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Unlike many bloggers, I am not going to bash John McCain’s renewed interest in balancing the budget. It is nice to see his on-and-off love affair with fiscal responsibility heating up again.
There is just one problem with his vow to balance the budget by 2013. He can’t do it. Or, to be more precise, he can’t do it while extending the Bush tax cuts, cutting other taxes of his own, and maintaining a costly military presence in Iraq.
The numbers not only don’t add up, they don’t even come close. To see why, take a look at some rough estimates. CBO figures Washington is on track to spend about $3.5 trillion in 2013 (assuming zero spending for Iraq) and to collect roughly $3.6 trillion in revenues (assuming the Bush tax cuts expire in 2010). To put it another way, Washington will spend about 19.5 percent of GDP and raise about 19.9 percent, which would produce a modest surplus.
But, of course, McCain wants to cut taxes—a lot. TPC estimates he’d slash revenues by almost $400 billion in 2013 alone. As a result, McCain would collect only about $3.2 trillion in taxes, or roughly 17.8 percent of GDP. With no changes in spending, that would leave him about $300 billion, or 1.7 percent of GDP, short. Plus, he’s likely to need extra cash to pay for continuing operations in Iraq. So where would he find the dough?
McCain's new economic plan includes only a few specifics. He’d freeze non-defense discretionary spending for a year. That sounds dramatic, but since most government spending is for Medicare, Medicaid, Social Security, the Pentagon, and interest on the debt, I figure it would trim spending by only about $20 billion. He also pledges to eliminate pork. Nobody knows exactly what he means, but he might find another $20 billion.
All this gets him less than 15% of the way there. Where will the rest come from?
There is only one place, and that is the black box in the McCain plan: Entitlements. He says he wants to reform Medicare, Medicaid, and Social Security. He also vows to restrain annual increases in all government spending to 2.4%, just a bit more than half the pace CBO projects for the next decade. That kind of slow-down is simply not possible without big changes in the Big Three.
Could McCain come up with a sensible plan to fix Social Security? Sure. Would it yield much money by 2013? Nope. One reason: Any plan would be phased in over decades to protect current and soon-to-be retirees. Could he slow Medicare growth by 2013? I don't see how, especially since so much of the problem can be traced to overall health spending which seems intractable.
I’m glad that McCain is at least talking about balancing the budget again. But he still hasn’t even come close to telling us how he’d do it.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.