McCain, Obama Tax Plans Both Would Add to National Debt
Though they differ greatly in how they would affect rich, poor and middle class taxpayers, the tax proposals of both US presidential candidates would add to the national debt even under optimistic scenarios. That is one of the conclusions of an analysis of the plans by the Tax Policy Center of the Urban Institute and the Brookings Institution.
Under current law (assuming the tax cuts expire on schedule, the Alternative Minimum Tax is not patched) the Congressional Budget Offic eprojects that debt held by the public would remain roughly constant over the next ten years, growing from $5.0 trillion in 2007 to $5.2 trillion in 2018. Because of the expiration of the Bush tax cuts and the explosive growth of the AMT, tax revenues are projected to increase from 18.8 percent of GDP to 20.3 percent over that time interval while spending is expected to fall from 20 percent of GDP to 19.4 percent, despite significant increases in mandatory spending (for Social Security, Medicare, and Medicaid). Discretionary spending (including war spending) and interest on the debt are projected to decline.
Under either Senator Obama’s or Senator McCain’s plan, however, the debt would likely continue to rise as it has over the past eight years, even under the CBO’s relatively optimistic assumptions about spending.
Senator Obama’s plan would add $3.3 trillion to the national debt (including additional interest costs) while Senator McCain’s plan would add $4.5 trillion. This does not include the cost of expanding health insurance coverage and assumes that Senator McCain’s proposals phase in and phase out on schedule. It also assumes that all of the candidates’ optimistic revenue offsets materialize. If any of these assumptions turned out to be unwarranted, the national debt would grow even more, the study finds.
However, measured against current policy (assuming that the 2001 and 2003 Bush tax cuts would be extended and the AMT patch made permanent) Senator Obama’s proposals would raise $700 billion, an increase of 2 percent, and Senator McCain’s proposals lose $600 billion, a decrease of roughly 2 percent.
Senator McCain has stressed that deficits should be closed by spending cuts, but policies he identifies, such as limiting earmarks, would offset only part of the revenue losses attributable to his tax plan. As noted, both candidates may be overoptimistic in their revenue targets for closing tax loopholes—Obama probably more than McCain.
Another way to look at the candidates’ proposals is how much revenues would be as a share of GDP, the Center says. Under Senator Obama’s plan, revenues would total 18.2 percent of GDP in 2013—at the end of a hypothetical first term. This is about the average revenue collected by the federal government since World War II. Under Senator McCain’s plan, the revenue yield would be about 17.8 percent.
Given that demands on the federal government are likely to exceed historical levels in 2013 (CBO projects spending at 19.5 percent of GDP, even assuming a wind-down of war-related expenses), these estimates imply that substantial cuts in spending would be required to balance the budget if all of the proposed tax cuts were enacted.
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July 25th, 2008 at 7:31 am
[...] The Tax Policy Center has updated its analysis of the fiscal impact of the tax proposals of Presidential candidates Senators John McCain and Barack Obama. In both cases, the impact on the national debt would be greater than under the Center’s previous model. [...]