MEMORANDUM
FROM: BC'04 POLICY DEPARTMENT
John Kerry is now the official nominee of the Democratic Party. He has made numerous policy proposals, but has yet to explain how he will pay for his promises. Kerry's empty rhetoric on fiscal responsibility still doesn't answer the fundamental question of how he intends to pay for his campaign proposals. His tax hikes don't even begin to cover the drastic increases in spending he has proposed, and he owes it to the American people to explain himself.
The following balance sheet takes a look at Kerry's current budget promises, using independent third party sources, media sources or the Kerry campaign's own estimates. Citations follow. Assuming the tax cuts are made permanent, as the Kerry campaign does, the Kerry plan has a budget gap of $1.3 trillion over the next ten years. Kerry has yet to explain how he would pay for these new proposals, much less keep his promise to cut the budget deficit in half over four years.
FOOTNOTES
1. New 5% Corporate Tax Cut: Senator Kerry will reduce the top corporate rate from 35% to 33.25%, for the very largest companies and leave the rest with nothing. Considering that an increasing number of businesses operate as sole proprietors, partnerships, limited liability companies, or S corporations, which pay taxes at the individual rate, small businesses are likely to pay higher taxes if Senator Kerry rolls back tax cuts for those who earn over $200,000. (Sources: "Senator Kerry on Corporate Tax Reform: Right Diagnosis, Wrong Prescription," International Economics Policy Briefs, April 2004)
2. New Jobs Tax Credit (Source: Jim VandeHei, "Kerry To Offer Cut In Corporate Taxes," The Washington Post, 3/26/04)
3. New Health Care Plan: Ken Thorpe originally estimated that Senator Kerry's health care plan would cost over $1 trillion. He has revised this figure downward by crediting Senator Kerry with savings for preventative care and chronic disease management. While the administration agrees that many of these provisions are worthwhile, CBO has consistently scored these provisions as costing, not saving money. For example, CBO estimated that similar provisions in H.R. 1, the Prescription Drug, Improvement, and Modernization Act of 2003, cost nearly $3 billion over ten years. (Source: "Morning Political Report," ISI, 6/23/04; "Cost estimate for the bill conference agreement: H.R. 1, Medicare Prescription Drug, Improvement, and Modernization Act of 2003," CBO, 11/20/03)
4. Create Education Trust Fund: Senator Kerry significantly underestimates the cost of his education proposals. The sum of individual estimates from the National Taxpayers Union Foundation, the President's budget, and Senator Kerry's own website exceed his suggested $200 billion price tag by at least $70 billion.
College Tax Credit
$50.0 billion
Fully Fund IDEA
$75.4 billion
Fully Fund NCLB
$70.0 billion
Recruit And Train 500,000 Teachers
$30.0 billion
School Modernization Bonds
$24.8 billion
Afterschool Funding
$13.5 billion
Reduce Dropout Level
$4.5 billion
Increase GEAR UP
$2.0 billion
Expand TRIO
$0.4 billion
(Source: John Kerry For President Website, "Detailed Plan To Strengthen Public Schools," www.johnkerry.com, Accessed 5/5/04; Drew Johnson, "The Return Of Fuzzy Math And Risky Schemes: How Presidential Hopefuls Would Deepen Deficits," National Taxpayers Union Foundation, 1/19/04; S. Con. Res. 23, CQ Vote #70: Rejected 47-52: R 1-50; D 45-2; I 1-0, 3/21/03, Kerry Voted Yea; "Detailed Plan To Strengthen Public Schools," www.johnkerry.com, Accessed 5/5/04; Nedra Pickler, "Kerry Blasts Bush's Education Policy," The Associated Press, 4/5/04; John Kerry For President Website, "A Great Teacher For Every Child: John Kerry's New Bargain For America's Children And Teachers," www.johnkerry.com, Accessed 5/6/04; "FACT SHEET: John Kerry's Framework To Cut The Deficit In Half And Invest In Affordable Health Care And Better Schools," Press Release, 4/7/04; "A Great Teacher For Every Child: John Kerry's New Bargain For America's Children And Teachers," www.johnkerry.com, Accessed 5/6/04; John Kerry For President Website, "Detailed Plan To Strengthen Public Schools," www.johnkerry.com, Accessed 5/5/04; Drew Johnson, "The Return Of Fuzzy Math And Risky Schemes: How Presidential Hopefuls Would Deepen Deficits," National Taxpayers Union Foundation, 1/19/04; "John Kerry's Plan To Honor Work, Family," Press Release, 6/16/04; "John Kerry's Plan For One Million More Americans To Graduate High School," www.johnkerry.com, Accessed 5/5/04; Ronald Brownstein and Matea Gold, "Kerry Zeroes In On High School Dropout Levels," Los Angeles Times, 5/5/04; Nedra Pickler, "Kerry Faults Bush On College-Funding Program For At-Risk Youth," The Associated Press, 5/20/04; "Making College Affordable For All Americans," www.johnkerry.com, Accessed 4/2/04; Budget Of The United States Government, Fiscal Year 2005, Appendix, p. 356)
5. Extend Unemployment Benefits (Source: John Kerry For President Website, "John Kerry Announces That He Will Hold A Series Of Discussions On The Economy," www.johnkerry.com, Accessed 3/18/04; "S. 1708, Unemployment Compensation Act," Congressional Budget Office, 10/22/03)
6. New National Service Plan (Source: Garry Rayno, "Kerry: Free Tuition For National Service," The [Manchester] Union Leader, 11/29/03)
7. Auto Industry Subsidies to Produce Energy Efficient Vehicles (Source: Sen. John Kerry, Remarks VFW Post 788 In Cedar Rapids, IA, 6/13/03)
8. New Technology Plan (Source: John Kerry For President Website, "John Kerry's Plan To Create Millions Of High-Wage Jobs In The Industries Of The Future," www.johnkerry.com, Accessed 6/25/04; Aaron Ricadela, "Kerry Pitches $30 Billion Tech Investment Plan," InformationWeek, 6/24/04)
9. Fully Fund Head Start: The National Education Association estimated that Senator Kerry's proposal to fully fund Head Start would cost $58 billion over ten years. (Source: John Kerry For President Website, "Head Start," Accessed 1/20/04; "Keeping The Promise To America's Preschoolers," National Education Association; Drew Johnson, "The Return Of Fuzzy Math And Risky Schemes: How Presidential Hopefuls Would Deepen Deficits," National Taxpayers Union Foundation, 1/19/04)
10. Mandatory Funding for Veteran's HealthCare: Senator Kerry cancelled a trip to New Mexico to vote to make veteran's health care mandatory. The Associated Press and the LA Times citing an informal CBO estimate reported that this would cost $300 billion over ten years. (Source: John Kerry For President Website, "Fighting For America's Veterans," Accessed 1/20/04; Matea Gold and Richard Simon, "Kerry Outmaneuvered In A Rare Attempt To Vote," Los Angeles Times, 6/23/04; Nedra Pickler, "Kerry Has Secretive Meeting With Edwards," The Associated Press, 6/23/04; "Dogfights in the Senate," New York Times, 6/25/04, Editorials/Op Ed)
11. Plan to Secure Nuclear Materials (Source: Patrick Healy, "Kerry Says He'd Secure Nuclear Materials," The Boston Globe, 6/2/04)
12. Increase Number of Active Duty Troops by 40,000 (Source: John Kerry For President, "On One Year Anniversary Of Ultimatum To Hussein And Key Kerry Advisor's Protest Resignation From Bush Administration, Kerry Offers Plans To Strengthen U.S. Military And Support U.S. Military Families," Press Release, 3/17/04; Julie Hirschfeld Davis, Kerry Outlines His Military Plan," The Baltimore Sun, 3/18/04)
13. Full Concurrent Receipts (Source: John Kerry For President Website, "Fighting For America's Veterans," www.johnkerry.com, Accessed 3/16/04; "H.R. 1588: National Defense Authorization Act For Fiscal Year 2004," Congressional Budget Office, 11/25/03; Sarah T. Jennings, Committee On Armed Services, U.S. Senate, 3/27/03, p. 2)
14. Increase Spending on Homeland Security (Source: John Kerry For President Website, "John Kerry: A Homeland Security Plan To Keep America Safe," www.johnkerry.com, Accessed 3/18/04; Jim VandeHei and Brian Faler, "Kerry's Spending, Tax Plans Fall Short," The Washington Post, 2/29/04)
15. Increase Aid to States (Source: Dan Balz, "Kerry Outlines Tax, Economic Proposals," The Washington Post, 8/29/03)
16. Increase Global Aids Funding: Senator Kerry claims he will increase international AIDS funding by $30 billion through 2008. Since President Bush has already pledged $15 billion to combat the spread of AIDS, BC'04 only scores the additional $15 billion. (Source: John Kerry For President Website , "Plan to Respond to the International Aids Crisis," http://www.johnkerry.com/issues/aids/international.html, Accessed 07/12/04; Jim VandeHei and Brian Faler, "Kerry's Spending, Tax Plans Fall Short," The Washington Post, 2/29/04; The White House Website, "HIV/AIDS Initiatives," www.whitehouse.gov, Accessed 2/29/04)
17. Increase Child Care Tax Credit (Source: John Kerry For President, "John Kerry's Plan To Honor Work, Family," http://www.johnkerry.com/pdf/pr_2004_0616.pdf, Press Release, 6/16/04)
18. Make Permanent Extension of TRICARE (Source: John Kerry For President Website, "Ensuring Affordable, Quality, And Reliable Health Care For America's Veterans," www.johnkerry.com, Accessed 6/2/04; John M. Donnelly, "Senate Adopts Costly Amendment Boosting Health Benefits For Reservists," CQ Today, 6/2/04; "S.1050 National Defense Authorization Act for Fiscal Year 2004," CBO Cost Estimate, 06/02/03)
19. Tax Increases On Those Earning More Than $200,000 Per Year: Senator Kerry claims nearly $900 billion in tax increases to pay for his new spending, but Treasury will not score that much in additional revenue for these proposals. In fact, under a current law baseline Senator Kerry's tax increase raises just $300 billion, a third as much as he claims it would raise. (Source: "Today the Treasury Department produced revenue estimates for the following changes," Treasury Press Release, 2/22/04; "Kerry's Deficit-Cutting Math May Not Add Up," Wall Street Journal, 7/30/04)
20. End Tax Deferral: According to Gary Hufbauer at the Institute for International Economics, Senator Kerry's proposal will only raise $6 billion per year, half as much as he claims. The undistributed profits of these companies increased roughly $32 billion a year between 1998 and 2003. The effective corporate tax rate is 30%. Companies are able to credit the foreign taxes paid (about 11%) against their US tax liability. Ending the deferral would return the remaining 19% back to the federal government. (Source: "Senator Kerry on Corporate Tax Reform: Right Diagnosis, Wrong Prescription," International Economics Policy Briefs, April 2004)
21. Repatriation Holiday (Source: "Senator Kerry on Corporate Tax Reform: Right Diagnosis, Wrong Prescription," International Economics Policy Briefs, April 2004)
22. Cut Corporate Welfare: Senator Kerry says he wants to save $300 billion from a Corporate Welfare Commission. If there were $300 billion in easy savings from corporate welfare, it would have been saved a long time ago. By the time a Commission is named, staffed, and performs a study, the term of the next President is likely to be half over, if not all the way over. (Sources: Sen. John Kerry, Remarks In Bedford, N.H., 1/7/04; “Explanation of Budget Savings” PPI February 2004)
23. Close Tax Loopholes (Source: "Treasury Announces New Budget Proposals New Proposals Close Loopholes, Stop Abusive Tax Avoidance," Treasury Press Release, 01/13/04; "Estimated Revenue Effects of the Substitute Amendment for S.1637, The Jumpstart Our Business Strength (JOBS) Act," JCT, 5/20/04)
24. Spectrum Sales: Senator Kerry claims that he will save $30 billion from future spectrum sales. CBO estimates that the Federal government would collect at most $18 billion over 10 years. Although BC'04 credits Senator Kerry with savings, all of this is already assumed in their current baseline. (Source: "The CBO Baseline for Spectrum Auction Receipts" The Budget & Economic Outlook: Fiscal Years 2001-2010, January 2000)
25. Student Loan Savings: The current formula used to compensate private lenders underestimates a fair market return. To compensate for this, private lenders rely on occasionally earning more than the calculated rate. This formula has already been adjusted downward several times in the last decade and further reductions could force some lenders out of the FFEL program. However, in an effort to calculate conservative budget estimates, BC'04 credits Senator Kerry with $12 billion in savings. (Source: "Education, Training, Employment and Social Services," CBO Budget Options, March 2003)
26. Specific Offsets And Restrain Discretionary Spending Other Than Education And Security: Senator Kerry's spending reduction proposals are simply not serious. For example, OMB estimates that travel and transportation of persons will cost $10.4 billion in 2005 and that the federal travel budget will decline by almost $2 billion or 15.5% between 2003 and 2005. Senator Kerry claims he would freeze travel at its current level generating more than $10 billion of saving over the next ten-years. As one can see the current trajectory for the federal travel budget is declining not rising. Senator Kerry's savings proposal would save nothing let alone $10 billion. (Source: "Object Class Analysis," Budget of the United States Government FY2004, February, 2003)
Under the President's Budget, non-security discretionary spending already increases by less than 1%, education, veterans, health, income security and justice spending account for 63% of the remainder. It is unlikely Senator Kerry will cut these programs. (Source: Budget of the United States Government FY 2005, February 2004; "An Analysis of the President's Budgetary Proposals for FY 2005," CBO, March 2004)