Presdential candidates John McCain and Barack Obama have very different philosophies on how to fix the ailing U.S. economy. The highlights of the candidates’ plans reflect those differing values, assumptions and priorities.
A deeper question to consider is what will actually result from the economic plans. Who wins, who loses, and does the economy as a whole improve?
The sharpest contrast appears on tax policy. Sen. McCain has pledged to maintain the tax cuts President Bush enacted in 2001 and 2003, while Sen. Obama would largely return the tax code to where it was before Mr. Bush was elected.
The Bush tax cuts, projected out to 2011 when they expire, will have amounted to $1.6 trillion in savings to taxpayers (which also means less revenue for government programs). The estate tax was lowered, and under the Bush plan, would be repealed altogether in 2009. The capital gains tax — levied on earnings from the sale of businesses, second homes and other property — was lowered, as was the tax on stock dividend earnings. The Bush plan also lowered the percentage on the top four income brackets, with the top rate reduced from 39.6 percent to 35 percent.
While the bulk of the Bush tax cuts went to the wealthiest Americans, his plan also included provisions for more modest earners, such as doubling the child-tax credit to $1,000 and reducing the penalty on married couples filing jointly.
If elected, in addition to keeping the Bush tax cuts in place, Sen. McCain has pledged to cut corporate taxes from 35 percent to 25 percent. In keeping with Republican economic theory, Sen. McCain believes if business has a lighter tax burden, it will invest in equipment and people, thereby producing more wealth and jobs. Sen. McCain has also pledged to eliminate the Alternative Minimum Tax, which was conceived decades ago as a break for middle class earners, but with rising real-dollar incomes, hits many middle income households with disproportionately high income taxes.
Sen. Obama has called the Bush tax breaks a mistake, and charges they helped the president’s wealthy friends at the expense of the middle class. If elected, Sen. Obama would increase taxes on those earning $250,000 or more, thereby reversing a key component of the Bush plan. He also would raise the capital gains tax from 15 percent to 20 percent. To help the middle class, Sen. Obama proposes tax credits of $500 for individuals and $1,000 for couples for which he claims 150 million workers will be eligible.
Sen. Obama also pledges that seniors earning $50,000 or less would pay no income taxes under his plan.
The Democrat, in keeping with his party, believes the tax burden should relate to the ability to pay, and that middle income earners drive the economy. Obama and his party reject the “trickle down” theory.
Candidates talk a good game about slashing government spending, but the best that can be hoped for is restraint. Of far more importance is the discussion over which groups bear the burden of paying for government services, and whether burdening some groups — middle class or business class — hurts the economy. At least voters have a clear choice.