First, here's what our friends at the Tax Policy Center have to say about the economic effects of Obama's tax plan:
"Senator Obama's proposal would increase marginal tax rates on very high-income households . . . As we modeled it, the federal effective marginal tax rate on labor income would be 46 percent. In a high-tax location like New York City, where state and local taxes are about 10.5 percent of compensation, the total combined effective tax rate would be over 50 percent. Given that high earners, especially the self-employed, often have ways to make labor income look like business income, such high tax rates could spur a lot of avoidance activity, undermining fairness and economic efficiency. Holding spending fixed, the additional revenues would, however, reduce government borrowing and its negative effects."
Here's what they have to say about the economic effects of McCain's tax plan:
"Expanding the scope of expensing (allowing companies to expense short-lived investments rather than depreciate them) would move the tax system in the direction of a tax on consumption, rather than income. This could encourage domestic investment in equipment and could raise wages by increasing capital per worker, but would also create new avenues for tax sheltering . . . The biggest drawback of [McCain's] proposal is that it would add enormously to the public debt. By 2018, tax revenues would be 16.3 percent of GDP, a level not seen since the early 1950s . . . It seems clear that the promises Senator McCain makes (or implies) in his speeches could not be sustained without a radical and unprecedented downsizing of government."
Okay, now to the candidates' economic proposals. Let's break it up into the major areas of their plans and talk about what each of them wants to do.
GAS PRICES
Obama wants to enact a "windfall profits tax" on oil companies in order to fund a $1,000 per family "emergency energy rebate." As far as how quickly he thinks he'll be able to do this, his website doesn't say.
McCain wants to send a "strong message" to world markets by telling oil-producing countries and oil speculators that our dependence on foreign oil will come to an end, claiming the impact of such will be lower prices at the pump. McCain also claims that his "policies" will increase the value of the dollar, thus reducing the price of oil.
HOME OWNERSHIP
Obama wants to create a universal mortgage tax credit (See Issue 1: Taxes) that would provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year. He also wants to create a couple things to help protect homeowners in the future: 1) a STOP FRAUD Act to help protect against mortgage fraud and 2) a Homeowner Obligation Made Explicit ("HOME") score that would essentially rate mortgages on their riskiness and cost (similar to an APR for car loans or credit cards).
McCain wants to enact something called a "HOME Plan" that would allow qualifying home owners to trade their burdensome mortgage for a 30-year fixed-rate mortgage. People would "qualify" by 1) having obtained their current mortgage after 2005, 2) using the home in question as their primary residence, 3) proving credit worthiness, 4) being in trouble on their current mortgage and 5) being able to meet the terms of the new mortgage. McCain also does not support using taxpayer money to bailout real estate speculators or home owners who failed to do their homework in assessing credit.
SMALL BUSINESSES
Obama wants to provide a "Making Work Pay" tax credit that would provide $500 to almost every worker, arguing that such a credit would help offset the cost of small business owners having to pay both the employer and employee portion of payroll taxes. He also wants to invest $250 million per year in a national network that would help facilitate entrepreneurial activity.
McCain wants to keep the top individual tax rate at 35% and maintain the 15% rate on dividends and capital gains pointing out that many small business owners actually pay taxes under the individual tax system and arguing that Obama's $250,000 cap would hurt small businesses as a result (see Jeff's insightful comment on this). McCain also wants to cut the corporate tax rate from 35% to 25% (see Alex's comment on this).
Both candidates want to extend tax credits to businesses for money they spend on research and development.
TRADE
Obama wants to end tax breaks for companies that send jobs overseas (although gives few specifics) and provide a tax credit to companies that 1) maintain or increase the number of full-time workers in America relative to those in foreign countries, 2) maintain their corporate headquarters in the U.S. and 3) pay "decent" wages, prepare workers for retirement and provide health insurance. He also opposes the Central American Free Trade Agreement and wants to work with Canada and Mexico to fix NAFTA so that "it works for American workers" (again, no specifics).
McCain wants to "engage in multilateral, regional and bilateral efforts to reduce barriers to trade, level the global playing field and build effective enforcement of global trading rules" (no specifics for McCain either).
LABOR
Obama wants to continue the fight for passage of the Employee Free Choice Act (he co-sponsored it) which he claims is "a bi-partisan effort to assure that workers can exercise their right to organize" (see what George Will, a Washington Post columnist, has to say about the act). Obama also supports workers rights to bargain collectively and strike if necessary and wants to raise the minimum wage, index it to inflation and increase the Earned Income Tax Credit.
McCain's economic plan currently does not offer any policies on labor.
INFRASTRUCTURE
Obama wants to create a National Infrastructure Reinvestment Bank (an independent entity) and give it $60 billion in federal money over 10 years to fund infrastructure and transportation projects, arguing they will create up to 2 million jobs and $35 million per year in economic activity (see what Harold Meyerson, a Washington Post columnist, has to say about investing in infrastructure).
McCain's economic plan currently does not offer any policies on investments in infrastructure.
Both candidates' plans also talk about their ideas for energy and health care and their effects on the economy, but those are issues that I think are big enough to warrant their own posts. Look forward to a post on the candidates' health care policies by Matt, a real-live practicing doctor.
Sorry this one was so long, but I hope it helps. If, by some miracle, you still want to know more, here's Obama's economic plan; here's McCain's.
3 comments:
Excellent, insightful, ponderable stuff! Keep up the good work, kid. I don't know whether you've all noticed the transition your old parents have made from a conservative "let the market do it" approach to a more moderate "some things need to be done collectively" philosophy.
Echoing Pa's comment above, the current economic crisis screams out to us to carefully consider the role of regulation in ensuring that markets are effective. I suggest we pay close attention to how well the candidates understand the underlying issues and how the ideologies they espouse approach the issues.
By the way, here is some interesting reading material. The first is a New York Times op-ed piece from Oct 2007 that mentions warnings at least one individual gave of the pending crisis as early as the year 2000. The second is a Boston Globe op-ed piece from Sep 2007 that discuss the role of regulation in the financial services industry.
I want to discuss something you mentioned about McCain's approach to gas prices. He wants the world to hear that our dependence on foreign oil will end. Yet, he says that he wants a strong dollar, which would reduce the price of oil.
What he's saying about a strong dollar is that, because we buy oil from countries that use other currencies, and the dollar has weakened against those currencies, we end up paying more in dollar-terms for that oil. But, if we won't need foreign oil then the strength of the dollar will be irrelevant to the price of oil.
Now, I know that reducing our dependence on foreign oil will take time and in the meantime, a stronger dollar would help make oil cheaper. But that leads me to my second point: a strong dollar isn't necessarily good for our economy right now.
Why? Because goods that we produce in the US and export abroad are bought with foreign currencies. A strong dollar makes the goods we export more expensive for other countries and reduces their demand and consumption.
In the last year, as local demand has fallen, a weak dollar has actually helped our economy. Exports have grown, propping up an otherwise weak economy. Check out this graph.
My point is: be careful what you wish for. A strong dollar, while it has some benefits, comes with some costs, too.
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