A budget-balancing plan that won't work
SEN. JOHN McCain says that President McCain would balance the federal budget by 2013. The plan is not credible.
The Congressional Budget Office projects a deficit of $443 billion in 2013 if President Bush's tax cuts are extended, as Mr. McCain wants, and the alternative minimum tax is merely patched to make certain it does not hit growing numbers of taxpayers. But Mr. McCain is proposing far more tax cuts. The only way he avoids having them add hundreds of billions more to the deficit in 2013 is by phasing them in and adding other caveats. Mr. McCain says on the campaign trail that he would repeal, rather than merely adjust, the alternative minimum tax, slash the corporate tax rate, now 35 percent, to 25 percent, and double the exemption for dependents. It turns out that none of that would be fully implemented by the end of the first McCain term. The nonpartisan Tax Policy Center estimates the extra cost of the scaled-back plan at $47 billion in 2013, bringing the deficit to a daunting $490 billion. Sen. Barack Obama's campaign claims it would be far higher, somewhere between $650 billion and $750 billion.
The McCain campaign says it will fill the hole with spending cuts. It would "reclaim billions" by rooting out existing earmarks and prohibiting new ones; impose a one-year freeze on discretionary spending other than for defense and veterans; and "reserve all savings from victory in the Iraq and Afghanistan operations" to use toward deficit reduction. These claimed savings are illusory. The campaign assumes $150 billion in savings by cutting in half deployments to Iraq and Afghanistan. But the Congressional Budget Office says that even reducing troops to 30,000, far beyond Mr. McCain's estimate, would save just $55 billion in 2013 beyond the costs that the CBO projects as part of its deficit calculation. The campaign assumes an additional $160 billion in cuts to the Pentagon procurement budget and other discretionary spending. But eliminating every procurement program that the CBO has identified as a potential budget target would save perhaps $30 billion in 2013.
In any event, Mr. McCain has called for billions more in new spending: increasing the size of the military, launching a new energy independence project, fully funding the No Child Left Behind law. Where's the savings? Mr. McCain says that he would limit overall growth in discretionary spending to 2.4 percent annually. History suggests that this would not be easily achievable: Discretionary spending has grown an average of 6.9 percent over the past seven years.
Mr. McCain's campaign says that he would rein in the growth of entitlement spending, saving another $160 billion, but it does not explain how. His campaign cites "excessive agricultural and ethanol subsidies," but eliminating all farm subsidies would trim less than $15 billion in 2013. Mr. McCain's opposition to the pending Medicare bill does not offer comfort on his willingness to deal with entitlements. He's willing to reverse $13 billion in scheduled cuts to doctors but opposes paying for it by reducing overpayments to the private Medicare plans. These overpayments -- the plans cost, on average, 13 percent more -- are just about the lowest-hanging fruit in tackling Medicare. In fact, Mr. McCain's chief economic adviser, Douglas Holtz-Eakin, told USA Today in May that the plans should have to "compete on a level playing field" with traditional Medicare. Mr. McCain sells American voters short -- and he does himself a disservice -- with his implausible claim.