October 29, 2008

Summarizing the Truth About the Presidential Candidates? Tax Plans

This commentary appeared in Google News’ “Comments by People in the News” on October 29, 2008.

Near the end of every Presidential election, attacks from both sides saturate the airwaves, mailboxes and even voicemails of American voters. And in a year where the economy is the number one issue, Senators John McCain and Barack Obama have attacked each another over the emphases in their tax plans. McCain has attached labels of “welfare” and “socialism” on Obama’s tax plan. Obama has attacked McCain’s plan as extending a policy of George W. Bush that he claims only cares about the rich and will not in his view “trickle down” to other parts of the income spectrum.

The rhetoric on the campaign trail and in television ads has been about as honest as an Iraqi Information Minister under Saddam Hussein. Both campaigns should be ashamed when it comes to the misinformation spread throughout this campaign on the issues of tax policy. Rather than spending time fact-checking their falsehoods, let’s focus on the two candidates’ real priorities.

Obama’s priority appears to be the distribution of the economic pie, raising taxes on upper-income taxpayers so that the government can transfer money to those in the bottom and the middle. Obama’s plan could have positive effects on economic growth in the short run because he shifts income from upper-income households who are more likely to save money into the pockets of those who are more likely to spend the money. However, this isn’t a free lunch; such a policy comes at the expense of savings and thereby long run economic growth. Obama’s view appears to be that the loss in economic activity from the tax hikes would not be large enough to offset the good that is done by having a more equal distribution of the economy’s resources.

McCain’s tax plan appears to be focused more on growing the economic pie. He plans to keep the lower marginal rates for those at the top. (Obama keeps all the lower rates passed as part of the Bush tax cuts except for the top two rates, 33 and 35 rates.) He also plans to cut the top U.S. corporate income tax rate. Unlike Sen. Obama, these two aspects of McCain’s plan are not related to any concern over the distribution of the economic pie. But it’s ironic that McCain would be attacking Obama for wanting to “spread the wealth” when Sen. McCain’s health care plan—a $2,500 refundable tax credit for individuals ($5,000 for families) for purchasing health insurance—is itself a heavy dose of redistribution, benefitting lower- and middle-income earners. Oddly enough, this is the part of his tax plan that has been most heavily criticized by the Obama campaign.

With only a few days left in this campaign, don’t get brainwashed: mute the ads, throw away all of those mail pieces, and hang up on those “robocalls.” Filter out the falsehoods and focus on the candidates’ priorities.