Holtz-Eakin and Goolsbee Square Off in the Great TPC Tax Debate

By :: July 23rd, 2008

TPC sponsored a fascinating debate today between John McCain’s top policy adviser, Doug Holtz-Eakin, and Barack Obama’s senior economic adviser, Austan Goolsbee. More than anything, I was struck by how much time each spent criticizing the other guy’s fiscal plan rather than promoting their own.

The discussion coincided with TPC’s release of an updated analysis of the candidates’ tax plans. The new report concludes that both will significantly increase the deficit over the next decade. Including interest costs, Obama would do so by $3.4 trillion, while McCain would raise the deficit by $5 trillion. The Obama plan would cut taxes for most people, but raise levies significantly on the very wealthy. McCain, but contrast, would cut taxes for nearly everyone, but provide by far the biggest reductions for those making the most money.

McCain’s primary policy goal is economic growth, Obama’s is progressivity. These are big and interesting contrasts, and it would have been nice to learn more about what drives their bosses’ agendas. But, instead, I mostly heard why the other candidate’s plan is so awful.

Goolsbee talked a lot about McCain’s “budget shammery.” It is a nice turn of phrase, but neither candidate gets high marks for transparency. Both prefer to use a budget baseline that assumes the Bush tax cuts will go on forever and that the Alternative Minimum Tax will be permanently “patched.” I understand why, since that appears to give them more money to pay for campaign promises. But, in truth, both candidates are hiding a lot of fiscal irresponsibility behind these wonky arguments over baselines.

Holtz-Eakin gets credit for giving a straight answer to a very important question; How much tax revenue is right? In the short term, he said about 18 percent of Gross Domestic Product. Since he also said McCain wants to balance the budget by 2013, he is suggesting that spending also ought to be about 18 percent of GDP. That implies some pretty tough cuts in current government programs, which cost more than 20 percent of GDP.

There are serious questions about whether McCain could get there, and what kinds of spending cuts it would take, but at least I came away with some idea of where he is headed. Goolsbee, by contrast, ducked the question at least twice. The closest he came to an answer was to concede that Obama’s 2013 deficit would be lower than this year's, which will exceed $400 billion. Not exactly a high fiscal bar.

5Comments

  1. Anonymous  ::  5:57 am on July 24th, 2008:

    “serious questions about whether McCain could get there”? I'm sure you must know that the only way to get there would be through impossibly huge cuts in entitlements, which McCain would never come out and say he favors. If that's what he would do–and I'm guessing that's what you must mean when you say you have “some idea of where he is headed”–don't you think he should tell Americans he's planning to slash these programs?
    The forum was explicitly about tax policy, so it seems unfair to say that Goolsbee didn't talk enough about spending for your tastes. He was the one who suggested a separate forum on spending. I didn't hear him ducking the question on spending–he just said that on the spot he couldn't give a figure for the size of the deficit projected under the Obama proposals, other than to say the deficit would be lower, in nominal terms than in 2009.
    I've written my take on the forum at the Economists for Obama blog:
    http://econ4obama.blogspot.com/

  2. Anonymous  ::  5:59 am on July 24th, 2008:

    Here's that link again (it didn't work in the comment above):
    Economists for Obama

  3. Anonymous  ::  2:32 pm on July 24th, 2008:

    It does sound like an interesting debate. Didn't know about it — I've got to get on a better class of mailing list, I guess.
    So Senator Obama's goal for tax policy is progressivity? At least in regard to the personal income tax, it looks to me as if that goal has already been reached, no?

  4. Anonymous  ::  9:49 pm on July 24th, 2008:

    EWWW! 18%? Shouldn't it be based on needs, somewhere connected to reality?
    This is what no one seems to get about the Laffer Curve. The whole point of fiddling with it is to maximize government revenue. Since when is the point to maximize revenue?

  5. Anonymous  ::  10:39 am on September 9th, 2008:

    The Republicans have been lying about Obama raising taxes. Obama will cut taxes MORE than McCain for those earning under 112k/yr., and the VAST majority of Americans earn far less than that.
    http://ktracy.com/?p=1412
    http://www.taxpolicycenter.org/publications/url.cfm?ID=411693
    http://my.barackobama.com/page/community/post/stateupdates/gG5GFB