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Economic News, Data and Analysis

The Illusionist — Chait on McCain-o-nomics

From The New Republic…

TRB: The Illusionist

McCain is promising to cut taxes by $300 billion per year on top of the Bush tax cuts, which he would make permanent. In addition to this, he promises to balance the budget in his first term. When asked how he could possibly pull this off, McCain has asserted that he could eliminate all earmark spending, saving $100 billion per year.
I don’t find this explanation persuasive. The first point I’d make is that $100 billion is, in fact, less than $300 billion. The second point I’d make is that McCain won’t even cut $100 billion, or anywhere close. By conventional measures, earmarks only account for $18 billion per year. McCain gets his number by employing an unusually broad definition of what constitutes an earmark. McCain’s definition includes things like aid to Israel and housing for members of the military that are not “pork” as the term is understood. When asked if he would eliminate those programs, he replied, “Of course not.”
So we’re left with a pot of money closer to $18 billion. And McCain surely won’t eliminate even that. He has frequently found himself campaigning at places funded by federal earmarks and beloved by the local citizenry, and he keeps inadvertently showing how impossible it is to fulfill his promises. Last month, McCain visited a hospital in Pennsylvania and met an ovarian cancer patient who’s being treated with a clinical trial program funded by an earmark. Asked if he would eliminate that program, he replied, “It’s the process I object to. … When you earmark in the middle of the night, you have no budgetary constraints.”

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Bush’s Small Business Whopper

Bush’s claim that his tax cuts for high-income individuals are good for small business again fails to hold up under scrutiny. (For more on small businesses and taxes, see “Reforming the Tax Code to Assist Small Businesses” (pdf))

Bush: 43M families hurt if tax cuts expire – Jun. 2, 2008

“It turns out that 75% of taxpayers who benefited from the reduction of the top bracket were small business owners,” Bush said, noting that small businesses pay taxes at individual income tax rates. “So when you hear ‘tax the rich’ you’re really talking about taxing Mom and Pop businesses.
Williams said that it’s true that the majority of taxpayers in the top income tax bracket (currently 35%) report business income, but those taxpayers don’t represent the majority of small business owners.
According to a Tax Policy Center analysis, over 90% of small business owners report income that puts in them in the 26% tax bracket or below.
Many of the top-bracket taxpayers who report self-employment income get most of their income from salaries, investments and stock options, Williams said. Of those taxpayers, only 50% make more than half of their total income from their business, and 25% get less than a tenth of their income from their small business, he said.

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