14 September 2008

Tax Policy Center: Report on the Obama and McCain Tax Plans

UPDATE II: The source has been located. Bradley Schiller, Sept. 5, 2008.. Sorry for the original inaccuracy.

UPDATE: I mistakenly read the the quoted text in Ben's note below as having come from the Tax Policy Center report. This is incorrect. It comes from the Wall Street Journal. I still need to track the author and article down. I'll post more info as soon as I have it.

My friend Ben sent me this report from the Tax Policy Center. In a nutshell, it says that neither presidential candidate has proposed a tax plan that can reduce the deficit. In fact, both candidates' plans will only grow the deficit.

Both John McCain and Barack Obama have proposed tax plans that would substantially increase the national debt over the next ten years, according to a newly updated analysis by the nonpartisan Tax Policy Center. Neither candidate’s plan would significantly increase economic growth unless offset by spending cuts or tax increases that the campaigns have not specified.

. . . The Obama plan would reduce taxes for low- and moderate-income families, but raise them significantly for high-bracket taxpayers (see Figure 2). By 2012, middle-income taxpayers would see their after-tax income rise by about 5 percent, or nearly $2,200 annually. Those in the top 1 percent would face a $19,000 average tax increase—a 1.5 percent reduction in after-tax income.

McCain would lift after-tax incomes an average of about 3 percent, or $1,400 annually, for middle-income taxpayers by 2012. But, in sharp contrast to Obama, he would cut taxes for those in the top 1% by more than $125,000, raising their after-tax income an average 9.5 percent.
Just yesterday, Alan Greenspan expressed concern over McCain's tax cuts.
"I'm not in favor of financing tax cuts with borrowed money," Greenspan said during an interview with Bloomberg Television. "I always have tied tax cuts to spending."
My friend Ben is both more informed and more articulate than I am on this particular issue, so I'll use his words to explain part of the problem I think Greenspan is aware of. Ben advised me, when writing about the candidates' tax plans, to consider the situation one of them will inherit in January:
You should include the 407 billion dollar debt by month's end . . . 500 billion by the time Obama or McCain takes office, then look at the tax assessment . . . I'm sure both McCain and Obama will be forced to reconsider, meaning, promises made now will be broken and it will be business as usual in DC because it HAS to be.
Unfortunately, Ben's right. This is what Democrats must be worried about when they hear Obama make tax promises before a crowd of 76,000 in Denver and another 38 million on TV. Granted, the Tax Policy Center's report finds that Obama's plan will treat struggling American families more kindly than McCain's, but with the mounting debt the country faces, how can Obama live up to the promise?

Ben goes on to slice and dice the McCain approach.
The Republican platform of cutting taxes is a beautiful theory but there is nothing compelling that shows it works. Consider what we have read in the news lately:

$500 billion dollar deficit - we'll need to borrow more from China; how much of the US does China own again?

The theory that by cutting taxes for the "well-to-do," such people reinvest the $$ for jobs, new business and etc. But what we are seeing is soaring unemployment rates, lowering of real wages for middle and lower class, and upper income wealth growing.
Here's the biggest insight I take from Ben's note. Current economic indicators are not reliable in the same ways they used to be. Especially our gross domestic product.
GDP is up, that's a good thing. [According to the WSJ,] "U.S. Commerce Department's Bureau of Economic Analysis revised its assessment of GDP growth in the second quarter of this year. Rather than growing at the anemic pace of 1.9% as reported in July, the April-June quarter actually registered a healthy GDP growth rate of 3.3%. Growth at this rate exceeds the long-term U.S. growth rate of 3.1% over the past 50 years."

BUT there are huge problems with using GDP as a measure for where we are going . . . i.e. great GDP has gone up but wages are either stagnating or going down (depending on how you look at it), pensions are beginning to shrink or in the case of some industries just [disappear], and the whole debate on income inequality is magnified now more than ever with the rise of executive pay. So all of a sudden GDP is not really measuring what we think we are measuring.
What does it all mean? I'll have to follow up with Ben for a tidy summation. Loosely, though, I think it means Americans will have to do the following to get out of being indentured to China: 1) Get out of Iraq and start the difficult assessment of how to reallocate our military resources to protect the country against the real threats we do face without continuing to hock the country's future. 2) Tighten the belt. We have to cut spending, even after the U.S. gets out of Iraq. It's the plain truth of the matter. We need a government that says no to largess while explaining to the American people why we can't afford certain things.

Infrastructure, education, and health care need to be where we spend our money, not the military industrial complex. If a President McCain decides to keep this country spending on war efforts to the tune of $10 billion a month, he's going to have to convince his compatriots, the American people, that it's so worth doing that we can give up some of our luxuries and entitlement items in order to support a wartime economy. There are problems with Obama's plan, to be sure. But McCain wants to offer tax cuts to the richest 1% while we're at war? Give me a break.