Obama vs. McCain on Fiscal Policy

Ah. Here we are. Call me at 925-708-0467 with questions. I'm lecturing and also spending a bunch of the day in pointless bureaucratic meetings, but I will try to respond.

Jason Furman and Austan Goolsbee:

Sen. McCain has put forward the most fiscally reckless presidential platform in modern memory. The likely results of his Bush-plus policies are clear. As Berkeley economist Brad Delong has estimated, the McCain plan, as compared to the Obama plan, would lower annual incomes by $300 billion or more in real terms by 2017, costing the typical worker $1,800 or more due to the effect of large deficits on national savings and thus capital formation. Sen. McCain's neglect of critical public investments would further impede economic growth for decades to come.

Do not take the critics' word for it. Go look at the plans for yourself at http://www.barackobama.com/taxes. Get the facts and you will see the real priorities at stake in this election. America cannot afford another eight years like these.

Here is what they are talking about in that penultimate paragraph:

Political Economy Working Notes and Papers: 2008-7-11: DeLong: What’s at Stake in Economic Growth This Election: http://posterous.com/getfile/files.posterous.com/braddelong/1hDM1X4wJymyFW1etrx1I4iaEcIo2F6gS7WiApa0GiFWdO4EnRVGItVaft1K/20080713_jobs_obama_mccain.pdf

As John Maynard Keynes wrote nearly a century ago about inflation:

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency.... Lenin was certainly right.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose...

The same holds true of tax and spending policies that create unsustainable deficits and rapidly climbing debt-to-GDP ratios--as John McCain's proposals do.

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Here's a lot of the rest of their op-ed:

The Obama Tax Plan: Even as Barack Obama proposes fiscally responsible tax reform to strengthen our economy and restore the balance that has been lost in recent years, we hear the familiar protests and distortions from the guardians of the broken status quo. Many of these very same critics made many of these same overheated predictions in previous elections. They said President Clinton's 1993 deficit-reduction plan would wreck the economy. Eight years and 23 million new jobs later, the economy proved them wrong. Now they are making the same claims about Sen. Obama's tax plan, which has even lower taxes than prevailed in the 1990s....

John McCain offers what would essentially be a third Bush term, with his economic speeches outlining $3.4 trillion of tax cuts over 10 years beyond what President Bush has already proposed and geared even more to high-income earners. The McCain plan would lead to deficits the likes of which we have never seen in this country. It would take money from the middle class and from future generations so that the wealthy can live better today.

Sen. Obama believes a focus on the middle class is appropriate in the wake of the first economic expansion on record where the typical family's income fell....

Sen. Obama believes that responsible candidates must put forward specific ideas of how they would pay for their proposals. That is why he would repeal a portion of the tax cuts passed in the last eight years for families making over $250,000. But to be clear: He would leave their tax rates at or below where they were in the 1990s.

• The top two income-tax brackets would return to their 1990s levels of 36% and 39.6% (including the exemption and deduction phase-outs). All other brackets would remain as they are today.

• The top capital-gains rate for families making more than $250,000 would return to 20% -- the lowest rate that existed in the 1990s and the rate President Bush proposed in his 2001 tax cut. A 20% rate is almost a third lower than the rate President Reagan set in 1986.

• The tax rate on dividends would also be 20% for families making more than $250,000, rather than returning to the ordinary income rate. This rate would be 39% lower than the rate President Bush proposed in his 2001 tax cut and would be lower than all but five of the last 92 years we have been taxing dividends.

• The estate tax would be effectively repealed for 99.7% of estates, and retained at a 45% rate for estates valued at over $7 million per couple. This would cut the number of estates covered by the tax by 84% relative to 2000.

Overall, in an Obama administration, the top 1% of households -- people with an average income of $1.6 million per year -- would see their average federal income and payroll tax rate increase from 21% today to 24%, less than the 25% these households would have paid under the tax laws of the late 1990s....

In contrast, Sen. McCain's tax plan largely leaves the middle class behind. His one and only middle-class tax cut -- a slow phase-in of a bigger dependent exemption -- would provide no benefit whatsoever to 101 million families who do not have children or other dependents, or who have a low income....

The McCain plan represents Bush economics on steroids. It has $3.4 trillion more in tax cuts than President Bush is proposing, largely directed at corporations and the most affluent....

Comments

[leo]

Just a minor note. I read somewhere that Lenin never said (I mean, wrote) that. It seems that it was just a rhetoric device of Lord Keynes.

[economistmom]

Hi, Brad... I am very interested in your calculation. Would you please go see my question for you, over on my blog? :)

[Phil P]

Nice to hear Brad making the deficit argument. Where are the other liberal pundits? I'm so tired of seeing these conservative hacks on TV endlessly repeating "taxes are bad! taxes are bad! taxes are bad!" and never being rebutted, certainly not by the tame liberal lapdogs often put up against them. Come to think of it, I'd like to see Obama attack McCain for being fiscally irresponsible. What we need is another Ross Perot to raise the issue. In most respects he was a crank, but he served a purpose.

[Peter K.]

Yeah Brad! Striking a blow for the good guys on the Wall St. Op-Ed pages, making the media a little better!

[Neil B ☼]

Remember that Norquistian destroyers of government (and didn't Reaganauts get this started?) deliberately want the government hamstrung with huge debt, as well as creating a continuous flow of money from taxpayers to federal debt holders ("reverse redistribution of wealth.")

[Nathan Myers]

Neil B: This is the first I've heard of the usual suspects actually expressing their desire to treat national debt as a privileged entitlements program. I'd like to cite references. Can you point me to something definitive?