful programs, and it's at least plausible that Obama's proposals could be paid for, relative to the current policy baseline. Certainly, it's not impossible.

At the Tax Policy Center's duel on tax policy between the candidates' advisors last month, Len Burman announced that they would be back for a discussion of the spending side. I assume TPC is working on a spending analysis to serve as the focal point for that discussion. Until we have that kind of analysis to work from, there's no basis for asserting that Obama's claim is without merit.

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