The Wonk Room

Note To McCain: It’s ‘A Matter Of History’ That Hoover Cut Federal Spending»

During an appearance on Fox News’ Hannity & Colmes last night, Sen. John McCain (R-AZ), as he is fond of doing, invoked Herbert Hoover to warn against Sen. Barack Obama’s (D-IL) economic plan. “There was a president named Herbert Hoover,” said McCain. “They raised taxes, they practiced protectionism and they went from a serious recession into a deep depression. Now, that’s a matter of history.” Watch it:

However, there is another matter of history that McCain should look at regarding Hoover’s actions. Responding to the recession, and “convinced that a balanced federal budget was essential to restoring business confidence, Hoover sought to cut government spending and raise taxes.”

In fact, before the 1932 election, Hoover was touting his successful push to reduce government spending:

The extension of governmental expenditures beyond the minimum limit necessary to conduct the proper functions of the Government enslaves men to work for the Government….[T]he ordinary expenses of the Government have been reduced upwards of $200 million during the present administration. They will be decidedly further reduced.

Hoover’s approach was clearly unsuccessful, and late in his administration, he tried to recover:

As conditions worsened, Hoover’s administration eventually provided emergency loans to banks and industry, expanded public works, and helped states offer relief. But it was too little, too late.

There is a growing consensus among economists, budget analysts, and lawmakers that the next administration should not subscribe to what Matthew Yglesias has called “Neo-Hooverism” — mass spending reductions as a response to the financial crisis. McCain, however, consistently promises to balance the budget and has advocated a complete spending freeze on everything besides several “vital issues.”

If McCain really wants to use Hoover as an example of what should not be done in response to a recession, he needs to include the entire story, and not cherry-pick the most convenient of Hoover’s actions.

New RNC Ad Highlights Fiscal Irresponsibility — But What About McCain?»

Our guest blogger is Brian Levine, a Senior Policy Adviser at the Center for American Progress Action Fund.

This morning, the Republican National Committee launched a new ad, which suggests that the only thing that could make our current economic problems worse is reckless spending, which will create “new debt.”

After watching the ad, viewers might assume that McCain is a deficit hawk who won’t create “new debt.” Nothing could be further from the truth. According to the nonpartisan Tax Policy Center, John McCain’s tax plan – which bestows lavish benefits on corporations and wealthy individuals — would increase the deficit by $5 trillion over the next ten years.

McCain claims he will balance the federal budget by 2013. The Washington Post recently called this claim “not credible,” as it is based on low-ball estimates of the cost of his tax cuts and $470 billion in unrealistic and largely unspecified spending cuts. The Post called the McCain campaign’s claimed savings “illusory.” McCain constantly talks about cutting earmarks. But eliminating every earmark in the federal budget would only save $18 billion – a small fraction of the cost of McCain’s tax plan.

The McCain budget also does not account for the new spending associated with his health care and energy plans as well as fully funding No Child Left Behind. His health care plan could cost $130 billion a year and McCain’s top economic adviser admitted that the high risk pools McCain promises to subsidize to cover those with pre-existing conditions could cost $20 billion.

If the Republican National Committee is so concerned about fiscal responsibility, they must be terrified at the prospect of their own candidate being elected.

McCain’s Budget Plan: ‘How About A Spending Freeze On Everything?’»

During the presidential debate Friday night, Sen. John McCain (R-AZ) was asked for “major ways” in which his approach to the presidency has changed, in light of the budget problems potentially associated with the $700 billion federal bailout bill working its way through Congress.

McCain responded to the question by advocating a “spending freeze on everything but defense, veteran affairs and entitlement programs.”

McCain did qualify his answer a bit with his next statement, adding that he would fund “several other vital issues,” which remained unnamed. But if McCain were to freeze “everything” then, among other things, he would allow inflation to eat away at:

- Funding to the 908,412 children in the federal Head Start program.

- Funding for the 6 million students who receive federal Pell Grants for college.

- The $5.1 billion spent on the Low-Income Home Energy Assistance Program (LIHEAP), which provides households with financial “assistance for their home energy bills.”

- Unemployment benefits, even though unemployment is at a seven-year high of 6.1%.

- The $24.6 million currently funding “110 national park improvement projects and programs.”

This list is almost endless. Would McCain freeze spending on foreign aid to Israel and Columbia? Is he going to freeze the Community Development Block grants program or funding for NASA? Will he freeze funding to infrastructure projects, like those undertaken by the Federal Highway Administration?

McCain needs to be asked what, in the end, he considers a “vital issue” worth spending federal money on, and what programs would fall victim to his massive spending freeze.

Digg It!

Pfotenhauer: McCain Will Balance The Budget Without ‘Real Cuts’»

Today, during an interview with Neil Cavuto, Sen. John McCain’s (R-AZ) economic adviser Nancy Pfotenhauer claimed that McCain will balance the budget “by the end of the first term,” and that she’s “not even sure real cuts would ever be required.” Watch it:

A Center for American Progress Action Fund analysis calculated that McCain’s plan, complete with its doubling of Bush’s tax cuts for corporations and the wealthy, will create a budget deficit of $505 billion in 2009. McCain has claimed that he will balance the budget by eliminating earmarks and cutting $160 billion in discretionary spending.

However, “eliminating every congressional earmark in the federal budget would save an estimated $18 billion a year,” or about 4% of the federal deficit, and McCain can’t explain where the rest of his cuts would come from. George Stephanopolous pointed out that in order to cut the $160 billion he cites, McCain “would have to cut 30% from every single program, including education and veterans benefits.”

As the Wonk Room has noted, McCain could cut ten cabinet agencies and still not balance the budget, and his own estimates require a 30% cut in every federal program. Thus, its hard to imagine how he could balance the budget with no “real cuts” at all.

Palin, Like McCain And Bush, Doesn’t ‘Care’ About Bringing Budget ‘Under Control’»

In an interview with the Washington Post, Anchorage Daily News reporter Gregg Erickson described Governor Sarah Palin’s relationship with Alaskan lawmakers:

Washington, D.C.;: You wrote: “If you took a poll of reporters and legislators I expect her approval rating would be down in the teens or twenties.” What do they know about her that the general population does not?

Gregg Erickson: One example: The Republican chair of the Alaska State House Finance budget subcommittee on Heath and Medicaid says he can’t find anyone in Palin’s executive office who cares about helping bring that budget under control. He is furious with her about that.

John McCain has a similarly cavalier attitude about the federal budget.

He has proposed a budget-busting $300 billion tax cut for corporations and the wealthy to go on top of a continuation of the Bush tax cuts. Paying for these huge tax cuts, which leave out over 100 million American families, would require massive draconian cuts to education, scientific research, Medicare and Medicaid, and other important national investments.

More likely, however, they would just lead to massive deficits.

UPDATE: The Washington Post reports today that Palin “employed a lobbying firm to secure almost $27 million in federal earmarks for a town of 6,700 residents while she was its mayor.”

New Budget Analysis Accepts Gaping Holes In McCain’s Figures»

As we’ve known for quite some time, John McCain’s budget numbers just don’t add up.

A new analysis from the non-partisan New America Foundation’s U.S. Budget Watch should be read cautiously because it uncritically accepts many of John McCain campaign’s most egregious budget distortions.

Matthew Yglesias has already called out the $159 billion in “unspecified budget cuts” which the group allows McCain to claim. The Washington Post called these empty promises to slash spending McCain’s “voodoo economics, based more on wishful thinking than on hard data or carefully considered policy proposals.”

But that’s not the end of it.

U.S. Budget Watch also accepts that, in 2013:

–McCain’s tax cuts are as his adviser’s describe them, not how McCain describes them: An earlier study from the Tax Policy Center found a $2.8 trillion gap between McCain’s proposals as he describes them on the stump, and what his advisers tell analysts in private. In 2013, his plan as his stump speech would suggest costs $260 billion more than the plan as detailed by his advisers.

–McCain’s ‘high risk pools’ will only cost $8 billion: McCain’s campaign insist they will put money towards “high risk pools” to cover people with chronic conditions left out of McCain’s health care plan. Douglas Holtz-Eakin says the campaign might even spend $20 billion to fill the hole, but the Tax Policy Center says it would take at least $100 billion to adequately cover everyone who would need coverage.

–McCain will cut $35 billion in earmarks: Even the conservative Heritage Foundation acknowledges that there are only about $9 billion in earmarks that could be eliminated. Even John McCain acknowledges that if the process of earmarking were eliminated, many of the same programs would still be funded, only from other parts of the budget.

–McCain’s alternative tax system will be revenue neutral: U.S. Budget Watch does acknowledges that it’s possible that “because most taxpayers will choose the system in which they pay lower taxes, significant revenue would be lost.” What they don’t mention is that the Tax Policy Center has estimated the annual cost of such a system: $115 billion in 2013. (Note: This $115 billion is included in McCain’s “rhetoric gap” described above.)

These low-ball cost estimates for McCain’s tax-cuts and spending proposals suggest that even the $159 billion in “unspecified budget cuts” that McCain needs to balance the budget is far, far too optimistic. The real cuts needed would be much more devastating.

As the Tax Policy Center says, “the promises Senator McCain makes (or implies) in his speeches could not be sustained without a radical and unprecedented downsizing of government.”

Holtz-Eakin on McCain’s Draconian Budget Cuts: ‘The Horrified Folks Better Get Ready’»

At an event at the Tax Policy Center last Wednesday, McCain adviser Douglas Holtz-Eakin defended the draconian cuts to spending required to balance McCain’s budget and pay for his tax cuts for corporations and the wealthy by saying:

The reception among the Washington establishment has been one part disbelief — because, oh my god, no one actually does that in Washington (that’s not true they’ve just forgotten) — and one part horror that he might succeed. Well, the horrified folks better get ready.

Listen here:

The “Washington establishment” aren’t the only folks who are horrified by what would need to be a 40% cut in non-defense domestic spending. Here are some others:

–340,000 kids who’d lose Head Start funding

–2.1 million grade-school students who’d be effectively cut from Title 1 school funding

–1.6 million aspiring college students who’d lose access to Pell Grants

–3.4 million families who would lose WIC assistance for low-income women, infants, and children

Better get ready.

John McCain’s Budget Requires Massive Withdrawal from Iraq By 2013»

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

John McCain’s balanced budget plan relies on steep cuts to U.S. spending in Iraq, according to a memorandum written by economic policy advisor Douglas Holtz-Eakin and published in the Washington Post today. The plan calls for $150 billion in savings in 2013, which is only possible with the kind of timed mass withdrawal from Iraq he has criticized.

Here is what the plan says:

“Balance the budget requires slowing outlay growth to 2.4 percent. The roughly $470 billion dollars (by 2013) in slower spending growth come from reduced deployments abroad ($150 billion; consistent with success in Iraq/Afghanistan that permits deployments to be cut by half — hopefully more) …”

Whatever McCain says about cutting deployments in half, achieving $150 billion in savings would require a massive withdrawal of American troops from Iraq and Afghanistan.

First, U.S. spending in Iraq and Afghanistan totaled $171 billion in 2007, according to the Congressional Budget Office – and that includes money for Iraqi security forces, foreign aid, and veterans benefits. If current policies continue – and spending grows with inflation – the war might cost $200 billion in 2013. Cutting the cost by three-quarters, especially when other costs (like veterans benefits and foreign aid) will remain, would require a sharp, perhaps nearly complete withdrawal of troops.

The numbers from CBO look even worse. According to CBO, rapidly reducing the number of troops in Iraq and Afghanistan to 30,000 would save only $55 billion in 2013. So CBO is saying that a much bigger troop reduction than McCain wants would save barely a third as much money as McCain claims.

Finally, Obama’s own, more aggressive plan to withdraw forces from Iraq will save only $90 billion a year, according to his campaign.

McCain has previously said that an Iraq withdrawal timetable would mean “disaster” and “chaos, genocide.” But his own budget documents contain a plan not merely for withdrawal, but for mass withdrawal.

McCain Could Eliminate 10 Cabinet Agencies And Still Not Balance His Budget»

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:

We will have a more comprehensive analysis later this week.

McCain Embraces Economists After Rejecting Them»

Today, as part of a broader effort to sell Sen. John McCain’s (R-AZ) job-stimulus plan, the McCain campaign “released a statement signed by over 300 professional economists” who support the senator’s proposal.

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.

McCain’s economists seemingly agree.

The Return Of The Reagan Era Philosophy — ‘Deficits Don’t Matter’»

It’s no shock that John McCain’s statements about economics are clueless, but it’s becoming increasingly clear that his uninformed views are also quite radical.

In a burst of Reagan-style policy making, McCain has offered to balance the budget by decreasing federal expenditures. In a campaign event in Connecticut this week, McCain responded to a question by stating:

“When Ronald Reagan came to office,’’ he said, noting that few in the audience were old enough to remember, “we had 10 percent unemployment, 20 percent interest rates, and 10 percent inflation, if I’ve got those numbers right. That was when Ronald Reagan came to office in 1980. And so what did we do? We didn’t raise taxes, and we didn’t cut entitlements. What we did was we cut taxes and we put in a stimulus to the economy, and by the way, Jack Kennedy also did that as well – and so my answer to it is a growing economy. And I think you best grow the economy by the most efficient use of the tax dollar.’’

As The Huffington Post has rightly noted, though, “the deficit nearly tripled during the Reagan presidency, partly due to tax cuts and increases in military spending.”

McCain’s supply-side economic plan doesn’t just end with decreased spending — he parrots the failed 1980’s era Reagan policies of huge tax cuts and prolonged military spending, with no plan on how to balance the budget. Newsweek’s Daniel Gross says it all: “McCain’s fiscal program is either a joke or a fantasy.”

Perhaps McCain believes that “Reagan really did show that deficits don’t matter.“