The Washington Post has an article today about a Tax Policy Center analysis of how Obama's tax plans would increase the federal deficit. I want to make two points.
First, the article is titled "Obama Tax Plan Would Balloon Deficit, Analysis Finds". This is an interesting title for an article about an analysis that finds
- Obama's tax plan would add $3.4 trillion in debt relative to current law by 2018.
- McCain's tax plan would add $5.0 trillion in debt relative to current law by 2018.
My second point concerns Obama's plan itself. I don't think Obama should get a free pass on fiscal policy. But he's been pretty honest: balancing the budget is less important to him than the other fiscal priorities he's made clear. McCain, on the other hand, wants and is so far getting it both ways. According to the WaPo article linked above, "McCain has said he would balance the budget through massive spending cuts." Anyone who looks at the federal budget can tell you that, given McCain's dedication to large military budgets, the only places to cut the kind of money he promises is in Social Security, Medicare and Medicaid. So a reasonable question for reporters to ask McCain would be "How much will you cut these programs?" McCain certainly hasn't addressed this question.
Like any reasonable economist, in a first-best world I believe the government should run balanced budgets over the full business cycle. This means that there are deficits during difficult years and surpluses during flush ones. The reality is that such a policy hasn't held for decades, if ever (my sense is that the year or two of surpluses during 1990s/2000 boom was more due to unexpectedly high tax revenue than to fiscal discipline; corrections welcome).
Since 1981, the basic thrust of GOP fiscal policy has been to keep taxes as low as politically possible, especially on higher-income households. The GOP has pushed for some cuts in social programs, though to my recollection it has never proposed specific cuts in entitlements (by which I specifically mean Social Security and Medicare) during an election year. What entittlement cuts the party has proposed have virtually always been after election years (think 1995 for Medicare and 2005 for Social Security), and they've been sold as not being cuts at all. (The big exception to all of this was the GOP's coopting of the Dems' proposal for a massive increase in federal entitlements via Medicare Part D; this was a naked play for political support among the elderly and, through the design of the program, payoffs to pharmaceutical supporters of the GOP.)
I mention all these things because the basic GOP playbook for close to 30 years now has been a "starve the beast" together with "lie to the voters". In the end, though, the political dynamics of fiscal policy have gone something like this:
- Republicans cut taxes, either assuring people that it's affordable without spending cuts (during flush times) or underselling the spending cuts necessary (during bad times).
- When the bill comes due, they shake their heads and say, we have to cut spending, because there's a deficit.
- Democrats, meanwhile, must either
- propose tax increases to pay for spending, or
- agree to cut spending, or
- agree to run deficits in order to fund their priorities.