McCain’s 2013 Economy: $780 Billion Deficit»

McCain’s “magic carpet ride” speech yesterday asked us to consider America in 2013 in the fourth year of a John McCain presidency.

We did. Here’s what we found:

In 2013, after McCain’s four years of Bush-style fiscal irresponsibility, tax breaks for corporations, and more tax cuts for the wealthy, America would have a $780 billion deficit (4.3% of GDP) and national debt of $8.5 trillion (47% of GDP). That’s over $1.5 trillion more debt than would be accumulated under a continuation of current Bush policies.

John McCain’s 2013: More of the same, but worse.

NYT Editorial Board ‘Divorced From Reality’ On Taxes»

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

New York Times editorial, April 24: This is the reality: To restore the health of the budget, let alone keep ambitious campaign pledges for spending more money, the next president, regardless of which party wins, will have to tax the American people more than any of the candidates has been willing to admit. Senator John McCain’s tax talk is particularly divorced from reality.

New York Times editorial, today: Senator John McCain scored some points on Thursday merely by acknowledging how much has to change. Mr. McCain said in a speech that if elected, he will … eliminate a tax meant for the rich that is crushing the upper-middle class.

The Times today praises John McCain for his proposal to repeal the Alternative Minimum Tax. The McCain campaign itself estimates that proposal will cost $60 billion a year, with no plan to pay for the cut. With 47 million people uninsured, with 37 million people living in poverty, with a “war and economic crisis” (in the Times’ words), a $60 billion tax cut for the upper-middle class surely is not a national priority.

And who will really benefit? John McCain says that his plan will benefit 25 million middle-class families, and Factcheck.org buys into the logic of that claim. But this would be true only in a world without the AMT “patch” that Congress has repeatedly enacted to shield the middle class. Although Congress each year enacts only a one-year patch, the patch is supported by large majorities of both Democrats and Republicans. There is a debate about whether to pay for the patch, but Douglas Holtz-Eakin is right to say that it is only in “fantasyland” that would Congress fail to extend it.

So, by a sensible logic—and by the McCain campaign’s own logic in pricing this proposal at $60 billion—the guts of McCain’s proposal is to go beyond the patch and fully repeal the AMT. And as between the patch and full repeal, according to the Tax Policy Center, more than 90% of the benefits would go to taxpayers making more than $200,000 a year, and nearly 50% of the benefits would go to taxpayers making more than $500,000. Only 3.6 million taxpayers would benefit, not 25 million. Here’s the distribution of winners:

As the Times instructed in its April editorial, “anyone making anywhere near a quarter-million dollars a year is in the top 3 percent or so of taxpayers.” It would be nice to give these families another tax break, above and beyond the patch. Of course, it would be nice to eliminate taxes for everybody. But leaders need to have priorities. And editorial boards too.

McCain’s Budget Would Create Largest Deficit In 25 Years, Largest Debt Since WWII»

Sen. John McCain promises that, as president, he would “cut taxes and balance the budget.” But his current economic plan would create deficits as deep as 5.7% of GDP by the end of a two term presidency — the highest federal budget deficit in 25 years — and would accumulate the biggest debt since the second World War, according to a new analysis by the Center for American Progress Action Fund. McCain’s current fiscal plan would recklessly exacerbate the fiscal irresponsibility of the Bush Administration further by gutting revenues far below the average level of the past 25 years.

For the past 25 years, deficits have never been more severe than 5% of GDP, with surpluses as high as 2.4% of GDP in the year 2000. Under McCain, yearly deficits would increase sharply, beginning with $505 billion in FY2009 (3.4% of GDP) and skyrocket to $1.2 trillion (5.7% of GDP) by FY2017. In 2018 these deficits would reach 6% of GDP, tied with the largest deficits since WW2 in 1983. Current Bush policies would keep the deficit in 2017 to $660 billion (3.1% of GDP).

According to the study, McCain’s economic plan, (which includes a corporate tax cut, a full repeal of the AMT, and an extension of the Bush tax cuts) would leave a debt of $12.7 trillion (the highest since 1951 when America was still holding debt from WW2) by the last budget of a two term presidency starting in 2009 (FY2017). This debt is $3.5 trillion more severe than the one resulting from an extension of current Bush policy, which would leave a debt of $9.2 trillion (43% of projected GDP).

McCain would slash government revenues, which have averaged 18.3% of GDP for the past 25 years, to their lowest levels since before 1962. Revenues would average only 16.3 percent of GDP for the duration of his two terms. Under current Bush policy, revenues would remain above 18 percent of GDP.

This analysis currently incorporates the most generous possible savings McCain has offered thus far: an $18 billion cut of wasteful earmarks and a $15 billion “freeze” in wasteful spending, with the savings grown at the rate of GDP growth over his presidency. These “savings,” which come no where near paying for his reckless tax cuts, already include “heavy cuts in after-school pro­grams, student aid, public broadcasting, and job training.” To fill the gaping remaining hole, McCain supporters have suggested policies that would lead to “massive cuts” in Social Security.

Read the full report.

Stephanopoulos Stumps Fiorina On Corporate Tax Loopholes»

On This Week yesterday, McCain economic adviser Carly Fiorina restated her support of tax loopholes for big business. Fiorina, the former CEO of Hewlett Packard, has been a long-time defender of a gap in the U.S. tax code that enables American corporations to keep foreign profits overseas and abstain from paying domestic taxes.

The Wonk Room, which covered Fiorina’s preference for corporate tax breaks and offshoring back in April, wasn’t really surprised to hear her defending McCain’s stance on George Stephanopoulos’ show. But we were a little surprised to see how easily George was able to point out the flaw in her logic — and how transparently disingenuous Fiorina’s talking points really are.

Watch it:

Sen. McCain, according to Fiorina, understands that “you must focus on why jobs are going overseas.” That may be well and good, but what Fiorina seems to be missing, and what George points out, is that there are two separate issues. A cut in the corporate tax rate is not the same as closing a tax loophole — a tax loophole that allows business profits to remain completely untaxed if left overseas.

Even under Senator McCain’s plan, corporations would still pay 25 percent (down from 35 percent) on money they bring into the country — and that is a lot more than the zero that they pay now. As Stephanopoulos noted, this zero percent does nothing to incentivize businesses, or government defense contractors, from bringing profits back into the US.

Transcript: Read the rest of this entry »

Most Capital Gains Flow To Millionaires»

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

Jack Kemp – once Bob Dole’s running mate and now a top economic advisor to John McCain – defends McCain for supporting the capital gains tax cuts he originally opposed. Kemp repeats the discredited claim that lower capital gains rates produce more revenue. (There’s more on this here, here, and here). And then he says:

It is an absolute, empirically proven fact of tax policy that nearly one-half of all capital gains redound to the benefit of folks earning less than $50,000 a year.

It’s not quite clear what Kemp means by “redound to the benefit,” but if means they get the money then he’s wrong – very wrong. Households earning less than $50,000 a year collected a mere 2.5 percent of capital gains in 2005, according to the Tax Policy Center. Families earning more than $1 million a year collected 59 percent of capital gains. Moreover, most middle-class families with capital gains hold their investments in retirement accounts shielded against capital gains taxes.

Will McCain Fund His Corporate Tax Cuts With Massive Cuts In Social Security?»

Now John McCain has made it very clear that he plans to balance the federal budget by the end of his second term.

Criticism has been broad, coming from Paul Krugman, the Wall Street Journal, the American Prospect and Robert Bixby, director of the non-partisan Concord Coalition.

To balance the budget, McCain would need to cut federal programs down to a level they haven’t seen since 1976–decreasing spending by programs like the Department of Education, Department of Agriculture and Department of Labor over 40% if you hold constant defense spending, which the senator has agreed not to cut. No president would propose and no Congress would pass such draconian cuts.

So how will McCain balance the budget? James Pethokoukis of U.S. News thinks he has the answer: massive cuts in Social Security benefits. The cuts Pethokoukis outlines would not only eliminate the Social Security shortfall but also generate $2.9 trillion to help pay for McCain’s tax cuts. He points to McCain aides’ suggestions that he might raise the retirement age and cut the growth in benefits over time.

Implementing those two solutions would actually result in more money going into Social Security than is needed to fund scheduled benefits. There would be money left over to help reduce taxes or increase spending on education or energy or whatever […] Now if you did a combination of price indexing starting in 2015 and extended the retirement age to 70 by 2050, that $5 trillion deficit turns into a $2.87 trillion surplus.

If Pethokoukis is right, McCain is attempting to do something that no president has ever done before: using payroll tax revenue to fund other functions of government. The result would be huge cuts in the program that lifts 13 million seniors out of poverty and a shift of the tax burden from progressive corporate taxes onto regressive wage taxes.

The gaping whole in McCain’s budget plans has left us all to speculate. But it cannot be a good sign for the McCain campaign when even McCain sympathizers think they detect a plan for massive cuts in arguably the most popular government program in history.

Big Oil’s Corporate Welfare: Doing The Numbers»

Yesterday, Alex Knapp at Outside the Beltway and Kevin Drum at Political Animal proposed getting a grip on tax proposals for the oil industry. As Drum put it: “[F]orget a windfall profits tax, let’s work first on getting rid of the massive corporate welfare infrastructure we’ve constructed for an industry that really, really doesn’t need it.”

Like Alex, Kevin couldn’t find the numbers behind Big Oil’s subsidies:

If I spent several months on this topic instead of half an hour, maybe I could figure this all out, but surely someone else has already done this?

Alex and Kevin, the Think Progress Wonk Room rides to your rescue.

In its report “Federal Financial Interventions and Subsidies in Energy Markets 2007,” the U.S. Energy Information Administration estimated that FY 2007 subsidies for the oil and natural gas industry totalled $2.1 billion. Center for American Progress Action Fund fellows Sam Davis and Daniel Weiss identify the worst of these tax loopholes and lost royalties that involve Big Oil:

The bipartisan Energy Advancement and Investment Act of 2007 had several provisions to close tax loopholes and recover royalties from big oil companies. These provisions would raise $25.9 billion over 10 years by:

• Modifying Section 199 to exclude gross receipts from the sale of oil and gas from the domestic production deduction. Raises $9.4 billion.
• Modifying Section 907 to eliminate the distinction between foreign oil and gas extraction income and foreign oil related income. This would combine foreign upstream and downstream income into a single oil basket for foreign oil and gas extraction income purposes. Raises $3.2 billion.
• Extending the oil spill liability trust fund tax through 2017, and increase it from 5 to 10 cents per barrel. Raises $2.7 billion.
• Recovering forgone royalties by establishment of an excise tax on removal price of taxable oil or gas from federal waters in the Gulf of Mexico. Raises $10.6 billion.

A significant bipartisan majority of the Senate voted for these provisions as an amendment to the Senate energy bill on June 21, 2007, but it fell two votes short of the super majority of 60 votes needed to end debate and pass the amendment.

Eliminating the entire “massive corporate welfare infrastructure” for Big Oil is a much weightier task, of course, entering into the realm of overall corporate tax policy. The Wonk Room has done extensive analysis of Sen John McCain’s (R-AZ) corporate tax proposals and how they would benefit Big Oil.

As economist Reuven S. Avi-Yonah writes in a Wonk Room report, Sen. McCain’s “economic stimulus plan” involves a $1.7 trillion increase in corporate welfare by cutting the corporate tax rate from 35 to 25 percent and by allowing first-year expensing of equipment purchases — a potent new form of tax sheltering.

Domestic Policy Advisor James Kvaal has written in the Wonk Room that the cut in the corporate tax rate alone would deliver about $3.8 billion in tax cuts a year to the five largest American oil companies:

Memo To Bush: ‘Magic Wand’ Not Needed To Deal With Gas Prices»

President Bush said Tuesday that he has no “magic wand” to affect gas prices. In reality, gas price is “all about government policy.” As the United States has some of the lowest gas taxes in the world, the price at the pump is dominated by the cost of oil:

Energy Information Administration

The rise in the price of oil in recent years involves four components:

— The effects of supply and demand. Exxon Mobil senior vice president Stephen Simon testified the supply-demand equilibrium is at “somewhere around $50-55 a barrel” — about half the current price.

– The weaker dollar. Since 2001, “the dollar has lost 45% of its value” against the euro. In 2003 one gallon of gas in the U.S. cost $1.50 and 1.50 Euro. Today’s $3.60 gallon of gas costs only 2.25 Euro.

– Geopolitical risk. Since 2003, the United States has been committed to a three-trillion-dollar war in Iraq, the heart of the turbulent oil-producing world. Furthermore, the burning of oil is continuing to increase global warming, “one of the greatest national security challenges ever faced.”

– Speculation. “Investors have looked to commodities
not only as a hedge against inflation but as a hedge against the tumbling greenback.

In recent years, the United States has gotten locked into a vicious circle in which the latter factors worsen each other. Suspending the federal gas tax would exacerbate the problem — in the words of Thomas Friedman, “we will have increased our debt to China, increased our transfer of wealth to Saudi Arabia and increased our contribution to global warming for our kids to inherit.”

Immediate action to deal with rising gas prices should deal with the root problems, not worsen them. Center for American Progress analysts Sam Davis and Daniel J. Weiss describe how a demand-independent “reliefbate” plan could be paid for by closing several oil tax loopholes. The Washington Post’s Dan Froomkin further recognizes that there are “two hugely significant factors” that President Bush could affect immediately: “the war in Iraq and the value of the dollar.”

But the federal fuel tax is but one brushstroke in a much broader picture. As the Center for American Progress’s energy opportunity agenda states:

The realities of global warming and our growing dependence on oil, much of it imported, will make energy more pivotal than ever to our economic, environmental, and national security fortunes in the 21st century. The challenge we face is nothing short of the conversion of an economy sustained by high-carbon energy — putting both our national security and the health of our planet at serious risk — to one based on low-carbon, sustainable sources of energy. The scale of this undertaking is immense and its potential enormous.