Tax Policy Center calls McCain campaign out for cheating.

Brad DeLong has a hot tip from Jason Furman


I quote a bit of Brad's quote of Furman

Today, the Tax Policy Center released a new analysis of the McCain and Obama tax plans, which provides a comparison between what each of the candidates says on taxes (their actual plans) and what their campaign advisors claim. It finds that the true cost [over 10 years] of Senator McCain’s tax proposals is $2.8 trillion larger than what his advisors have acknowledged. And most of that $2.8 trillion is the cost of yet more tax cuts for corporations and the wealthy. The plan still offers very little for ordinary Americans.

I think the key bit of the tax policy center report (here warning pdf) is (emphasis mine)

In several important ways, the candidates’ speeches and web sites differ from the plans as we’ve outlined them above, and, in several cases, descriptions of proposals provided by campaign advisors strike us as implausible. Senator McCain has said repeatedly that he would repeal the
individual AMT, allow businesses to expense all investments in equipment immediately, double the deduction for dependents, and give individuals the option to pay tax under a simplified alternative tax system. The campaign advisers say that the AMT will be patched but not eliminated except under the simplified alternative system, that only short-lived investments (for which expensing is not worth much) would qualify for immediate deduction, that the larger deduction for dependents would phase in slowly (and never equal twice the current-law deduction), and that the simplified alternative tax system would be revenue neutral. The last assertion is particularly questionable: few taxpayers will choose to pay an alternative tax if it does not reduce their tax bill, so an optional alternative is only revenue neutral if almost nobody elects it, which is probably not what the candidate has in mind. We estimated the cost of Senator McCain’s plan as described on the stump, assuming that all the provisions are fully effective immediately and that the optional alternative tax system is similar to the one proposed by the Republican Study Committee. Under those assumptions, the revenue loss attributable to the Senator’s plan increases to almost $7 trillion over the 10-year budget window.



Senator Obama’s proposal to exempt seniors with income below $50,000 from income tax but continue full taxation starting at $50,001 also strikes us as impractical and undesirable. Any actual legislation would have some kind of phaseout to avoid a “cliff” at $50,000. Also, Senator Obama has spoken often about subjecting high-income taxpayers to additional taxes to help shore up Social Security, although his campaign advisers insist that there is no specific proposal. We estimated the cost of Senator Obama’s proposals assuming all of the provisions are fully effective immediately, that the seniors’ exemption would phase out over a $10,000 income range, and that the Social Security proposal would impose a 2 percent income tax surtax on adjusted gross incomes over $250,000 and a 2 percent payroll tax paid by employers on employees’ earnings above that threshold. Under those assumptions, the Senator’s proposals would reduce revenues by $2.4 trillion over 10 years, or about $367 billion less than the proposals as described by his campaign advisers.

Many people (starting of course with the Tax Policy Center) noted that the older tax policy center analysis (which was actually discussed on CNN) omitted aspects of the campaigns proposed tax reforms.

In particular, I complained that they didn't discuss the Obama donut payroll tax plan. On that point, I have to admit that the Obama campaign is responsible as Furman more or less complained that they considered it this time*. Considering this the Obama proposal would add $ 400 billion less to the deficit compared to current law (with Bush tax cuts expiring and no AMT fix). Also the TPC was right to wait for details. I was prepared to assume that the new tax on labor income over 250,000 would be 6.2% (plus 6.2% from employers) like the payroll tax for regular people, but Obama has since made it clear that he won't do anything as radical as that. He has also talked about a 4% tax so the revenues might be almost twice the amount estimated by the TPC (twice according to a pure accounting model less given the increased increase in payroll tax avoidance). That would actually still roughly fits my guess that it covers the making work pay tax cut (click here and search for me).

The important part is the contrast between the goodies that McCain has been promising on the stump and the relative fiscal sanity that his aids tried to convince the TPC was what he really meant. He has repeatedly promised to eliminate the AMT but they, more or less, denied this in a claim which is no longer operative. Also he proposes an alternative minimum tax claiming that calculating two tax bills is simpler than calculating one (I am not joking). Obviously it is a flatter tax so allowing rich people to pay it is another huge tax cut.

The difference between McCain's promises to taxpayers and his aids' promises to the TPC are huge, twice the difference between the cost of the tax cuts as described by the aids and the tax cuts proposed by Obama.


* For reasons which I can not understand, Furman seems irritated that the TPC noted another Obama tax increase on the super rich. He wrote "In contrast, the Tax Policy Center found little difference between what they described as Obama's statesd positions and his campaign advisors description of his tax plan. The only substantive change the Tax Policy Center made was to add a specific payroll tax inrease than neither Senator Obama nor his campaign have ever endorsed in speeches, on the web, or in consultations with the Tax Policy Center" I don't get it. I would guess that this is one tax increase that would actually be popular. I don't know why the Obama campaign is would try to keep it a secret (or why they tell people about it regularly if they are).


update: Now I get it. Obama claims that his plan is a "net tax cut". Including the doughnut plan implies that it would yield increased revenues. We can't have that.
Now you might ask why the Obama campaign didn't sell the plan as "tax cuts for over ninety * % of families" (* filled in so that 9*% is definitely an underestimate) or tax cuts for at least x million people or something that people care about and is true. But you won't be able to think of an answer. I can't believe that the usually brilliant Obama spin team ever conceded that the total tax take is a measure of any tax burden of interest to the vast majority of voters. In fact, I suspect that they cut the doughnut rate to 2-4% from 6.2% to avoid the risk of reducing the deficit (horrors).

Based on the polls I cite repeatedly, I would guess that the public would love the doughnut payroll tax if Obama admitted that he planned it. Instead he has bought into the absolutely central Republican scam of the past 28 years and talked about total revenues as if they are relevant to the median voter (or the voter in the 90th percentile of the income distribution).

I mean just look at what happened. The TPC said that the deficit would be lower by about 400 billion over 10 years than the Obama campaign claimed and the Obama campaign said they were being unfair. Beats claiming that there is an Iraq Pakistan border but not by much.