Campaign promises face deficit reality check

By ANDREW TAYLOR

Associated Press Writer

updated 11:32 p.m. ET Feb. 24, 2008

WASHINGTON - Barack Obama promises $4,000 credits to help pay college tuition. Hillary Rodham Clinton backs $25 billion for home heating subsidies. And John McCain wants to not only extend President Bush's tax cuts, but eliminate the alternative minimum tax at a cost of about $2 trillion over 10 years.

Then there's reality.

These campaign pledges — and dozens more in the manifestos of the leading presidential candidates — face a collision with the real world come January.

That's when the new president will start putting together a real budget and economic plan, one drafted against the backdrop of record federal deficits exceeding $400 billion. Even more challenging is the growth of the Medicare and Social Security retirement programs, which budget experts say could require wrenching benefit cuts, politically difficult tax hikes or both to handle the retirement of the baby boom generation.

In that environment, promises to effectively rebate the first $500 of Social Security payroll taxes (Obama), provide $1,000 tax credits for retirement savings (Clinton) or cut the corporate income tax by 10 percentage points (McCain) may turn out to be campaign fantasies.

"They're operating in Never Never Land.... None of them are honestly addressing the real challenges that they're going to be facing if they're elected," said Leon Panetta, former budget director and chief of staff for President Clinton. "We're facing a deficit bubble that is getting increasingly worse and at some point is going to explode on us."

Reminders of 1992
Democrats Obama and Clinton face a situation eerily familiar to 1992, when Bill Clinton ran a campaign promising middle-class tax cuts and universal health care. Instead, worsening deficit predictions led him to push through Congress a tax-heavy deficit reduction plan that helped Republicans take over Congress in 1994.

For Republican McCain, the parallel is to the one-term presidency of George H.W. Bush, who inherited a budget crisis — and a Congress controlled by Democrats — that ultimately led him to break his "read my lips" pledge not to raise taxes.

For now, however, the campaigns are sticking with policy papers that don't add up but cater to political constituencies.

Obama's "Keeping America's Promise" manifesto is full of costly prescriptions for the economy. Obama proposes tax cuts for senior citizens and college students, and $500 for every wage-earner, totaling $80 billion-$85 billion a year. He says he would pay for the tax cuts by closing loopholes and closing offshore tax havens, but those steps would fall far short of fully offsetting their costs.

Democrats like some tax cuts
Both Obama and Clinton would keep in place many of the Bush tax cuts, including rate cuts for most taxpayers and the $1,000 per child tax credit. Both would let rate cuts for upper-income taxpayers expire, and use the savings to help pay for their health care promises.

To address looming shortfalls in Social Security, Obama supports raising the cap that limits the 6.2 percent Social Security payroll tax to the first $102,000 of income.

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