McCain's Unserious Economics

By Cernig

Jay at Swimming Freestyle today suggests that McCain needs to do more than just skim-read Greenspan's book if he wants to have a serious economic plan. McCain wants to differentiate himself from Bush in conservative eyes by planning to implement tax cuts and reduce government spending. The latter, of course, Bush singularly failed to do and it's one of the conservative movement's big beefs with George, often trotted out when they pretend he isn't a real conservative.

Jay skewers McCain's plans, which rely on reducing pork-barrel spending by Congress and trimming spending on both Social Security and Medicare. He points out that the earmark spending only comprises about 0.3% of the federal budget and that McCain's plan to make changes to the Medicare drug program would only save $2 billion, or 0.5% of the total Medicare budget.

As for Social Security:

McCain has offered no concrete proposals to date to change Social Security outside of hinting he supports privatization.  President Bush tried to sell privatization in 2005 and went down in flames when it was soundly rejected by the public as too risky and having too high an upfront cost of implementation.  There is no reason to believe McCain could sell Social Security privatization at this point.

That's absolutely right. If McCain's looking to save his balanced-budget bluster on Social Security, he's really out of gas.

Jay lists the big budget items for 2007 as recounted by Wikipedia, totaalling $$2.8 trillion:

$586.1 billion (+7.0%) - Social Security
$548.8 billion (+9.0%) - Defense[2]
$394.5 billion (+12.4%) - Medicare
$294.0 billion (+2.0%) - Unemployment and welfare
$276.4 billion (+2.9%) - Medicaid and other health related
$243.7 billion (+13.4%) - Interest on debt
$89.9 billion (+1.3%) - Education and training
$76.9 billion (+8.1%) - Transportation
$72.6 billion (+5.8%) - Veterans' benefits
$43.5 billion (+9.2%) - Administration of justice

I wonder if John McCain sees the elephant not in the room? Supplementary spending on Iraq added a considerable amount to the Defense budget. For 2008, including spending on Iraq and Afghanistan brings the defense budget up to $673 billion, or 64% of the net discretionary budget. At least $70 billion of that will be purely for the occupation of Iraq, making that occupation the government's seventh largest expenditure. Overall, the US will spend more in 2008 on supplementary spending for the War on Some Terror  ($145 billion) than it will spend on education.

Hey John, I see where you could make some cuts and make the budget balance!

Update The Wonk Room:

By far, the biggest and most expensive part of McCain’s tax agenda remains his $1.7 trillion tax cut for corporations. There is little evidence that taxes are hurting American competitiveness; corporate taxes are the fourth-lowest in the industrialized world as a share of the economy.

...McCain’s tax cuts now total approximately $285 billion a year (in addition to the cost of making the Bush tax cuts permanent). But McCain’s proposals to pay for these tax cuts fall $150 billion short, even in the extremely unlikely event that he can achieve these savings.

Update 2 Both Jay and Mark at Publius Pundit point out that the most outrageous expenditure by the federal government is interest payments on the massive debts Bush has incurred. Interest on debt is now the sixth largest expenditure at $244 billion and is an amount sufficient to pay for all of the education, transport, agriculture, justice and science budgets. A large chunk of that debt has been incurred through off-budget supplemental spending on Iraq. Mark writes:

Depending on whose statistics you use, interest on the national debt is either 9% or 13.4% of federal spending...My point is this: unless you believe we are currently on the left side of the Laffer Curve (which even I think is extremely doubtful), cutting taxes without unconscionable cuts in nondiscretionary spending will likely only increase our deficit. This is particularly true as we head into a clear recession.

I would argue that the best thing our next President could do to help us have lower taxes in the future is to pay down the national debt. I do not think that warrants a tax increase, by the way. It just means that we need to cut back significantly on defense spending and keep taxes at current levels. But currently, our national debt is more than our annual budget. That is not a good thing.

Comments

[Jay McDonough]

Don't forget - Iraq funding via emergency supplements are outside the budgetary process and the funds are coming from the sale of U.S. treasuries. Bought mostly by China and Saudi Arabia, the interest on those debts is growing faster (+13.4% over FY2006) than all but two budget lines.

The interest on that debt now ranks as the sixth largest expenditure by the government.

Given McCain's "Iraq whatever the cost" position, the debt interest is the really really big elephant in the room.