McCain or Obama, who has the better economic policy?
It depends upon whom you ask. Most business leaders and investors favor Senator McCain's low tax, less government spending, free trade stance, despite McCain's admission to The Wall Street Journal on November 26, 2005 that "I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated." However, if you ask low-income workers, the poor, those without health insurance, and those whose jobs have been outsourced, Senator Obama would be favored, despite his lack of business experience. The differences are stark and clearly defined.
However, as a "deficit hawk," I have a much more difficult time deciding between the two. How much, if anything, would they do to lift the terrible $3.9 trillion of additional public debt that President Bush has incurred on behalf of our children?
Senator McCain is the champion of eliminating earmarks and curtailing government spending. However, eliminating earmarks and cutting non-defense discretionary spending, which has already declined from 5.2% of GDP in 1980 to 3.6% now, would have little impact on future deficits. McCain would continue the Iraq War well into the future at a cost of nearly $200 b. a year and would invest heavily in anti-missile defense. His proposal to expand private health insurance would do little to curtail runaway federal and private health care spending because it depends upon the development of a private health insurance market, as if we're pleased with how well health insurance works so far. Extending the Bush tax cuts and repealing the Alternative Minimum Tax would be twice as expensive as continuing the War by FY2012. McCain would lower the top corporate tax rate from 35% to 25% and expense all equipment investment to better compete around the world. He would also seek Senate and House rule changes to require a 3/5 majority to raise any taxes, which would further limit the ability to "pay for" tax cuts and entitlement increases. The deficit would rise sharply under McCain's policies. With rising interest rates around the corner, interest expense on the public debt would rise sharply as well. That's not a very pretty fiscal picture, but it's not necessarily any better under Senator Obama.
Senator Obama has an expensive tax cut for just about every voting block except for the rich. He has tax cuts for the poor, for middle class workers, and for the elderly with incomes under $50,000. He would extend most of the Bush tax cuts (the 10% bracket, $1,000 per child credit, and marriage penalty relief), as would most other Democrats. He would offset some of those costs by taxing the rich more heavily, raising the top marginal tax rate and repealing the Bush tax cuts for capital gains, dividends, and estates. He would also impose a truly massive Social Security payroll tax increase on those with incomes over $250,000 by lifting the income cap. These tax increases would have some negative effects upon the economy, as would his protectionist trade proposals. Obama would remove U.S. combat troops from Iraq within 16 months. Although that would have significant long-run savings, in the first two years or so, it would actually increase costs as the relocation costs were piled upon war costs that will be slow to decline. Meanwhile, he would increase the Army by 65,000 troops and the Marines by 27,000 troops. Obama's plan for mandatory health insurance for children and expansion for adults may be half as expensive as the war. Obama also proposes spending increases for infrastructure investment, green jobs and other job creation, fighting global disease, and increase veterans' benefits. Obama pledges to adhere to PAYGO, paying for new initiatives, but PAYGO often gets waived for "emergencies" and high priority appropriations for the War and for natural disasters. Here too, I would add additional interest expense on the public debt with higher deficits. The deficit would rise sharply under Obama's policies.
McCain and Obama both support carbon cap-and-trade climate change proposals which would raise revenues and outlays by over $1 trillion over the next 10 years and would increase carbon costs for consumers, particularly for electricity usage. Economic growth may be reduced significantly, but technology developments may diminish that cost.
As I have pointed out previously on this blog (April 22, April 25), many campaign promises are modified before they become law or are forgotten completely, and most are not defined sufficiently to permit a cost estimate, so it's difficult to say a priori whether Senator McCain or Senator Obama would be more fiscally responsible. Nonetheless, the deficit would appear to be headed up at great cost to our children no matter who becomes president.