Our guest bloggers are Robert Gordon and James Kvaal, Senior Fellow and Domestic Policy Advisor, respectively, at the Center for American Progress Action Fund.

One of Sen. John McCain’s economic advisers, former Congressional Budget Office Director Douglas Holtz-Eakin, has responded to this Center for American Progress Action Fund study of the McCain tax plan:

On the question of tax cuts Gordon and Kvaal had a point, he conceded, though he added voters should wait until the senator fleshes out his tax proposal before passing judgment.

“It will make deficits expand up front, no question,” Holtz-Eakin said, adding that helping corporations ultimately helps workers because it ensures their employer remains internationally competitive. “That place has to be economically viable, otherwise they have a problem.”

Apart from the signal that Senator McCain may change his economic agenda yet again, this candid response raises four questions:

1) Why is it necessary to cut taxes for corporations to make them “economically viable” when the United States already has the fourth-lowest corporate tax revenue as a share of the economy in the industrialized world?

2) Why are deficit-financed corporate tax cuts likely to increase growth when (a) in the short-run, Moody’s Economy.com ranked them the least cost-effective stimulus among 13 options, and (b) in the medium or longer-run, the effect on growth of deficit-financed tax cuts “tends to be small?”

3) How do massive tax cuts for the most fortunate further shared prosperity when income inequality is at its highest level since before the Great Depression (or earlier)?

4) Given the admission that this plan will immediately increase federal budget deficits, how will Senator McCain meet his own goal of balancing the budget by 2012?

UPDATE: Center for American Progress Action Fund Senior Fellow Jeanne Lambrew responds below to Holtz-Eakin’s comments on the criticism of McCain’s health care plan: Read more

John McCain has said that, “The first principle of real reform is that Americans should pay only for quality.” That’s an idea everyone can get behind. But once again, you need a decoder ring to figure out what McCain really means.

When McCain says he wants to improve quality, he means that he wants families to pay more out-of-pocket for care by enrolling them in Health Savings Accounts (HSAs), preferred-tax savings accounts than can be used by individuals and families to pay for deductibles as high as $5,000.

The theory is that the money is coming directly out of the family’s pocket, so they will have an incentive find the highest quality, least expensive care, or as McCain said, “American families know quality when they see it, so their dollars should be in their hands.” Conservatives call this approach, “Consumer-Directed Health Care,” to make it sound like they are giving power to consumers. All they are giving consumers is a headache.

There are many reasons the HSA theory breaks down:

– Little information on quality. It is easier to find out the quality of a microwave than it is the quality of care at a local hospital. Little quality data is given to those in consumer-driven plans and it is rarely used. It is difficult to know which doctor or hospital is better than another.

– Little information on cost. If you call up the local ER and ask them how much it is to treat a broken leg, you won’t get answer. In fact, a Commonwealth Fund report released last week shows that the information available to those with high deductibles is still limited and has not really improved over the last three years.

– Costs could be higher. There is reason to think that the uninsured (and therefore those with high deductibles) pay more than others.

– Most people didn’t go to medical school. High cost-sharing doesn’t affect quality, and it discourages the use of highly effective and less effective care at equal rates, with the poor and sick being at a significant disadvantage.

George Halverson, CEO of Kaiser Foundation Health Plan, summed up high-deductible plans this way in a 2003 article:

That thousand-dollar deductible will buy, at best, four hours in the more-expensive hospital. It might buy five hours of care at the less-expensive hospital. Will people really shop between two hospitals if the same thousand dollars buys four hours of care at one and five hours of care at another? No — we don’t buy hospital care by the hour.

There is some evidence that those in HSAs spend less money, but it simply could be that younger (and healthier) people sign up for these plans. And some may spend less because they can’t afford needed care given the high deductible. In fact, a recent survey found that those in HSAs have are more dissatisfied as compared to those with traditional insurance. There are so many problems (read Jeanne Lambrew’s piece on what “Conservative Health Reform” means) with HSAs, one advocacy group has created a library of critical papers.

So who wins from such a radical plan? That’s easy. HSAs are very lucrative for insurance companies for the simple reason that the individual bears much more of the cost and risk for care. The McCain health plan isn’t about improving quality. It’s about supporting the insurance industry.