In a meeting on the economy in Washington this Monday, President Bush made a pointed speech arguing for the extension of his first-term tax cuts that are set to expire in 2010. Sounding more like a campaign event than a policy message, Bush was operating under the false premise that the 2008 candidates are calling for a full reform of his tax cuts, claiming that “overall 43 million families with children will face a tax increase of $2,323 on average.”

Watch it:

If Bush is going to talk about repealing the tax cuts bestowed upon a middle class American family of four making $50,000, in terms of the 2008 election, he’s the only one having that discussion. None of the three remaining presidential candidates — Senators Obama, Clinton and McCain — propose eliminating the tax breaks for those in the lower tax brackets.

CNN’s Ali Velshi hits the nail on the head by explaining that, “So while it was quite grand for President Bush to talk about the 43 million people getting hit by elimination of tax cuts, there’s nobody out there who’s thinking of eliminating those tax cuts for 43 million people.”

But that’s not all. In a roundtable discussion following the speech, Bush went on to state that:

The best way to deal with uncertainty is to let people keep more of their money [...] Tax cuts have been an engine for economic vitality. Given the fact that tax cuts have worked, what will be the Congress’ response?

Does Bush really consider the American economy to be full of “economic vitality?” The Bush presidency has been plagued with stagnant wage growth, increased household debt, a bleak job market and a sharp rise in personal bankruptcy filings. Maybe Bush has a different definition for a tax plan that “works,” because he seems to be ignoring the fact that American income disparity is comparable to what we saw in the years leading up to the Great Depression.

A story in this week’s edition of The New Republic points out an interesting policy contradiction between John McCain and his top adviser, Douglas Holtz-Eakin, on the line item veto. McCain, who is well known for his rhetorical crusade against earmarks and ‘pork barrel spending,’ had this to say about the controversial practice of allowing the top executive to scratch a single item off a spending or budget bill:

I will seek a constitutionally valid line-item veto to end the practice [of earmarking] once and for all.

It’s great that McCain is able to give such a straight talk statement on the line item veto, but maybe McCain should have checked in with Holtz-Eakin before he spoke so fervently on the record. As McCain’s chief policy strategist and former director of the Congressional Budget Office, Holtz-Eakin has a long history of opposing the line item veto as an ineffective way to reduce spending and balance budgets:

With few exceptions, simply granting the governor a line-item veto has little or no effect on spending over the long term [...] over time, in the hands of Republicans and Democrats alike, the line-item veto fails to cut spending. [New York Times, 2/88]

Analysis of a rich set of state budget data indicates that long run budgets are not altered by an item veto [...] These results suggest that adoption of the line item veto, in general, is unlikely to reduce the size of the federal government. [NBER, 3/88]

I don’t think there’s any evidence that this, in itself, is a powerful enough weapon to alter the path of spending. [CBPP, 3/06]

So what’s the problem here? Do McCain and Holtz-Eakin just disagree on this issue? Or did McCain, who admittedly knows little about the economy, forget to have a conversation with is top economic adviser about this contentious topic before taking another one of his bold, maverick stances?

Our guest blogger is Bracken Hendricks, a Senior Fellow with American Progress Action Fund and the founding Executive Director of the Apollo Alliance.

In today’s Washington Post and a parallel piece in Newsweek, Robert J. Samuelson gets it wildly wrong on federal policy for reducing greenhouse gas emissions, parroting a litany of falsehoods and misrepresentations concerning the Lieberman-Warner cap-and-trade legislation now being debated in the Senate. He writes:

The chief political virtue of cap-and-trade — a complex scheme to reduce greenhouse gases — is its complexity. This allows its environmental supporters to shape public perceptions in essentially deceptive ways. Cap-and-trade would act as a tax, but it’s not described as a tax. It would regulate economic activity, but it’s promoted as a “free market” mechanism. Finally, it would trigger a tidal wave of influence-peddling, as lobbyists scrambled to exploit the system for different industries and localities. This would undermine whatever abstract advantages the system has.

Samuelson is the one being “essentially deceptive.” Like most detractors of action on global warming, Samuelson continues to push the unsubstantiated notion that reducing emissions will tank the economy, and thus is not worth the effort. The problem with this argument is that it ignores the last three decades of science, misunderstands basic economic theory, and overlooks the enormous opportunity presented by the clean energy economy.

Inaction is by far the most expensive policy option. Global warming was correctly termed “the biggest market failure in human history” by Sir Nicholas Stern, a senior economic advisor to the government of Tony Blair. Establishing a price on emissions through a cap-and-trade system actually improves the efficiency of the economy by ensuring that market prices include the real social costs of pollution and inefficiency. This is a basic fact of economics, popularized in the early 1900s by economist Arthur Pigou and embodied by the contemporary “polluter pays” principle. Recent studies by the Intergovernmental Panel on Climate Change and even the Bush Administration itself confirm the high costs of inaction and the existence of a wide range of cost-effective actions to bring down carbon emissions and stimulate economic innovation.

The “abstract” advantages of cap and trade are real. Samuelson simultaneously argues that cap-and-trade is a backdoor carbon tax while deriding its advantages over a tax. One of the fundamental differences between a set tax and cap-and-trade is that while a carbon tax assumes the government knows the proper marginal cost of emissions, a cap-and-trade system lets the market set the price. In an economy like the U.S. that has been functioning without any effective greenhouse gas constraints, the initial cost of emissions reductions is likely to be quite low as we capture the low-hanging fruit of efficiency gains.

“Influence peddling” should be addressed in any system. As John Whitehead writes at the Environmental Economics blog, “Just like any government policy, both a carbon tax and cap-and-trade can be gamed through the political process. It is goofy to try to argue that one would be gamed more than the other.” Samuelson’s concern about influence peddling can be addressed by a commitment to auction 100% of the emissions permits, as advocated by the Center for American Progress. The opportunity for gamesmanship would be minimized by a full, transparent, permit auction instead of the free allowance giveaway advocated by most polluters.

Global warming is not just an environmental crisis — it is a public policy problem. Given the choice between an innovation economy that uses clean energy efficiently, and an economically devastating climate crisis, the choice is obvious. It is time for naysayers like Samuelson to stop pitting the economy against the environment, and recognize that a safe and sustainable environment is the bedrock of our prosperity. That is an idea worth investing in.

UPDATE: Ryan Avent at The Bellows writes:

Washington Post columnist Robert Samuelson has long impressed me as one of the most hackish economic columnists not associated with the Wall Street Journal and not named Ben Stein, but today’s piece on cap-and-trade is dismally, embarrassingly stupid. Its essential premise is that consumers and producers of energy don’t respond to price signals, something so incredibly, obviously wrong that even the dolt editors of the Post opinion section should have wondered what was up. Samuelson should be ashamed of himself.