In the Arena

The McCain Tax Increases–Continued

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Douglas Holtz-Eakin, a former Director of the Congressional Budget Office and current chief McCain economic advisor, is an honest man–which means he’s something of a liability on the Straight Talk Express. A few months ago, he admitted to my colleague, Michael Scherer, that Barack Obama’s economic plan would reduce taxes for most people. And now, in a forthcoming book by Fortune columnist Matt Miller, he makes it clear that the next President is going to have to raise taxes.

“If you do nothing on the spending side, you’re going to have to raise taxes whether you’re a Republican, a Democrat or a Martian,” he tells Miller…and then he immediately makes it clear that the “spending side” part of the argument is nothing more than a political fig-leaf.

“It’s arithmetic.” Federal revenue today is 18.8 percent of GDP and federal spending is 20 percent. Holtz-Eakin observes that “the pressure are there” to lift spending [on entitlement programs, mostly] and taxes to 23 or 24 percent of GDP by around 2020, and to as much as 27 percent if health costs remain out of control.

Miller does the arithmetic: that’s an annual tax hike of $550 to $700 billion, well beyond the range of any spending cuts that McCain has or might propose. (Those vaunted earmarks cost about $20 billion per year.)

It should be noted that Obama’s proposed middle class tax cuts are nearly as foolish–and unlikely, in the long term–as McCain’s, although Obama claims to pay for them by closing corporate loopholes and raising the top marginal tax rates to Clinton-era levels.

But it’s John McCain who has opposed any and all tax increases, sort of–as I reported yesterday, McCain would tax employer-provided health care benefits. (He would also raise energy costs significantly with his cap-and-trade carbon emissions reduction program.)

Miller concludes:

So why does tax-cutting mania persist among Republicans, I asked Holtz-Eakin, the McCain adviser–given…that, as Holtz-Eakin himself explain to me, taxes soon have to go up substantially in any event?
“It’s the brand,” he said, “and you don’t dilute the brand.”

Miller’s book, The Tyranny of Dead Ideas, will be published by Holt in January 2009. I’m about halfway through reading an advance copy and, as is always the case with Miller, this is a smart, sane and extremely well-written account of our current economic mess.

Update: What Holtz-Eakin admitted to Scherer was that the Obama’s plan represented a net tax reduction over ten years.