Yesterday, Sen. John McCain (R-AZ) presented an economic plan that offers a $1.7 trillion tax cut for corporations, “more than twice as much as McCain gives families with his child deduction,” as The Wonk Room’s James Kvaal and Robert Gordon noted.
Today on MSNBC, McCain was asked if he is understating the costs of his tax cuts. “Independent experts say your tax cuts would cost at least $100 billion more than you say and that the savings would not materialize,” Andrea Mitchell said. McCain retorted:
I disagree. I disagree with the experts. I disagree. I disagree. I disagree with the experts. I have experts of my own. I have many experts of my own who say that this will stimulate the economy, will create jobs, and increase revenues over time.
McCain said Ronald Reagan also reduced taxes in 1981. But when Mitchell noted that Reagan did “bust the deficit,” McCain tried to dodge: “Not early on it did — I am a deficit hawk.”
McCain said he has his “own experts.” But even they have disagreed with him. Kevin Hassett of AEI, a McCain adviser, claimed McCain’s tax cut plan would grow the economy, but added, “It is beyond the reach of economic science to explain precisely why that happens, but it does.”
Douglas Holtz-Eakin, his chief economic advisor, has also concluded that huge tax cuts don’t pay for themselves. As CBO director in 2005, he conducted a study into whether a 10 percent reduction in personal taxes could pay for itself by spurring economic activity. The study concluded:
Under various assumptions, the supply-side economic effects of the tax cut are estimated to offset between 1 percent and 22 percent of that revenue loss over the first five years and add as much as 5 percent to that loss or offset as much as 32 percent of it over the second five years (see Table 3). According to models that account for both supply-side and demand-side effects, those effects might offset somewhat less than 15 percent of the revenue loss over the first five years.
McClatchy explained that Holtz-Eakin’s conclusion essentially means: “lower tax rates wouldn’t come close to paying for themselves.”