In a new campaign document, John McCain detailed some of his economic proposals today. The promise that caught my eye is a pledge to balance the federal budget by 2013. That is curious promise for him to make.
The Joint Committee on Taxation projects that federal revenues in fiscal 2013 — with the extension of the current tax cuts and AMT relief — will be 17.6 percent of GDP.
This year federal spending will come in at about 20.6 percent of GDP. That means that in four years a President McCain would cut spending worth about 3 percent of GDP, or about $427 billion annually in today’s dollars.
That would be fabulous, and Mr. McCain can read my Downsizing plan to find out exactly where to cut. Indeed, he might have already read it (see the picture). However, today’s plan from McCain includes few specifics on discretionary spending cuts, and his (laudatory) entitlement reforms would probably not generate major savings in just the first four years.
Here’s where fiscal conservatives get nervous about Mr. McCain’s intentions. In the same campaign document. McCain repeatedly lauds bipartisan efforts to fix the budget. Thus, if elected, would he actually fight for $427 billion in federal spending cuts? Or would he just trim some minor waste and earmarks, and make up the vast bulk of the budget gap with tax increases in the name of bipartisanship?
To end on a positive note, we have seen in recent years that federal revenues are highly dependent on the strength of the economy. If balancing the budget is the main fiscal goal of the next president, he will need to both cut spending and support pro-growth economic policies. To McCain’s credit, his tax proposals are very growth-oriented, and an economic boom could well boost revenues to higher levels than currently projected.