Yesterday, the Wall Street Journal jumped on John McCain's economic policy proposals for either causing "the federal deficit to explode" or requiring "unprecedented spending cuts equal to one-third of federal spending on domestic programs." This was based upon estimates which I would vouch for from the Urban/Brookings Tax Policy Center. I haven't found similar analyses of Barack Obama's or Hillary Clinton's economic policy proposals, but I would expect comparable deficit explosions.
Last week, while campaigning in Pennsylvania in anticipation of Tuesday's primaries, John McCain unveiled his economic plan with this as the objective:
Today In Pennsylvania, John McCain Outlined A Pro-Growth, Pro-Jobs Strategy To Get Our Economy Back On Track. John McCain's strategy includes taking the near-term actions needed to provide immediate help to American families while also taking the longer-term steps necessary to secure America's economic prosperity and leadership in the world.
The strategy excludes any mention of fiscal responsibility per se, confirming our earlier suspicions that is is not a top line priority. For this transgression, Pete and Stan will have a lot to say in their posts.
It may be good politics, but the plan John McCain released last week doesn't work from a budget perspective unless:
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He's also proposing a steady series of record-high nominal deficits
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He's somehow figured out how to make spending cuts acceptable when up to now Congress, whether it has been under Republican or Democratic control, has refused to reduce to the levels he's suggesting
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He's figured out a way to prevent natural disasters from occurring
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He can guarantee that no military or foreign policy issues will occur while he's president
The most glaring problem with the McCain plan is also the simplest to see: he is proposing more than $3 trillion in tax reductions (some estimates put it at $5 trillion or higher) with nothing close to offsetting spending cuts.
(In their separate posts here at Capital Gains and Games, Pete discusses the McCain tax plan and Andrew deals with the economics, so I'll leave it to them to explain in more detail what is being proposed in those areas.)
On tax policy, John McCain proposes to:
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extend the Bush tax cuts;
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require a 3/5 majority of Congress to raise taxes;
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double the dependent exemption from $3,500 to $7,000;
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repeal the Alternative Minimum Tax;
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set up a simple, alternative tax (unspecified);
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raise the estate tax exemption to $5 m. with a 15% top rate;
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extend the 15% top rate on dividends and capital gains;
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cut the top corporate tax rate from 35% to 25%, pay for it by closing loopholes;
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expense business investment;
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make permanent and simplify the R&D tax credit;
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ban Internet taxes;
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suspend the 18.4¢/gallon gas tax from Memorial Day to Labor Day;
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establish tradable allowances to limit greenhouse gas emissions.
Senator McCain's tax policy is much more pro-business than that offered by the Democratic candidates. Lowering the corporate tax rate, expensing equipment, and making the R&D credit permanent and simpler are all good ideas that would make America more competitive around the world. Expensing would be a badly needed reform of our antiquated depreciation system, although it has a steep up front revenue cost.
Not all businesses would be winners, depending upon how aggressively Mr. McCain would close business tax loopholes. That's a catchall campaign phrase that could mean heavily tax subsidized industries are at risk, or, more likely, that he just wants to have a response when asked how he's going to pay for the business tax cuts. McCain knows full well that identifying "loopholes" is fraught with difficulty and controversy. Congress would probably serve up hikes on overseas operations of U.S. businesses and on the oil and gas industry, but those alone would come nowhere near paying for the cuts.
Via the AP, it seems that thrift is finally catching on in the Under-20 crowd:
NEW YORK - The souring job market and rising costs of the usual teenage indulgences - a slice of pizza, a drive to the mall, the hottest new jeans - are causing teens to do something they rarely do: be thrifty.
It's a far cry from the freewheeling spending of recent years, when teens splurged on $100 Coach wristlet handbags, $60 Juicy Couture T-shirts, and $80 skinny jeans from Abercrombie & Fitch.
Now jobs for teens are less plentiful, and parents who supply allowances are feeling the economic pinch.
Stalwart retailers of teen apparel, such as Abercrombie and American Eagle Outfitters Inc., are reporting sluggish sales, defying the myth that teen spending is recession-proof.
It's even becoming cool to be frugal.
Better late than never, I suppose. Read the whole thing for examples of how teens are tightening their designer belts.
