The Obama and McCain campaigns have each dispatched a senior economic policy adviser to the Tax Policy Center for a forum on their respective tax policy. Since I have to take notes on it anyway, I've decided to live-blog it for you.
Cast of Characters
Len Burman, director, Tax Policy Center, and senior fellow, Urban Institute (analysis of each campaign’s plan)
Robert Reischauer, president, Urban Institute (moderator)
Austan Goolsbee, senior economic policy adviser, Obama
Douglas Holtz-Eakin, senior economic policy adviser, McCain
Okay folks, the forum is over. They said they might hold a similar forum in the future on spending. My one take away: the guy from the Obama campaign sounded exactly like a WWII fighter jock (at least, through the distortion of the audio feed). Beyond that, I have no commentary, because this is all way over my head.
Question and Answer
1:29: Concord Coalition: Deficits: Where will the deficit be in 2013? McCain says $0, what about Obama's (going to the Concord Coalition baseline)?
A: We'll offset any spending beyond current policy projections. He will cut the current nominal deficit. McCain says $0, but the TPC's numbers belie that.
Q: Same person to McCain. You realistically think we can get spending down during the aging the baby boomers?
A: It's a 5 year target, but we think we can do it. If we stuck with the rules set in 1997, we'd be doing fine.
1:27: National Taxpayers Union: How much will the refundable credits cost?
A (McCain): We haven't done the calculations yet, but it will cost money, and we don't disguise that.
1:23: Q: Simplification of tax plans?
A (Obama): For people with simple tax returns, the IRS can fill out the form for them, and they can just sign it (California tried it). Many people who don't itemize are in a simple situation, and this would work for them.
A (McCain): No specific plan, but its a problem. If we want to get anything done, we need someone will stand up to special interests (in this case, the Tax Prep industry).
1:21: Q: What's the relation between taxes and economic recovery? Clinton raised taxes, we fix the deficit and incomes go up. Why do we need current tax rates?
A (McCain guy): Sure, we could do it again with a tech bubble, but it's hard to engineer that. Taxes, by themselves, are overblown. It's about where you spend and how much.
1:16: National Association of Realtors: Structural issues I don't get. Why is an elective system simpler for everyone else (for that alternative tax?):
A: We just lock in everyone in.
A: Well, they can't switch every year.
1:07: Financial Times to both guys: What's your overall fiscal framework? What level of deficit to GDP are reasonable under current circumstances, with the looming rise in entitlement spending.
A (McCain guy): Near-term, try to balance budget by 2013. There are a lot of subsidies that McCain opposes which will bring significant money in. That gives the credibility to go to the American people to go the rest of the way.
A (Obama guy): The McCain program doesn't do any of that according to the TPC. Your plan for an alternative flat tax would cost $1.1 trillion (McCain guy: we are committed to making it revenue neutral, but we haven't figured out how yet). Obama's plans are better about restraining costs in entitlement programs.
1:03: Now we're on to audience Q&A. Question from the National Journal: To Obama guy, do you have any spending cuts planned?
A: Yes. Obama's plan is a net spending cut. Ending the Iraq war is a big spending cut (McCain wants to vastly increase defense spending). Called for cutting Medicare advantage subsidy, streamlining government initiative, rolling back earmarks to 1994 levels, ending no-bid contracts. It comes out to a net spending cut and a small net tax cut.
1:00: Moderator: Tax policy situation is unique, because of all the expiring tax policies. Do your candidates believe there is a need for fundamental tax reform, and if so why don't you use this opportunity do this, rather than being more Bush or more Clinton?
Obama guy: We need more tax relief for ordinary Americans. We already have a situation where working classes pay at a higher rate than the wealthy. We both are changing the system pretty fundamentally (albeit in different ways). But we're motivated by the idea that the squeeze on ordinary Americans is the root of the problem.
McCain guy: McCain agrees the tax code is a mess. We're working on making the code simpler, fairer, and more pro-growth. Our most pressing priority is energy. 50% of Americans don't pay an income tax, a huge portion of the bill is being paid by the wealthy. The working classes are hit by social security taxes, so fix social security as the first priority. McCain "expects" the Congress will pass bipartisan social security reform once he is elected.
12:52: You can't reduce deficit during a depression -- growth needs to come first. And that means spend less -- just like President Clinton and the GOP Congress. Here's how:
1) Stop earmarks, which corrupt the legislative process. Obama has $1 million in earmarks for every working day he's spent in the Senate. Be clear about where money is going;
2) Tough budget controls that prevailed in the 90s need to return. Cut spending growth.
12:51: High corporate rates hurt workers -- the benefit goes to people who don't lose there jobs when companies relocate overseas.
12:50: Obama is bad on trade. McCain doesn’t believe taxes are everything, but they’re important. Keep the cuts that are important for small businesses, but there are no new cuts for the wealthy.
12:48: Burdening firms with health care mandates is a bad thing. Do no harm to small businesses, especially, because they're the job engines. They can't afford mandates.
12:47: McCain is focusing on job growth, because nothing substitutes for getting people a job. The first problem is energy, and McCain is willing to invest in oil, gas, coal, and nuclear (Obama doesn't like any of these).
12:46: Doug Holtz-Eakin is up now for McCain (all the below was the Obama guy). He starts by mocking the Obama guy for being "post-partisan."
12:44: McCain says his health plan pays for itself; the Tax Policy Center says it costs $1.3 trillion dollars. McCain includes his health care plan as income, so part of it gets sucked out in taxes.
12:42: The only tax credit McCain has that goes to working families is the Child Tax Credit, and that doesn't apply to families too poor to pay income taxes (not to mention those who don't have kids!).
12:39: 2/3 of Obama's tax cuts go to folks making less than $65,000, while McCain's number for that demographic is 6%. Obama's tax cut all go to those making less than $250,000.
12:38: Obviously, McCain's plan is more regressive. And our current fiscal slowdown did not occur because high-income individuals weren't making enough money. It occurred because ordinary Americans felt the squeeze.
12:36: Add up the expenses for these sorts of things, and it pushes the yearly deficit to $750 billion a year. And he says he's going to balance the budget by 2013!
12:35: On McCain's website he says he's repealing the Alternative Minimum Tax, but in the plan he gave to the TPC, he says he is just patching it. Also, he offers wealthy tax payers the choice for a flat tax.
12:33: Obama's plan is $1.4 trillion dollars more fiscally responsible than McCain's without counting McCain's budget "shenanigans."
12:32: CBO baseline falls prey to all those budget gimmicks -- nobody actually thinks that all those tax cut "sunsets" are actually going to occur. They're there to mask the true cost of all the tax cuts.
12:31: McCain's close to doubles the deficit, and has $3 trillion dollars of similar budget gimmicks that the Bush admin used, and the overwhelming majority of the tax credits McCain puts out are aimed at the rich.
12:30: McCain's plan is twice as big as Bush's, and twice as regressive. Relative to the current law, Obama's plan reduces the deficit.
12:27: The Obama campaign representative is on now. He wants to start with a three-part critique of Bush's "fiscal legacy":
1) Huge fiscal deficits fueled by "massive tax cuts" and promised-but-never-delivered spending cuts;
2) Hiding the true cost of the tax cuts through budget gimmicks;
3) Focusing the tax cuts on wealthy individuals when working families struggle. Working families income fell during the latest economic recovery.
The Tax Policy Center's analyst
12:25: Obama's health plan is $1.6 trillion over 10 years, but costs grow over time. Some employers will drop coverage, but "play-or-pay" plan mitigates that.
12:25: Obama would mandate coverage of all children (below 300% of the poverty line?).
12:24: New Obama plan: Health Insurance Exchange to give employees healthcare options, for people who don't have healthcare from their employers (or don't like the plan they have).
12:23: $1.3 trillion over 10 years for McCain's healthcare, and the number of people covered would decline over time.
12:22: McCain's health plan eliminates the incentive to get more generous health plans because the credit doesn't depend on how much you spend on healthcare. But it might undermine people without insurance. McCain's talk about a "risk pool" wasn't fleshed out, and that's where the big spending will be.
12:19: Burman's worried that McCain's plan will require more taxes to make up for the debt. Obama's plan increases progressivity, but also makes the tax code more complex and could inspire a backlash by people who don't understand the code and assume they are being screwed.
12:17: Obama's campaign summary from Burman:
- Most Bush tax cuts (for lower and middle classes) extended.
- Cut the Estate Tax.
- Extend and index to inflation the AMT patch.
- Eliminate income tax on most senior citizens
- Make Child Tax Credit refundable
- Increase tax credit for HOPE (high education)
- Expand EITC
- Renewable energy tax credits
- Penalty for large employers that don't have health plans.
- Have the IRS prepare tax plans for people with simple tax situations to simplify tax system.
12:15: Burman forgot to summarize the plan. Here's McCain:
- Cut Estate tax (15% rate, 5 million exemption)
- Permanently index Alternative Minimum Tax
- Increase dependent exemption
- Cut corporate tax rate and allow exemption for equipment investment
- Make R&D credit permanent (Obama too)
- Make all of Bush's tax cuts permanent
12:13: $4.2 trillion addition to the deficit under McCain's plan ($5 trillion with interest). Obama's plan is $3.4 trillion with interest. Both campaigns claim that there is a current policy baseline that reduces that -- under that scoring, $600 billion addition to the deficit for McCain, and $800 billion cut to the deficit for Obama.
12:12 PM: Burman starts by giving the bare bones of each campaign. Obama is about increasing progressivity, McCain's is about lowering marginal rates.