July 14 (Bloomberg) -- The American presidential campaign this week was fought on economic terrain, and John McCain was the New York Yankees battling in Boston's Fenway Park or Liverpool playing at Manchester United's Old Trafford: the visiting team with a decided disadvantage.
The Republican standard-bearer isn't comfortable in the economic arena. He started off the week talking about a ``slowing'' economy. Slowing? Most Americans think it's going overboard and threatening to take them down.
He pledged to balance the budget by the end of his first term, which is inconsistent with the lavish tax cuts he also promises. He offered the same Social Security prescriptions that President George W. Bush failed to sell, insisting that somehow a more Democratic Congress would be receptive.
Contradictions, detours and flip-flops abound. On Bloomberg Television this spring, the Arizona Republican said there's been great progress'' economically under the Bush administration; the next day, he said Americans arehurting badly'' and aren't better off than they were eight years ago.
McCain likes to joke about his rebellious youth, noting that he graduated fifth-from-the-bottom of his 1958 U.S. Naval Academy class. The valedictorian of that class was Ronald Reagan's one-time national security adviser, John Poindexter, who barely avoided prison. This reinforces novelist Walker Percy's admonition not to get all A's and still flunk life.
McCain gets an A in life and in most subjects. Just not economics.
Quick Lesson
If he wants a quick tutorial there are two useful books: Unequal Democracy'' by Larry Bartels andHigh Wire: The Precarious Financial Lives of American Families,'' by Peter Gosselin. They dismantle many of the policies he's espousing.
These aren't ideological diatribes. Bartels, a Princeton University political scientist, says he hasn't voted in a presidential election since 1984, when he supported Reagan. Gosselin is a well-regarded national economics correspondent for the Los Angeles Times.
The Gosselin book focuses on the precarious state of many American families as safety nets -- secure jobs, health coverage and pensions -- have frayed.
He tells tragic tales of a Duke University MBA who lost jobs at three financial institutions because of their bad business decisions and now works for a homeless shelter; of an insurance-firm employee whose own company denied her disability coverage when she was diagnosed with multiple sclerosis; and a widow whose husband was denied coverage for his alcoholism.
Love Your Insurer?
These aren't isolated stories. The centerpiece of the McCain health-care proposal is enabling more families to buy private insurance. It's tough to find a family with a severely ill or injured child who doesn't despise its private health insurer.
``Unequal Democracy'' lays out the widening gap between rich and poor. The dangers of growing income inequality in a democratic society aren't just the rantings of soak-the-rich left-wingers. Conservative central bankers from Arthur Burns to Alan Greenspan have worried about such a gap.
Bartels persuasively argues that this isn't simply a reflection of globalization or other events beyond our control. His research shows that government policies significantly affect economic inequality.
`The Death Tax'
Surveying the last 50 years, he finds real incomes of middle-class families have grown twice as fast under Democrats as Republicans and six times as rapidly for the working poor.
In this campaign, the contrast between the estate tax and various proposals to help the working poor are illustrative.
The estate tax, or ``the death tax'' as the Republicans, in a public relations coup have labeled it, is assessed on fewer than 2 percent of the wealthiest Americans. For a couple, the first $7 million is exempt in 2009, as is anything given to charity; there are numerous loopholes around what's left.
McCain would raise that exemption to $10 million and lower the rate to 15 percent. Democrat Barack Obama would keep the 45 percent rate on estates over $7 million.
The McCain approach would cost the government $175 billion over 10 years more than Obama's, and most of the benefit would go to wealthy heirs who've done little to earn it -- affirmative action for the rich.
Less than one-third of that amount -- $50 billion -- would fund Obama's proposal to expand the earned-income tax credit, money given to the working poor to offset payroll taxes that typically eat up 15 percent of their income. It's one of the most effective anti-poverty and economically simulative measures -- these people have no choice but to spend the money.
Proposals Analyzed
The Tax Policy Center, a venture of the Urban Institute and Brookings Institution, analyzed the candidates' proposals: The working poor would get a $1,459 tax cut under Obama, more than double what McCain proposes.
The top 1 percent, mostly Americans averaging more than $1 million a year, would get a $38,389 tax increase under Obama, compared to a $126,951 tax cut under McCain.
Income inequality would be exacerbated under McCain, says Len Burman, the director of the center who has objections to some specifics of each plan.Under Obama, the distribution of after-tax income would become slightly more equitable.''
McCain convincingly argues that the cost of entitlement programs must be curtailed. Sometimes the Republican nominee says higher payroll taxes are off the table, meaning the sacrifice falls mostly on middle- and working-class beneficiaries.
Fiorina Comments
In an interview, Carly Fiorina, a top adviser, explains that any tax increases on middle- and working-class'' Americans are off limits. She says if a bipartisan coalition iscreative enough'' to fashion tax increases on wealthier Americans, that may prove palatable.
That's encouraging, until you consider that McCain doesn't always listen to his economic advisers. A few months ago, his top advisers counseled him that any reduction in the gasoline tax was bad energy and economic policy. A short while later, he advocated suspending the 18-cent-a-gallon tax for the summer.
Later, one of those puzzled economists wondered if he had forgotten to use the word ``not.''
(Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)
Comments