September 26,2008

Grassley Describes Deficit Impact of McCain, Obama Tax Plans

Floor Statement of Senator Chuck Grassley:
Deficit Impacts of Senators McCain and Obama’s tax plans
Delivered Friday, Sept. 26, 2008

Starting in the third week of July, I’ve come to the floor to compare the tax plans of Senators
McCain and Obama, our two Presidential candidates. I’ve talked about the relationship between
party control and the likelihood of a tax hike or tax cut. I’ve used this chart, the tax hike
thermometer. I talked about the 1992 campaign promise of a middle class tax cut and the 1993 tax
legislation that contained a “world record” tax increase. I’ve used this chart, which depicts 16 years
of tax hike amnesia and Rip van Winkle.

In our first week back, I discussed the effects of the proposed 17% to 33% increases in the
top two rates. I focused on small business activity. Last week, I discussed the impact of Senator
McCain’s and Obama’s tax plans on seniors.

Today, I’d like to focus on the fiscal impact of both tax plans. It is particularly timely
considering the recent Treasury activity and proposals to resolve the problems in our nation’s
financial sector. Needless to say, from a fiscal policy standpoint, we are sailing into uncharted
waters.

I’m sure everyone realizes that there is always a large gap between what a Presidential
candidate promises and what that candidate is able to deliver on if elected, but we still need to
carefully examine the plans that both of my colleagues are putting forward. While neither plan is
likely to be enacted exactly as laid out in the campaign, we can evaluate how realistic they are and
also gain some insight in the candidates’ vision of the tax code.

For a long time now I’ve been saying that we should stop calling the tax relief enacted in
2001 and 2003 the Bush tax cuts and call it bipartisan tax relief. Both bills, especially the 2001 bill,
were passed with Democratic support in Congresses where the Republican majority was very
narrow.

In the case of the 2003 tax relief bill, Republicans passed the bill in the Senate only due to
Vice-President Cheney’s tie-breaking vote. So the implication that President Bush or Republicans
were able to impose this legislation by themselves is ridiculous. The 2001 and 2003 bipartisan tax
relief bills became law only with the support of members of both political parties.

In confirmation of what I have been saying, in that the 2001 and 2003 tax relief bills were
both bipartisan, we find that both major campaigns have adopted what is essentially the meat and
potatoes of both bills.

To illustrate how both campaigns have adopted significant parts of the 2001 and 2003 tax
relief, I present this chart, taken from the Tax Policy Center. This chart shows the fiscal impact of
how both plans would change current law. As you can see, the Tax Policy Center shows that
Senator McCain’s plan to prevent widespread tax increases would lose revenue of $4.2 trillion over
10 years. Senator Obama’s plan, which would include some widespread tax increases, would also
contribute the deficit. The Tax Policy Center says that number would be $2.9 trillion over 10 years.

I have another chart here. This chart, assumes current law levels of tax relief in effect, and
compares Senator McCain’s and Senator Obama’s plans. The Tax Policy Center also produced the
data in this chart. This chart shows Senator McCain’s plan would raise $600 billion less than current
tax policy. Senator Obama’s tax plan would raise $600 billion more than current policy.

Now, I respect the veteran analysts at the Tax Policy Center. They have worked hard to
develop a lot of data for policy makers, like those of us in this body, to use. If, however, we were
processing legislation, it would have to be scored by the non-partisan Joint Committee on Taxation.
So, the Tax Policy Center data is helpful, but we must note that that Joint Tax will be the decisive
scorekeeper of any tax legislation that either candidate would propose in their budgets.

The Tax Policy Center has acknowledged that both candidates’ plans lack details.
Necessarily, then the analysis and conclusions reached by the Tax Policy Center are qualified.
There’s a key caveat in these totals. Both plans assume revenue raising offsets that lack the
specificity to be scored.

Senator Obama has specified about $100 billion in defined revenue raising proposals. That
is close to the most aggressive accounting of revenue raisers in the Congressional inventory. I’m
going to refer to a snapshot of revenue raisers the House Ways and Means Committee has
developed. It is in what I’ve referred to as the revenue raising well chart.

As this chart shows roughly $90 billion in revenue-raising offsets that have been defined,
scored, and approved by the Ways and Means Committee. That figure is considerably higher than
the revenue raisers approved by the Senate Finance Committee. Some of these offsets will be used
in legislation that we hope to pass shortly. This well chart gives us a rough snapshot of what is
available. Let’s give the candidates the benefit of the doubt and round that up to $100 billion. Let’s
also look at the track record of the tax writing committees over the last few years. If you look at that
history, you’ll find the committees generate about $1 billion per month. So, let’s gross-up the
defined revenue raisers to $220 billion.

Now, if you take that conservative number of $220 billion, how do the plans stack up?
Senator Obama’s tax plan contains $920 billion in unspecified, unverified tax increases. If we net
that number against the $220 billion, we find that Senator Obama’s plan is short on specified
revenue raisers by $700 billion. To be even-handed, Senator McCain is carrying $365 billion in
unspecified revenue raisers. If we net that number against the known revenue raiser number of $220
billion, we find that Senator McCain’s plan is short of revenue raisers by $145 billion. Let’s step
back a moment. It means that the deficit impact of Senator McCain’s plan is understated by about
$145 billion. It means that the deficit impact of Senator Obama’s plan is understated by $700
billion.

As against the current tax policy baseline, it means the plans aren’t as far apart as they might
appear. Let’s go back to the current policy baseline chart. It means we need to raise Senator
McCain’s deficit impact number from $5.3 trillion to $5.45 trillion. Likewise, we need to raise
Senator Obama’s deficit impact number from $3.9 trillion to $4.6 trillion. Keep in mind that the
current policy baseline shows a revenue loss of $4.7 trillion. That’s what the Ranking Republican
on the Ways and Means Committee, Mr. McCrery, calls the “reality baseline.”

In recent weeks, Senator Obama has indicated he might re-visit the marginal rate increases
and increases in tax rates on dividends and capital gains after the election. If elected, Senator
Obama indicated he might revisit these tax increases if the economy is in recession. So, the deficit
impact of Senator Obama’s plan might be further understated.

Now, if the candidates were just proposing tax changes, the deficit impact of their plans
would end with these figures. That would assume neither candidate would be doing anything on the
spending side.

There is no Congressional Budget Office (“CBO”) estimate of the two candidates’ spending
plans. A non-partisan think tank, the National Taxpayers Union Foundation, has performed analyses
and estimates of the two candidates’ plans. You can find a comparative analysis at
www.ntu.org/main/page.

Let’s take a look at Senator McCain’s plan first. The National Taxpayers Union (“NTU”),
a non-partisan public policy research organization, NTU says Senator McCain’s plan would include
new spending of $68.5 billion per year. You can find the document at
www.ntu.org/pdf/P080603McCain_SpendingAnalysis.pdf.

Senator McCain has made it clear that he wants to cut spending. That’s consistent with his
career in the Senate. He’s been a spending cutter. Sometimes, it’s been a lonely fight. And Senator
McCain, despite fighting wasteful spending hard, has lost. Sometimes, I’ve disagreed with his
definition of wasteful spending. But one thing is clear, Senator McCain pushes spending cuts. And
any honest, non-partisan observer wouldn’t quarrel with that point.

Senator McCain’s overall economic plan continues his principle of cutting spending and keeping
taxes low.

Senator Obama’s plan on spending is completely different. NTU counted up 158 new
Federal spending programs. A conservative estimate of those programs came to $344.6 billion per
year. That’s right. We’re talking to $344.6 billion per year. You can look up the NTU analysis
at www.ntu.org/pdf/P080603Obama_SpendingAnalysis.pdf

If my friends on the other side have what they feel is a better estimate of Senator McCain’s
and Senator Obama’s new spending plans, I’d be glad to take a look at it. But, when you look at the
NTU analyses, you can see that Senator Obama’s spending plans would amount to $276 billion more
per year. Conservatively speaking, it means that, if elected, a President Obama’s tax and spending
plans, if enacted, would exceed a President McCain’s plans, in deficit impact, before the end of the
first term, 2012.

Something has to give. Senator McCain has been willing to put spending cuts on the table.
It’s been a hallmark of his congressional career. He’d have to find a way to get the Congress to
follow. It would probably be his greatest challenge, but we know he’d fight the fight to restrain
spending.

As a country, we cannot endure a deficit impact as big as would be projected under Senator
Obama’s tax and spending plan. Where will Senator Obama adjust his plan if elected? Will he
abandon the tax cuts he’s promised? Will he enlarge the group of Americans he’s targeted for tax
increases? Will he abandon his ambitious spending plans? Will he cut spending?

Most importantly, a President McCain or a President Obama is likely to be dealing with
expanded Democratic majorities on Capitol Hill. The tax increase thermometer tells us that, with
a unified Democratic government, taxes are likely to go up. Spending is not likely to go down.

I’d like to review the issues I’ve raised today. Many folks are asking about the fiscal impact
of the tax plans proposed by Senator McCain and Senator Obama. The Tax Policy Center has
produced data looking at the proposals against current law. Both candidates implicitly acknowledge
current law is not a realistic measure. With that noted, the Tax Policy Center has examined the
proposals against the more realistic baseline, current tax policy. If unspecified revenue raisers are
deducted from both plans, the deficit impact of both plans grows. Likewise, we find the gap in
deficit impact between the two plans narrows.

We cannot ignore the deficit impact of the spending side of each candidate’s plan. Senator
Obama’s plan outspends Senator McCain’s plan by over 500 percent. When Senators McCain’s and
Obama’s plans are combined, Senator Obama’s plan adds more to the deficit. In this troubled time,
the Federal Government has stepped into the breach of the financial sector meltdown. All the more
reason we need to closely scrutinize the tax and spending plans of our colleagues, Senators McCain
and Obama.

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