Wednesday, April 23, 2008

Weighing a McCain Economist

DAvid Leonhardt in the New York Times writes Weighing a McCain Economist.

It starts by describing McCain's top economic advisor, Douglas Holtz-Eakin, who was director of the Congressional Budget Office. He was first to have the CBO study the effects of tax cuts not just by the direct loss of revenue coming in but also by the dynamic effects it had by altering behavior (one of the main reasons we choose specific taxes is to alter behavior). This made Republicans happy and scared Democrats, but there was an unexpected outcome.

"What the budget office found, as study after study has shown, was that any new revenue that tax cuts brought in paled in comparison with their cost. This is why the deficit jumped under the last two tax-cutting presidents (Ronald Reagan and George W. Bush) and fell under the last two tax-raising presidents (George H. W. Bush and Bill Clinton)."

The article goes on to describe McCain's plans and says that while he has a history of fiscal responsibility, it's been a little missing from his campaign. He's given great details on the taxes he'd cut but few on what spending he'd cut. McCain and Holtz-Eakin say give them time to finalize that, there's still plenty of time till November, and it makes some sense that they wouldn't do that part before winning the Republican nomination.

I guess we'll see. At the high level, it's hard to disagree with cutting taxes and wasteful spending. What will really matter is which programs and taxes are cut and deemed "wasteful". We tax and spend to affect behavior, I have a feeling that McCain and the Democratic nominee will differ on which behaviors they want to affect.

E.g., I'd rather spend federal money on domestic health care policies than on Iraq. I just watched Frontline's Sick Around the World which showed how five other industrialized countries (England, German, Japan, Taiwan, and Switzerland) changed their health care systems to spend less and provide better care than the US does. That seems like something Republicans might be interested in, but they don't see to be. Why is that?

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