James Carter and James Miller III
Once upon a time and far, far away from mainstream America, lived a U.S. senator named Barack Obama. Mr. Obama had a gift, a truly wondrous gift. He could spin troublesome facts into political gold. And perhaps, with enough spinning, he could even spin himself into the White House.
Bill Clinton understood this. He called Mr. Obama's spin "the biggest fairy tale I've ever seen." Like other fairy tales, this one requires a total suspension of disbelief. Jack (of Jack and the Beanstalk fame) had his magic beans. Mr. Obama has his magic facts. Consider the following so-called facts:
-- Magic Fact No. 1: Senator Obama will cut income taxes "for 95 percent of working families, 95 percent."
It would be truly magical to be able to cut income taxes on 95 percent of working families when only 68 percent of tax filers actually pay the federal income tax. According to the Internal Revenue Service, of the 136 million income tax returns filed in 2006, 43 million returns reported positive adjusted gross income but had no income tax liability because of assorted deductions, exemptions and tax credits.
So how do you give a tax cut to someone who doesn't pay income taxes? Mr. Obama proposes a massive program of "refundable tax credits." Those on the receiving end would simply get a check from the federal government. In other words, they would pay a "negative tax."
By wrapping a thoroughly liberal position - larger welfare benefits - in the mantle of tax cuts, Mr. Obama has very nearly managed to neutralize one of the defining issues of this presidential campaign. If that sleight of hand isn't magic, we don't know what is.
-- Magic Fact No. 2: Mr. Obama pays "for every dime" of his proposals.
According to the nonpartisan National Taxpayers Union Foundation, Mr. Obama has offered 73 proposals that would collectively increase federal spending $365.6 billion annually. That's literally a $1 billion-a-day spending increase. And, unfortunately, that figure doesn't include the cost of Mr. Obama's 88 other spending proposals for which no reliable cost estimates exist.
How does Mr. Obama propose to pay for these new and expanded spending programs? He begins by squeezing defense spending. He would then repeal "the Bush tax cuts for the wealthiest Americans." (Never mind that the Bush tax cuts are already scheduled to expire and that the revenue is already included in the government's budget forecasts.) Finally, he would "close corporate loopholes, [and] stop providing tax cuts to corporations that are shipping jobs overseas."
These steps would not come close to paying for the senator's spending proposals. Assuming they offset $100 billion of new spending, paying for the other $265.6 billion (still ignoring the cost of Mr. Obama's other 88 programs) would require an across-the-board income tax increase of 19 percent. And, of course, this figure does not reflect the tax increase that would be necessary to pay for Mr. Obama's "tax cuts."
The IRS reported earlier this year that the top-earning 5 percent of taxpayers shouldered 60 percent of the federal income tax burden in 2006. If Mr. Obama insists upon having a tiny fraction of Americans shoulder the cost of his spending and tax proposals, the tax increase on those taxpayers would have to be huge - far larger than the 19 percent tax increase described above. This would slow investment, employment and economic growth - and, yes, total governmental receipts.
Sen. Hillary Clinton once threatened, "We're going to take things away from you on behalf of the common good." Perhaps she would have been Mr. Obama's ideal running mate after all.
-- Magic Fact No. 3: Economists overwhelming favor Mr. Obama's economic policies.
The Obama campaign likes to say it has the support of professional economists. Yet, that "fact" is based on two, methodologically flawed polls circulating the Internet. True enough, majorities of those surveyed said they favor Mr. Obama's economic policies. What else would you expect from a poll where Democrat responders outnumbered Republicans by nearly 3-to-1? Only 17 percent of the surveyed economists were Republican. In the second poll, Democrats outnumbered Republicans nearly 5-to-1. Only 10 percent of the respondents were Republican.
Meanwhile, more than 500 economists from across the country, including five Nobel Laureates, have signed a statement supporting Sen. John McCain's economic plan. (For the text of the statement and a complete list of the signatories, see www.economistsformccain.com.)
The fairy tale candidate may yet become the fairy tale president. But will the story end with "and the American people lived happily ever after?"
James E. Carter, a deputy assistant secretary of the Treasury from 2002 to 2006, is an economist with the U.S. Senate. James C. Miller III served as President Reagan's budget director from 1985 to 1988 and is now a senior adviser at Husch Blackwell Sanders, LLP.