Tuesday, April 22, 2008

Review of McCain's Economic Plan

The trio of economists at Capital Gains and Games offer a lengthy three-part review of McCain's economic plan. Andrew Samwick handles the economics of the plan. His conclusion: it's not bad, but it's also not much:

There are some parts of the McCain economic plan that are silly or irrelevant. There are some good points on microeconomics and international trade. But I would be surprised if these got any attention at all, given the enormous fiscal burden that this plan shifts to future generations.
Stan Collender tackles the budget aspects, and not surprisingly, he is very unimpressed:

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. ... The biggest problem with the McCain plan is that it continues to look to a part of the federal budget that simply isn't large enough to pay for the tax cuts he is proposing. Spending on nondefense domestic appropriations is about $500 billion. That means that a $200 billion annual reduction in revenues in each of the early years of the plan (I'm being conservative so we don't have to argue about the numbers) would require a 40 percent reduction in this spending. Unless McCain is talking about eliminating rather than just streamlining whole areas of federal activities, this can't happen. ... The McCain plan really isn't a budget plan anyway. There's no indication that he anticipates the government having to do anything during his administration beyond what it is currently doing...and we already know that even under the best of circumstances that's wrong. ... The plan is far too easy to dismiss as a bad idea poorly executed. My guess is that it won't be long before the McCain campaign stops talking about "the plan" and just focus on the individual pieces as his speaks with particular constituencies.

Finally, Pete Davis covers the tax aspects. He discusses the whole smorgasboard of tax cuts in the plan, and while the results are mixed, on balance he approves of more than he opposes:
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. ... Mr. McCain is also to be commended for what he didn't propose, a long list of new tax loopholes to reward special interest political supporters.
On the whole, here's what I took from their review: The economic and tax aspects are pretty good in isolation, but the awful consequences for the budget swallows any of those gains, making it a net negative. An excellent exercise from three very smart economists. I'm eagerly awaiting their review of Obama and Hillary's economic plans!