Supple-Side Economics

By Ruth Marcus
Wednesday, April 23, 2008

Economic theories come in many flavors. There are supply-siders and deficit hawks, monetarists and Marxists. As Richard Nixon once said, and the recent bipartisan bout of economic pump-priming proved, "We are all Keynesians now." John McCain has devised yet another approach to the dismal science -- "that was then, this is now."

Call it McCainsian Economics. Its seminal treatise: "The General Theory of Getting Elected."

In the space of just a few years, McCain has morphed from someone who worried about the cost of the Bush tax cuts into a rabid tax-cutter. You don't need a fancy equation to explain this turnabout. McCain is running for president at the helm of a party that's deathly allergic to taxes and highly suspicious of him on this score. His campaign-trail buddy is Phil Gramm, the former Texas senator. When it comes to fiscal responsibility versus more tax cuts, Gramm is what your mother would call a bad influence.

McCain 2001 said he could not "in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us, at the expense of middle-class Americans." McCain 2008 pushes a tax policy that makes Bush's plan look like a soak-the-rich scheme. For example, McCain says repealing the alternative minimum tax would protect the middle class. In fact, getting rid of the AMT -- as opposed to patching it to make sure it does not catch increasing numbers of taxpayers -- would primarily benefit those with annual incomes of $500,000 or more.

McCain 2003 correctly called additional tax cuts "irresponsible," adding, "At a time of war, at a time of economic stagnation, at a time of rising national debt . . . one might expect our national leaders to pursue policies calling for shared sacrifice to achieve shared benefits. Regrettably, that is not the case." Regrettably, McCain 2008 has junked "shared sacrifice" in favor of tax cuts that the nonpartisan Tax Policy Center says would total$553 billion in 2012. Of that, $179 billion comes from extending the Bush cuts he once opposed and more than twice that amount -- $374 billion -- from McCain's new ones.

To put that number into perspective, by 2012 McCain would cut individual and corporate income taxes by more than one-fourth, the equivalent of all discretionary spending outside of defense.

Are spending cuts of that magnitude conceivable? Are tax cuts of that size responsible? Let's take as our guide a conservative, Douglas Holtz-Eakin, former chief economist in the Bush White House, former director of the Congressional Budget Office, and -- at least until his current incarnation as McCain's chief economic adviser -- a model of economic sense.

Just a few years ago, Holtz-Eakin was offering, well, straight talk about the feasibility of cutting spending anywhere near enough to cover existing costs -- no less new tax cuts such as those his candidate is now proposing. "While everyone is in favor of eliminating waste," he wrote in The Post in February 2006, "Americans want to protect defense, education, environment, transportation and a myriad of other programs. Congress expended a tremendous effort last week and just barely adopted $39 billion in cuts from projected spending -- less than 7/100ths of 1 percent of GDP."

Now, Holtz-Eakin airily tosses off promises to cut $60 billion in discretionary spending "that traces its existence to earmarks" -- as if that's a sensible way to distinguish the necessary from the pork.

Just a few years ago, he was acknowledging that new taxes -- not hundreds of billions in additional tax cuts -- would be needed. The "current level of taxes will fail to cover the type of government Americans have grown used to," he wrote. "That's bad news because the government will not be getting any smaller. . . . I'd rather not raise taxes, but unless government remains at its traditional size, I don't see any way around it."

And he was proposing an intelligent way to think about the proper level of taxes. As he told Terry Gross of the radio show "Fresh Air" in January 2006, "We need to . . . put together a set of programs that we believe are sensible programs for the 21st century and then come up with the money to pay for them. But to talk about taxes without deciding what we're going to be paying for gets the cart before the horse, and it's my biggest frustration with the way Washington has done business for the past five years."

Let's bring back that guy -- and the sensible candidate he used to work for.

marcusr@washpost.com


© 2008 The Washington Post Company