McCain and the Santas
By John
Maggs
The National Journal
March 1, 2008
Robert Bixby remembers when the budget deficit was sexy. That was in 1992, when billionaire Ross Perot bought a half hour on prime-time television to scold the government about living beyond its means. Remember those charts? Sen. Paul Tsongas, who briefly contended with Bill Clinton for the Democratic presidential nomination that year, put the deficit on the agenda, Perot popularized it, and Clinton turned it into a defining issue of the campaign.
"That was the one time when voters really were focused on[the deficit]," said Bixby, executive director of the deficit-fighting Concord Coalition. Otherwise, he said, "candidates don't like to talk about it." Eugene Steuerle, a fiscal policy expert at the Urban Institute, distinguishes between government "giveaways" and "takeaways." During campaigns, politicians don't want to talk about cutting spending or raising taxes -- the "takeaways." The polls bear this out. According to a January Gallup Poll, for example, the federal budget deficit was a top concern for only 2 percent of adults, behind the war in Iraq (25 percent), the economy (18 percent), health care (13percent), immigration (11 percent), and 10 other issues.
But for the first time in a generation, a leading presidential candidate likes to talk about the takeaways. A central plank in Sen. John McCain's Republican platform is reducing government spending -- eliminating earmarks (a small part of government spending), and also curtailing the growth of government generally and making what he calls "the hard choices" about what government should do. Alone among the candidates, McCain has committed to balancing the budget, and when asked about his economic plan, he typically emphasizes the need to reduce the deficit. "The practice of excessive borrowing and deficit spending in Washington must stop," his campaign website proclaims. McCain believes that the growth of government under President Bush has hurt Republicans at the polls, contributing to their losing control of Congress in 2006 and the depressing primary turnout so far this year.
Lack of "spending restraint is why our base is not energized," he said on February 17. "I think it's very important that we send a signal to the American people [that] we're going to stop the earmark/ pork-barrel spending."
This rhetoric represents a sharp break from the past seven years, during which Bush and Republicans in Congress gradually muted their calls for smaller government and lower deficits, and allowed spending to grow even as they cut taxes. During the1980s and 1990s, most Republicans in Congress stuck to the goal of reducing the budget deficit, joining with Clinton in 1997 to advance the first balanced-budget plan since 1969. But Bush abandoned this course, proposing a big tax cut and higher spending in 2001, even before the recession and terrorist attacks that year.
McCain's willingness to talk about "hard choices" clashes with the Bush approach, which Steuerle says is clearly animated by the political theory of "the Two Santas." Republican activist and former Wall Street Journal editorialist Jude Wanniski argued in the 1970s that as long as Democrats run on promises of more government spending -- as Santa -- Republicans will never win by acting like Scrooge and promising less. Instead, Republicans need to be Santa, too, and promise tax cuts, which Wanniski argued will be more attractive to voters than inefficient government programs. Wanniski had an economic theory to buttress this political strategy -- supply-side economics, which argued that tax cuts would generate enough growth to make up for lost government revenue. The failure of supply-side economics to deliver that revenue hasn't done much to tarnish the Two Santa selection strategy. "It is still a pretty attractive argument" in political debate, Steuerle said.
Bixby and other deficit hawks see a large hole in McCain's rhetoric -- his embrace of a permanent extension of Bush's tax cuts, along with such tax proposals as elimination of the alternative minimum tax and reduction in the corporate income-tax rate. Robert Reischauer, a former head of the Congressional Budget Office under the Democrats, said that these promises, along with McCain's commitment to remaining in Iraq, mean that McCain "is trying to have it both ways," paying lip service to his career-long commitment to balanced budgets while also playing Santa with tax cuts. "Those two sides don't add up."
Douglas Holtz-Eakin insists that they do. As McCain's chief economic adviser, Holtz-Eakin says that a President McCain would find a way to renew Bush's tax cuts and balance the budget. "It can be done," said Holtz-Eakin, who headed the CBO from 2003 to 2005. "It will require some difficult choices, but it can be done."
Reischauer, Bixby, and Steuerle said that McCain's emphasis on ending earmarks would do little to eliminate the deficit, because earmarks account for only $20 billion in a budget with more than a trillion dollars in discretionary spending. Like Bush, Bixby argues, "McCain has always pushed for more spending for defense, so that's off the table." More than half of the budget's discretionary spending goes to defense.
Nevertheless, when one pushes the deficit hawks to declare which top presidential candidate is most likely to reduce the deficit, they all say that would probably be McCain. "I'm not particularly hopeful that any of them would," Reischauer said, "but I guess McCain is more likely to."
In other words, McCain is more likely to break his promises on the Bush tax cuts than to abandon the goal of deficit reduction, according to these analysts. Alone among the top Republican contenders this year, McCain has refused to sign the "no tax increase" pledge popularized by Grover Norquist and his Americans for Tax Reform. "I stand on my record," McCain said during a televised debate last fall in New Hampshire. "I don't have to sign pledges."
Since then, McCain has narrowed his position. At various times, he has said that allowing Bush's tax cuts to expire on schedule in 2010 would constitute a tax increase, and on ABC-TV he issued a flat "no" to the question of whether he would ever raise taxes. Yet McCain has also used the formulation that George H.W. Bush used in 1988 -- "no new taxes," which preceded Bush's 1990 decision to embrace a deficit-cutting deal that raised income taxes.
Has McCain left himself enough room to do something similar? Bixby thinks that faced with a budget crisis and a Democratic Congress McCain would be able to navigate the waters of a budget compromise with Democrats that revamps Bush's tax cuts to raise revenue. In fact, Bixby sees a good chance that a budget crisis may begin to materialize during the current campaign. The deficit for the current fiscal year, previously thought to be as low as $160 billion, is now likely to reach $400 billion, reflecting the deterioration in tax receipts from a slower economy and the $152 billion economic stimulus plan that Congress recently enacted. Bixby said that this revised projection will appear in September, in the thick of the presidential race, and could become a significant issue for voters.
Reischauer isn't as hopeful about the deficit turning into campaign fodder. Even at $400 billion, the deficit will be much smaller, as a percentage of the economy, than it was in 1992. "I think in the next few years, it just won't be large enough to really force a compromise," he said. A temporary fix for the alternative minimum tax and a short extension of Bush's tax cuts let the next administration kick the real deficit problems down the road, Reischauer says. Only the explosion of entitlement costs a decade from now will force the issue, he says, and Democratic candidates Barack Obama and Hillary Rodham Clinton have lately been denying that there is an imminent crisis on entitlements that would prevent a costly new effort to expand health insurance. Asked when government would be forced to tackle the fundamental problems with the budget, Reischauer replied, "Not any time soon."