Paul Krugman makes a very pertinent point today in his blog: the technical definition of recession doesn’t really matter to Americans. What really matters is not how the economy is labeled, but whether or not Americans can fill their cars with gas, put food on the table, buy clothes for their kids, pay their bills — including their mortgage, and hold down a steady job with a well-paying wage.

In academic terms, a recession is defined as a “few” months of consistent pessimistic economic activity spread throughout the economy. This is normally visible in a convergence of negative GDP, income and employment levels, retail sales, and industrial production.

When all these elements converge, there is no disputing that the economy is going down the tubes. But Americans have been singing this song now for months, even years, and they don’t give two cents about dictionary definitions or Wall Street economists — they want relief. Other economic indicators tell a more revealing story:

– Gas prices, which have been quickly approaching the $4/gallon mark, have finally reached the record-breaking levels they haven’t seen since March of 1981.

– The unemployment rate has climbed to 5.1 percent and is expected to move higher in the coming months.

– Consumer spending and retail sales, which account for 70 percent of the US economy, have fallen steadily, scraping lows unseen in more than seven years.

– Home foreclosures have topped the charts, as a record 18.6 million U.S. homes stood empty in the first quarter of 2008.

– Consumer confidence levels, which record popular perceptions on inflation, the job market and the economy in general have hit bottom. The overall number has reached its lowest point since the 2003 invasion of Iraq, while inflation expectations are the highest they’ve been since Hurricane Katrina.

– The share of consumers planning to take a vacation in the next six months has plummeted to a 30-year low.

So when the Department of Commerce announces that the GDP has increased by a meager 0.6 percent in the first quarter of 2008 — signifying that the economy may not technically be in a recession — Paul Krugman asks: “Who cares?”

The Republican National Committee has put out a press release defending Sen. John McCain’s (R-AZ) proposal to suspend federal gas taxes over the summer. The press release claims that the proposal “would save Americans over $6 billion“:

Sen. John McCain Has Proposed Immediate Gas Tax Relief, Which Would Save Americans Over $6 Billion:

Sen. John McCain’s Gas Tax Relief Would Last From Memorial Day To Labor Day. “Hard-working American families are suffering from higher gasoline prices. John McCain calls on Congress to suspend the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day.” (John McCain For President Website, www.johnmccain.com, Accessed 4/22/08)

“A USA TODAY Analysis Showed That McCain’s Gas-Tax Proposal Could Save Motorists $6.8 Billion In Taxes During The Summer.” (Kathy Kiely, “Gas-Tax Holiday Among McCain’s Plans For Economy,” USA Today, 4/16/08)

The RNC fails to provide a link to the USA Today story. Here’s what the article actually says:

A USA TODAY analysis showed that McCain’s gas-tax proposal could save motorists $6.8 billion in taxes during the summer. Len Burman of the non-partisan Urban Institute said the money won’t necessarily go back to consumers. Refineries already are running high to meet summertime gasoline needs, Burman said, so if demand for gas increases, so will prices. He said that means “a huge windfall for refiners,” not consumers.

Reuters reiterates: “Economists said that since refineries cannot increase their supply of gasoline in the space of a few summer months, lower prices will just boost demand and the benefits will flow to oil companies, not consumers.”

In the newest twist on the trend of rising income inequality among American families, there is a growing disparity in domestic consumer spending. Forced to decide between filling up the gas tank and paying the electric bills, versus a night out to dinner and new clothes for summer, consumers are sticking to necessities.

What’s interesting, however, is not that Americans are buying only what they need, but that in today’s faltering economy, Americans are changing the very definition of necessity. Starbucks, whose profits have been falling steadily since late 2007, reported earnings last week that disappointed expectations by 11 percent, influenced by “soft sales in California and Florida, where consumers have been hurt by soft home prices and the subprime-mortgage crisis.” Formerly considered an “affordable luxury,” the purchase of a $5 latte has morphed into an extravagance for the average American.

The trend goes far beyond amenities like coffee. As the New York Times reported this weekend:

Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares. … Wal-Mart stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.

A study conducted by WSL Strategic Retail yielded similar results:

Fashion accessories, home decor items, premium brands or food and specialty coffees, eating at restaurants and takeout foods, and tickets to entertainment, are the top areas where people are trimming their spending.

This pattern, however, hasn’t extended universally across the U.S. economy. Sales of true luxury goods — jewelry, private jets, contemporary art, expensive real estate, yachts — are higher than ever before, despite their climbing price tags. In some cases, the luxury market is setting records. In real estate, for example, 71 $10-million apartments have sold so far this year in Manhattan. In all of last year, only 17 were sold.

Expensive jewelry sales are the same way. A story on CNN’s American Morning explained this phenomenon, noting that “women or their husbands who are buying this jewelry say to a certain extent if we have the money, if we don’t buy it now, the price is only going up.”

The difference between the haves and the have nots seems to be widening by the day. The wealthiest 10 percent of Americans account for more than half of all U.S. consumer spending, and in an era where families are struggling to pay their bills, put food on the table, and secure healthcare, soaring executive profits are a little hard to swallow.

UPDATE: Calculated Risk has more.

The Bush administration has made quite a show of distributing the economic stimulus checks ahead of schedule. Going into the mail on Monday, these checks are designed, according to President Bush, to “help Americans offset the high prices we’re seeing at the gas pump, at the grocery store, and will also give our economy a boost to help us pull out of this economic slowdown.”

What Bush doesn’t seem to understand is that these checks may only stretch far enough to pay for the rising price of gasoline.

The US Energy Information Administration estimates that the price for an average gallon of gas will increase by $.40 per gallon this year. If gasoline consumption remains steady at 2007 levels, then it will cost an extra $231 to fuel a car in 2008. CNN explains:

For a middle-income single person, that represents more than a third of their rebate money [...] For the average American family with two cars, that’s $462 of additional spending on gas – over a quarter of their rebate.

Hard to argue that these checks are really an economic stimulus, aimed at promoting local retail spending and the purchase of local consumer goods, when the money is going straight into Americans’ gas tanks.

Bush might still have had a leg to stand on if gasoline were produced, refined or processed here in the USA, but that’s one more thing that he forgot: most of our gas comes from overseas. In fact, two thirds of the nation’s oil is imported, mostly from Canada, Mexico and Saudi Arabia.

“The rebate goes into the tank, and then finds its way into economies far from our own,” said Jared Bernstein, a senior economist at the Economic Policy Institute. CNN breaks down cost of a gallon of gas:

In plain English, the bulk of what you pay for this gallon of gas goes to oil—and chances are, that oil had nothing to do with an American manufacturer. It looks like the only “stimulus” here in America is the 7% going to the guy who owns the gas station.

As an unexpected consequence of rising commodity prices and the international food crisis, two American retail giants — Costco and Sam’s Club (a subsidiary of Wal-Mart) — have set quantity restrictions on purchases of bulk rice. Sam’s Club, who is now limiting purchases to four, 20 pound bags of rice per visit, claims that “it is a precautionary measure, aimed primarily at our business customers, making sure we have enough for everyone.” They say it is simply a reaction to “recent supply and demand trends.”

A spokesman from Costco tells a similar story:

We don’t want to create a panic where we don’t think there is a panic, if we weren’t able to get any more rice or any more flour that would be a different story but we’re able to continue to replenish our supplies.

So if there’s no panic, and no shortage in supply, then why are these mega-chains limiting rice? Most likely because the restaurant industry, whose profits have tumbled dramatically in the last twelve months, is looking for new ways to cut costs and save on expenses — particularly in light of the painful new fuel surcharges added on by their suppliers for warehouse-to-store truck trips.

Restaurant owners are therefore doing things like cutting back on sauces and portions, charging for extra condiments, and changing their food suppliers — instead of buying staples from delivery services, they are schlepping to the wholesale stores themselves. Sam’s Club and Costco provide another alternative, as both are known to cater to “small businesses including independent restaurants, nursing homes and day care centers.”

The USA Rice Federation seems to agree:

It’s possible that small restaurants and bodega-type neighborhood stores may be purchasing rice in larger quantities than they do typically to avoid higher prices.

Soaring inflation, poor harvests, and worldwide food shortages are causing other countries, such as Vietnam and India, to place temporary bans on some rice exports. American rice farmers appear to be taking advantage, holding back inventories in hopes of locking in bigger profits as worries about shortages continue to drive future prices. The U.S. accounts for only about 1.5% to 2% of global rice production, but it is the world’s fourth-largest exporter, behind Thailand, Vietnam and India. U.S. rice exports are forecast to increase 20% this year.

Our guest blogger is Robin Chait, a Senior Education Policy Analyst at the Center for American Progress Action Fund.

According to George Will, history tells us that when it comes to educational achievement, family is destiny. Yet recent evidence from excellent charter schools tells us otherwise.

In an op-ed in the Washington Post today, Will cites the late Sen. Daniel Patrick Moynihan and the 1966 Coleman report to say that family structure and poverty are the key determinants of educational outcomes, and that money and government programs can’t — and don’t — make a difference. He writes:

No reform can enable schools to cope with the 36.9 percent of all children and 69.9 percent of black children today born out of wedlock, which means, among many other things, a continually renewed cohort of unruly adolescent males.

Unfortunately, one of the ways that family structure and poverty do have a strong impact is they indicate that students will be educated at weaker schools with fewer resources. A large body of evidence demonstrates that poor students have more inexperienced teachers, a weaker curriculum, poorer school facilities, and less funding for education.

Yet when poor children receive an excellent education, it does make a difference. Will ignores the existence of schools like the KIPP and Achievement First charter schools, whose students have demonstrated that low-income kids can catch up and excel. Eighty percent of KIPP students are low-income, and 90 percent are African American or Latino, yet more than 90 percent of KIPP middle school students have enrolled in college-preparatory high schools, and more than 80 percent of the alumni of KIPP schools throughout the country have attended college.

It’s clear that we have much more to do to improve student achievement in this country. However, it is also clear that effective schools can and do make a difference.

UPDATE: Jonathan Chait has more.

Our guest bloggers are Ben Furnas, Robert Gordon, and James Kvaal, who are a research associate and fellows at the Center for American Progress Action Fund, respectively.

Later this morning, Sen. John McCain will visit New Orleans’ Lower 9th Ward as he continues his tour of impoverished America. His rhetoric is great, but so far the scorecard for his “poverty tour” is four days, one new idea: another corporate write-off, this one allowing “companies to write off the cost” of providing high-speed Internet in low-income communities.

Sen. McCain is proposing $3 trillion in tax cuts that would offer nothing to people living and working in poverty. More than half would go to corporations, and much of the rest to high-income taxpayers in the form of AMT relief.

Even McCain’s one tax cut that really will help the middle class — doubling the personal exemption for dependents from $3,500 to $7,000 – will do little or nothing for working poor families. These families usually do not pay any income taxes and thus will not benefit, even though they pay thousands of dollars in sales and payroll taxes. Meanwhile, the largest tax cuts will go to families at the top.

Read more here.

Our guest blogger is Ed Paisley, Vice President for Editorial at the Center for American Progress.

The Bush Administration and its conservative allies in Congress, including presumptive presidential nominee John McCain (R-AZ), continue to insist that the best way to resolve the ever-worsening U.S. housing crisis is for homeowners at risk of foreclosure to negotiate individually with their mortgage service companies for financial relief. A new report by the State Foreclosure Working Group, which includes bank regulators and attorneys general from 11 states, details why this approach simply doesn’t work.

The problem faced by the mortgage servicers is this: the number of delinquent mortgage loans is on the rise even as more homeowners already facing foreclosure attempt to renegotiate the terms of their loans. The Bush Administration’s failed effort to get mortgage lenders, servicers and investors to voluntarily renegotiate borrowing terms with individual lenders — known as the Hope Now Alliance — was evident even before this most recent report, given the rising number of delinquencies over the past year.

Now, those government officials closest to the crisis at at the state level have detailed exactly why individual and voluntary negotiations between at-risk borrowers and mortgage servicers is clearly not working. As New York Superintendent of Banks Richard Neiman explained to The Wall Street Journal, mortgage servicers need to treat borrowers in bulk “in order to move the process in a more efficient manner.”

A new, more forceful approach, is needed now. The Center for American Progress Action Fund and some of its allies on housing issues support two proposals now before Congress to help troubled homeowners refinance mortgages in bulk, and to help communities hit especially hard by foreclosures cope with the consequences. The Federal government needs these tools to stem the U.S. housing crisis and help the faltering U.S. economy.

Among other odd comments in his National Review article, Douglas Holtz-Eakin on Wednesday declared that the Concord Coalition, whose director had criticized McCain’s agenda, had “largely lost relevancy.”

Funny that Holtz-Eakin should pick out the Concord Coalition, a national bipartisan organization dedicated to fiscal responsibility. The co-founder and chairman of the Concord Coalition is Pete Peterson, an old friend of Senator McCain, an early supporter of his 2008 run and a member of the McCain campaign economic strategy team. When asked this January, during a GOP presidential debate, how he would make economic policy, McCain responded:

I as president, as every other president, [would] rely primarily on my secretary of the Treasury, on my Council of Economic Advisers, on the head of that. I would rely on the circle that I have developed over many years of people like… Pete Peterson and the Concord group.

Just four years ago, Peterson bestowed upon John McCain the Coalition’s annual Economic Patriot Award at an event sponsored by the Council on Foreign Relations. Peterson explained why he had set up the “Concord Coalition devoted to long-term fiscal responsibility and generational equity.” McCain in turn thanked Peterson for his “continued crusade for fiscal sanity and stability on behalf of our children and grandchildren.”

So has the Concord Coalition become largely irrelevant? Or have its principles and goals become largely irrelevant to Senator McCain’s newfound agenda of deficit-financed tax cuts and unbalanced budgets?

Our guest blogger is James Kvaal, Domestic Policy Advisor at the Center for American Progress Action Fund.

The story so far: Senator John McCain has proposed $300 billion a year in tax cuts, but – as The Economist wrote – “the savings in government spending he promises will not come anywhere close to paying for the tax cuts.”

Yesterday, McCain economic advisor Douglas Holtz-Eakin defended his McCain budgeting over at the National Review, arguing that McCain’s proposals will restrain spending and promote economic growth.

But, as Ruth Marcus pointed out, two years ago Holtz-Eakin sounded very different. He said then that, realistically, “government will not be getting any smaller” due to widespread public support for government’s activities. Even a “tremendous effort” by Congress to eliminate wasteful spending totaled less than 0.07 percent of the economy. (McCain’s $300 billion tax cut equals approximately 2 percent of the economy.)

Maybe that is why Holtz-Eakin’s new argument focuses on McCain’s cuts to entitlement programs like Social Security and Medicare. But McCain has already proposed cutting Social Security and Medicare benefits to restore those programs’ solvency. Does he really want even more cuts — hundreds of billions of dollars more — to pay for his tax cuts, as Angry Bear wonders?

It seems more likely that Holtz-Eakin is changing the subject, preferring to discuss the long-run entitlement problem rather than the short-run deficit problem. But adding hundreds of billions, even trillions, to the debt now will only make our long-run problems worse.

Our guest blogger is Adam Jentleson, the Communications and Outreach Director for the Hyde Park Project at the Center for American Progress Action Fund.

John McCain wants to double the Bush tax cuts. But how does this erstwhile fiscal conservative plan to pay for it? An excellent question – and one his campaign has so far failed to answer.

McCain’s tax plan would cost a whopping $300 billion (to put that in perspective, we spend about $200 billion a year on the war in Iraq). According to our accounting, McCain has so far managed to offset a grand total of $33 billion, or 11% of his tax cut.

As we have chronicled on this blog, the other savings McCain claims are bogus. So where will this former budget hawk come up with the more than $250 billion he needs to pay for his plan?

In an effort to hold McCain accountable, The Wonk Room is introducing the Tax Cut Cost-o-Meter, which documents the gap between McCain’s tax cuts and the offsets he proposes to pay for them.

We’ll be updating our new thermometer as the McCain campaign finds ways to pay for its tax cuts — or doesn’t, as the case may be.

Our guest bloggers are Ben Furnas, Robert Gordon, and James Kvaal, who are a research associate and fellows at the Center for American Progress Action Fund, respectively.

To his credit, Sen. McCain has begun to talk about the need to address America’s “forgotten places” that have been “ignored for long years by the sins of indifference and injustice.” But what would Sen. McCain’s agenda mean for these forgotten places?

Sen. McCain has proposed more than $300 billion in tax cuts and said that, unlike President Bush, he will pay for these tax cuts by “cutting spending.” But he has “failed to give details about what, exactly, [he] would cut.” According to an analysis released today, he would need to cut more than $250 billion from spending, above and beyond the spending cuts he has already identified.

Sen. McCain could cut approximately 20 percent from all discretionary programs. Alternatively, he could protect defense spending and cut 40 percent from domestic programs. Either scenario would result in massive cuts in key anti-poverty programs.

Of course, it may be that no president and no Congress would make such dramatic cuts. But if Sen. McCain campaigns on massive tax cuts for the wealthy, he should also acknowledge the enormous harm to “forgotten places” that these tax cuts would ultimately cause.

Read the full analysis here. (Also check out the Wonk Room’s Resource Library for a list of other reports we have published so far.)

At a press conference today with the leaders of Canada and Mexico, President Bush was questioned about the continuing record prices of oil — now $118 a barrel — and the effect on the economy. He blamed Congress for not giving oil companies access to the “neglected hydrocarbons” in the now-melting Arctic and continued:

And now we’re becoming as a result becoming more dependent on foreign sources of oil. Fortunately, Canada and Mexico are our biggest providers, for which we are grateful.

Watch it:

This is not the first time Bush has celebrated Canada and Mexico’s oil imports — in March he claimed that “we get most of our oil, by the way, from Canada and Mexico.”

Bush’s statements would be true — if Saudi Arabia and other OPEC nations were wiped off the map. While Canada is the greatest exporter of crude oil to the United States, Saudi Arabia is a close second. Mexico is in third place, and has been since August 2007. Combined, Canada and Mexico provide about one-third of U.S. oil imports, while OPEC nations provide more than half. Bush’s solution to the problem of American demand fueling “the financial engine of radical Sunni Islam” is to pretend Saudi Arabia doesn’t exist.

Transcript: Read more

After months of devastating highs at the pump, gas prices have finally smashed a critical, long-standing record. At $3.51 for a gallon of regular gasoline, the national average for fuel has surpassed the 25-year-old inflation adjusted milestone of $3.39. Not since March 1981 has gas cost this much for Americans.

In a new column, Christian Weller, a senior fellow at the Center for American Progress, highlights what millions of people in this country already know — Americans are spending all their money on gas:

In the fourth quarter of 2007, the last period for which data are available, consumers spent 3.8 percent of their after-tax income on gasoline and fuel, up from 3.1 percent in the fourth quarter of 2006. To put this in perspective, over the course of one year, spending on gasoline, oil, and fuels rose by $91.1 billion.

The increase in total consumer spending for gasoline, oil, and fuel from 2001 to 2007 was four times larger than the increase in spending on housing, 88.4 percent of the increase in spending on credit service, and 56.4 percent of the increase in spending for medical care during the same period. The sharp increase in gasoline spending, in absolute terms, due to higher prices adds as much strain on consumer spending as other, much larger spending items.

In a country where nearly 80 percent of the labor force drives to work, the consumer paycheck is being squeezed. As gasoline prices continue to rise, Americans are being thrown into a corner where they can’t borrow, and they can’t rely on savings.

The escape route of credit cards and bank loans is becoming increasingly more closed off, as the mortgage crisis and credit crunch prevent Americans from tapping as freely into the equity in their homes as they once did. Adding to the nightmare, Americans can no longer just dip into their bank accounts because they’ve already used their savings (personal savings rate during the fourth quarter of 2007 fell all the way to zero).

Our guest bloggers are Page Gardner, President of Women’s Voices. Women Vote and John Podesta, President of the Center for American Progress Action Fund.

Today is “Equal Pay Day,” the point at which women catch up to what men earned in the previous year – time for what sadly has become an annual reminder of how large a pay inequity exists in today’s workplace for women. The problem is worst of the worst for unmarried women.

A new report for Women’s Voices, Women Vote Unmarried Women and Income Disparity, finds that a typical unmarried woman would have to work until September 27 of the following year to earn as much as a man, and earns only 56 cents to his dollar. The study finds unmarried women are forced to do the same as unmarried men and married couples – pay the rent, buy the groceries, save for the future – on their own, but with much less.

WVWV and the Center for American Progress Action fund recently released a policy agenda for unmarried women: Overlooked So Far: The Nations Unmarried Women in 2008. In preparing the agenda, we learned the policy initiatives of unmarried women are driven by their purse, with equal pay for equal work, increasing the minimum wage, and health care topping their greatest concerns.

Last week, the McCain campaign reaffirmed its proposal to allow companies to immediately deduct the full cost of equipment and technology purchases. The campaign claimed that this proposal has “negligible costs over time,” while the Center for American Progress Action Fund disagreed and put the cost at $75 billion a year based on information from Treasury and CBO (more here, here, and here).

Today, the Wall Street Journal weighs in:

[McCain's] campaign also says there is no cost to a proposal regarding the tax treatment of capital expenses. Outside experts put the cost at tens of billions of dollars a year.

Under that plan, the federal government would take an upfront tax hit and be forced to pay additional interest on a larger national debt, said Ronald Pearlman, a tax professor at Georgetown Law Center and assistant secretary for tax policy under President Reagan.

To say there is no cost to the government is “so intellectually dishonest it’s outrageous,” Mr. Pearlman said. Mr. Bounds, the McCain spokesman, responded: “Clearly there is a difference of opinion here.”

The WSJ provides this handy chart detailing the McCain’s failure to account for his spending:

Our guest blogger is State Rep. Cloves C. Campbell, Jr. from Arizona. He is the publisher of the Arizona Informant newspaper.

This week, Sen. John McCain (R-AZ) begins his “Forgotten Americans” tour. His campaign intends to visit places most Republican candidates don’t, including African American neighborhoods. I applaud Sen. McCain for recognizing that Republicans don’t do a good job of reaching out to minorities and the poor. However, he is a part of the problem.

I have been politically active in the Black community in Phoenix for years, as was my father, Cloves Campbell, Sr. I also run the Arizona Informant, the leading Black Newspaper in Arizona. At my paper, we’ve interviewed the state’s top Republican elected officials, except John McCain — who has consistently turned us down. Why is that? You’d have to ask McCain that question, but my theory is that he just hasn’t cared about what black voters in Arizona think.

Despite popular opinion, the Black community is not a monolith. Especially here in Phoenix, where you have a lot of newcomers to the state — many of whom are not strongly tied to either party. Republicans would do well to start talking to some of them and engaging in a real dialogue about their issues and concerns. McCain says this is what he wants to do, but he’s had decades in public office to do so, and he hasn’t. That makes it hard for me to take this tour as anything more than a political stunt in a presidential campaign.

So, I’m glad Senator McCain is highlighting some of the neglected parts of our nation. But I have a suggestion for him. He needs to run the tour through his own backyard. If he wants this effort to be taken seriously, he has some work to do at home.

Our guest blogger is Sam Davis, Policy Analyst at the Center for American Progress Action Fund.

Sen. John McCain (R-AZ) has a prescription for the country’s gas woes, proposing to put the 18.4 cent federal gas tax on a three-month hiatus between Memorial Day and Labor Day. Indeed, we’ve heard this idea once before and economists continue to be weary of its intended net effect. What’s different this time however, is the spin and the reality.

Spin: Outlining his proposal, Senator McCain said last Tuesday, “The effect will take a few dollars off the price of a tank of gas every time a family, a farmer, or trucker stops to fill up.”

Reality: Most of the tax break will go to corporations, not families. Oil companies and their executives are already doing better than ever. Two years ago, Lee Raymond, former CEO of Exxon was given a severance package worth upwards of $400 million after leading the company to its highest ever recorded profit in 2006 of $36 billion. The previous year, his salary and bonus was a combined: $69.7 million or $190,915 a day. After just his first year on the job, current Exxon CEO, Rex Tillerson oversaw another record profit year for the company of $40 billion, earning him $21.7 million or $59,452 a day.

Even if all of the benefits from the tax breaks go to families, however, it will make little difference for them. The median American family’s daily savings during the three-month tax holiday proposed by Senator McCain? 60¢.

Spin: McCain told CNBC this past Tuesday, “I think high gas taxes are a regressive tax. The people who drive the furthest are the lowest income Americans. It is incredibly regressive. Where’s the fairness there?”

Reality: Not only do families who make less, drive less, they do not consume more gasoline nor do they spend more on gasoline. An analysis of the latest available data reveals that in fact, Senator McCain’s “gas-tax holiday” idea is itself regressive. The more a family earns, the more they drive, and the more a higher-earning household would save under Senator McCain’s plan.

Methodology: Read more

Our guest bloggers are Robert Gordon and James Kvaal, fellows at the Center for American Progress Action Fund.

John McCain has proposed to let corporations immediately deduct (or “expense”) the full cost of equipment and technology purchases, rather than deducting the costs over time. We analyzed this proposal several weeks ago and concluded that it would cost $745 billion over the next 10 years.

The McCain campaign and its top economic advisor, Dr. Douglas Holtz-Eakin, are now saying that this central provision of his corporate tax cut will cost taxpayers nothing. But the Congressional Budget Office, when led by Dr. Douglas Holtz-Eakin, reached the opposite conclusion.

The McCain campaign is claiming this measure is free because Treasury will lose money at first, then recoup it over time.

On its face, this doesn’t make a lot of sense. We all know $100 today is worth more than $10 a year for 10 years. And McCain is saying his plan will increase investment — how could that be if his plan has no cost to the Treasury?

In the past, Holtz-Eakin has recognized that expensing costs money. He signed a cost estimate for making permanent a provision of the 2002 stimulus package that allowed companies to expense 50% of their costs. The estimate is the last line on page 92 here, reproduced below:

This estimate shows that allowing companies to expense 50 percent of new investments would cost $440 billion over 10 years. And the costs are still very high, nearly $30 billion, 10 years after the provision is made permanent. McCain’s proposal for 100 percent expensing would be even more expensive.

If Holtz-Eakin was right then, how can he be right now?