Sen. John McCain calls his new economic policy Jobs for America, but its centerpiece remains help for corporations, not workers. Apparently McCain’s theory is that cutting corporate taxes by $175 billion will (1) make American corporations more competitive, which (2) will help American workers. But — as Gene Sperling and Jared Bernstein pointed out at McCain University last week — both of these steps are on shaky ground.
First, U.S. corporate taxes are in line with the rest of the world’s, according to a recent U.S. Treasury report. The effective tax rate on equipment financed by equity is 24 percent, the same as the G-7 average. The rate on equipment financed by debt is minus 46 percent, meaning that the government actually subsidizes these investments rather than taxing them.
Second, corporate gains are not trickling down to workers. Corporate profits are now near all-time highs: In 2005, they exceeded 13 percent of the economy for the first time since 1966. But the median household income fell by $963 between 2000 and 2006, even after inflation. And the long-term trend suggests that profits and earnings often don’t move together: from 1997 to 1999, earnings rose while corporate profits fell, and from 2000 to 2004, the reverse happened.
McCain’s economic policy is aimed at promoting American businesses. But it’s workers, not companies, who are struggling in the Bush economy.
Although his Jobs Plan today promises “Leadership, Courage and Choices,” Senator McCain unfortunately offered none of the above when he pledged today to balance the budget and cut taxes by 2013.
The Congressional Budget Office projects that, with the extension of expiring tax cuts, the budget deficit will top $400 billion that year. In addition, McCain has called for some $300 billion in new tax cuts. McCain has not identified specific spending reductions that save much money; earmark reductions, for example, would save only $9 billion, according to the Heritage Foundation. A generous estimate of the savings from McCain’s proposed spending freeze would be $50 billion. This leaves McCain with a budget hole of about $650 billion.
This is an astonishing amount. To put it in perspective, McCain could eliminate the following 10 Cabinet agencies and still come up $100 billion short:
2013 Projected Outlays
We will have a more comprehensive analysis later this week.
At a July 3 briefing, White House press secretary Dana Perino made the bizarre claim that the United States has “actually” reduced “actual emissions” of greenhouse gases, complaining that President Bush “gets absolutely no credit at all.” Perino had taken a question about global warming negotiations at this week’s G8 summit in Japan. The questioner noted that “global warming experts who are usually quite critical of the administration” see a “glimmer of hope.” Her reply:
Well, I think — when I read those quotes this morning, you could have knocked me over with a feather, too, because the President gets absolutely no credit for all that he has done here in our own country, because we have actually been able to reduce actual emissions from our country, even though our economy has grown over the past several years.
Perino is flat wrong. Under President Bush’s tenure, global warming emissions by the United States rose from 6.98 billion metric tons of carbon dioxide equivalent in 2000 to 7.08 billion metric tons in 2006. The only contribution Bush made to limiting the growth in emissions was mismanaging the economy, since a weak economy produces less pollution than a strong one, all things being equal.
The decimation of manufacturing and skyrocketing energy prices under Bush have limited the rise of global warming pollution under his tenure, but without any other benefits. Much greater reductions of gasoline use could have been achieved by increasing the fuel economy of cars on the road, which would have also spurred technological innovation, made US auto manufacturers more competive in the global market, and kept billions of dollars from flowing to oil countries overseas. But conservatives blocked increases in fuel economy standards for 32 years. Similarly, if the federal government had made strong investments in building a green-collar economy instead of tax breaks for oil companies, the United States manufacturing sector might not have become a shadow of its former self.
At practically every turn, policy decisions made by the Bush administration — tax cuts for the superwealthy, stoking of the housing bubble, the reckless invasion of Iraq, the abandonment of our state and local infrastructure — have weakened our nation’s economy and made us less prepared for the threat of global warming.
Perino complained that “the President gets absolutely no credit for all that he has done here in our own country.” In the coming years, Bush will be very lucky if people forget “all that he has done.”
McCain’s sudden embrace of professional economic opinion is confounding. In June, after the campaign failed to find a single economist to endorse McCain’s proposal for a gas tax holiday and his claim that off shore oil drilling would reduce gas prices, McCain and his top advisers repeatedly trashed economists:
- Sen. John McCain: “If you want to call it [his gas tax proposal] a gimmick, fine. You know the economists? They’re the same ones that didn’t predict this housing crisis we’re in.”
- Senior Advisor Carly Fiorina: During an appearance on ABC’s This Week, Fiorina “scoffed at the lack of support from economic analysts” for McCain’s proposed gas-tax holiday, “‘I don’t think it matters,’ she said.”
- Senior Advisor Douglas Holtz-Eaken: “You can stack all the economists end to end and still not find common sense.”
What a difference a month makes. Now, the McCain campaign is arguing that “the economists” matter after all, even if they rejects the senator’s signature economic proposals. As Avi Zenilman points out, the 300 conservative economists who endorse McCain’s plan still reject “two big chunks” of the senator’s proposal: “the gas tax holiday and his promise to balance the budget by 2013.”
As the Wonk Room has previously pointed out, suspending the gas tax would transfer more wealth to Saudi Arabia and increase “our contribution to global warming for our kids to inherit.” McCain’s promise to balance the budget while simultaneously providing a $175 billion tax cut to the nation’s largest corporations is similarly unrealistic.