The Fiscal Policies of the Candidates... stink

This Times article on the candidates’ lack of fiscal restraint is, for the most part, an insightful reminder that the economic wool is being pulled over the eyes of the American voter. Authors Larry Rohter and Michael Cooper demonstrate that whether the candidate concerned is a tax-cutting war hawk or a free health care-loving liberal, he or she is clearly hoping that the American people will look the other way while the national debt continues to balloon. The only thing that is missing from this article is a concrete explanation of the negative effects of a rapidly-increasing national debt, but I suspect that’s because such a discussion would need to be either overly simple or complex beyond the constraints of the paper.

The first candidate’s fiscal plan to fall under their journalistic knives is McCain’s. The Arizona Senator has proposed to make the Bush tax cuts permanent. Since they are currently set to lapse in 2010, this proposal would cost the government $2.2 trillion in revenue over the next ten years. And McCain doesn’t stop there—he proposes to eliminate the alternative minimum tax, slash corporate taxes, and double the exemption which parents can claim for their dependents. The total price tag of McCain’s other tax-cutting schemes is $225 billion per year. Over a decade, that’s another $2.25 trillion of lost government revenues. McCain claims he’ll pay for the cuts by eliminating earmarks, spending riders that are often attached to important bills to secure the support of one or another congressmen or senators, but it’s ludicrous to think that the savings from those earmarks will be enough to offset the tremendous government losses from these tax cuts. I read in an Economist article that earmarks account for something like .5% of government spending—not enough to make a significant impact.

There’s no question that lowering the marginal tax rate will spur growth in the short run. Indeed, Rohter and Cooper note that McCain and his fellows would have us believe that the growth from these tax cuts will increase the size of the economy so much that while the government will take in a smaller percentage of GDP, the absolute size of federal revenues should remain fairly stable. We should remember that we’ve heard this tune before. This was the same argument advanced by proponents of the Bush tax cuts in 2001 and 2003—but the national debt has nearly doubled since 2001, so it simply can’t be true.

Just because I’m concentrating on McCain’s policies doesn’t mean that the authors let Clinton and Obama off easy. They, too, are guilty of presenting budget numbers that are at odds with figures cited by nonpartisan authorities like the Congressional Budget Office. One example of this is both Democrats’ penchant for promising to “repeal” the Bush tax cuts and count the money saved as new revenue. However, the tax cuts are already set to lapse in 2010; no repeal is necessary and that money has already been included in budget estimates for later years.

The only thing missing from this analysis is a good explanation of why, or even whether, an expanding national debt is a Bad Thing. Does it have adverse consequences? Even at its present all-time high levels, I haven’t read much about how the national debt is hampering growth or hamstringing our government’s ability to do its job. That said, I think that it’s reasonable to expect that there will come a tipping point in the national debt, when interest payments do force higher taxation. As a percentage of GDP, the debt has certainly expanded a great deal during the last 7 years. If the debt’s growth continues as the policies of the candidates imply, it looks like its share of GDP will continue to expand. Although Rohter and Cooper don’t mention it, I think the real danger is that our next president will continue to spend irresponsibly and take us over the edge, beyond the tipping point and into a harsh reality where the debt has severe adverse consequences for the American economy.