StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

McCain or Obama, who has the better economic policy?

11 Jun 2008
Posted by Pete Davis

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.

I vote...

None of the Above

same here

same here

Economic policy vs. distribution of tax money

...if you ask low-income workers, the poor, those without health insurance, and those whose jobs have been outsourced, Senator Obama would be favored...

Dr. Davis, you are commingling economic policy with distribution of tax money. Obviously, low income people with no economic training will prefer the candidate who promises them the largest government handouts. Given their self-interest, my choice will always favor the candidate whose tax money redistribution plan is least favored by them.

Regarding economic policy, shouldn't we favor the candidate who comes closest to supporting true capitalism (with minimal regulations), free trade & markets, low taxes, and low tariffs? Why would we wish to poll ignorant citizens about this? That would make as much sense as asking high school dropouts which medical science research proposals deserve funding.

Economic policy vs. distribution of tax money

I was too busy running the tax model on Capitol Hill to finish my masters degree in the late 1970s, although I took a number of doctoral level courses. Most of what I learned in economics came by way of the congressional policy process as we analyzed and debated the studies and assertions thrown at us from every direction. During that 11 years, I was fortunate to work with some of the best economists around and a few of the worst too.

Distribution is a very important part of economics. If the middle class, which invariably carries the heaviest fiscal load, ever decides that the wealthy aren't paying their fair share of the burden, then watch out. Once voluntary compliance with the tax system goes, you're in real trouble. Take a look at Italy sometime. Approximately one-third of Italy's economy operates underground. Keeping the incentives balanced is very much a part of classical economics.

It is possible to go too far in exempting the lower middle class from taxation. If they feel they have no investment in their government, the system loses balance. The wealthy are always well represented on Capitol Hill, I can assure you.

Sure, I'd like to see a true capitalist as president. The presidents I thought were true capitalists, Nixon, Reagan, and Bush 43, turned out to be otherwise. Nixon imposed wage price controls. Reagan came the closest, but what true capitalist would triple the public debt in eight years like he did? Bush 43 will fall just short of doubling the public debt in his eight years, and his bills will keep coming in for a long time. Political expediency has trumped good economics at every turn in his administration, e.g. steel tariffs; Medicare Part D; promoting the highest incarcerartion rate in the world except for Russia; and by increasing federal spending by the highest rates since Lyndon Johnson, just to name a few. Once you've got the power of the presidency, rarely does one avoid meddling in markets or overreaching at great cost.

I've learned to have a lot of respect for "ignorant citizens." In my experience talking to them, I've found them to be refreshingly free of ideological baggage, and they ask the basic, hard questions: How come gas prices are so high? Why can't I get proper health care? Why is my son in Iraq? It's only when you get educated that you ask questions like: How can we get the speculators out of crude oil commodity contracts? How can I get enough people into health savings accounts to change the incentives for providers? My son's in grad school, but doesn't somebody have to protect us from weapons of mass destruction in Iraq and now Iran?

the balance

As an objectivist, capitalist, low-income, highschool drop-out, who does not consider herself an ignorant citizen nor a burden on society, I think you may be as biased as those who live off the system. I have seen both sides of this coin and the answers are not as simple as either "more government hand outs" or "better tax cuts for free trade." Tax collection and distribution have a lot to do with econonmic policy, there is a balance that somehow must be maintained, and it is very difficult to decide who is best suited for this task. Whoever wins this election, I do not envy him.

Dear Dr. T I put myself

Dear Dr. T

I put myself through School and studied to be a teacher and taught for almost 14 years. In this economy we have poor and middle class folks who have been educated.

There are almost a million households in the US affected by devastating illness. I myself have seen the affects of MS. Please, would you be mindful when saying someone who is poor, has no,"income training." I believe your statement in calling the poor, 'ignorant citizens' is unfair... and well I think you should get out and learn more. I wish you well. THANK YOU


Why pick on Bush over the small stuff?

How much, if anything, would they do to lift the terrible $3.9 trillion of additional public debt that President Bush has incurred...

That's over eight years, and his official deficits, like the puny $163 billion last year, have actually been below the average for the last 35 years.

Ah, but Medicare Part D, that's $8.4 trillion present value all by itself, and he added $7 trillion of that in just one year (picked up a few votes in an off-year election!) and it's running about another $450 billion annually -- more than two times, approaching three times, the Iraq war.

But then even that's pretty small compared to the $41 trillion present value for Medicare and SS combined, growing >$2 trillion annually (that's an annual deficit to be proud of!) ... which still, doesn't include Medicaid etc.

Which candidate is going to talk about closing thisgap? Neither's going to go anywhere near it, of course. (How does one campaign to cut taxes or enact national health care while acknowledging an >$2 trillion annual accrual deficit?)

But of the two mute blind mice, McCain did pick Holtz-Eakin, who has been big on the subject, as an advisor, so implicity it would seem he's aware of the issue. And while earmarks are a sub-triviality in budget dollar terms they are a meaningful sign of Congress's wasteful spending-for-votes culture, so attacking them might possibly make a larger political difference, maybe. (Here in NYC one of the most important steps in bringing about the huge drop in the crime rate was busting subway turnstile jumpers.)

OTOH, from Obama I've seen budget-closing zip other than more tax cuts for most offset by more spending on national health care for everybody. More entitlements! Though maybe I've missed something.

But if I haven't, my least bad choice follows.

Why pick on Bush over the small stuff?

Good points, and a strong argument for present value budget estimates.

We're going to look back on last year's 1.9% of GDP deficit as quite temporary and the lowest in memory.  There are too many expensive policies in place, too many pressures weighing on the economy, and too many entitlements going to aging Baby Boomers to return to budget balance anytime soon.

Doug Holtz-Eakin is a real asset for Senator McCain.  If they win this November, hopefully Doug would get some influence in the White House as OMB Director or as National Economic Council Director.  Historically, with the exceptions of Bill Clinton and George Bush 41, most presidents use their economists as apologists for Rosy Scenarios and for "investments" for favored constituencies. 

McCain or Obama: Who Has the Better Economic Policy

Neither candidate has the better policy. Neither candidate is appropriately addressing the components of economic growth. Republicans have always touted fiscal responsibility but when it comes to growth, the track record is poor. Tax cuts alone won't get the job done. Incentive to spur consumer spending should be mixed with incentives to spur spending on investment in plant. In addition, we need monetary policy that strengthens the dollar hence creating greater incentive to invest in the United States. Currently, Mr. Obama's policy is one of giveaways while Mr. McCain's policy is one of look the other way.

Obama is the new fiscal conservative...

Since 2001, Congress supported by President Bush has passed a major tax bill almost every year. Most have reduced taxes significantly and, since they were not accompanied by spending cuts, the resulting deficits have increased the national debt. The largest revenue loss was $1.35 trillion over ten years—came from the Economic Growth and Tax Relief Reconciliation Act of 2001. The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced revenues by another $350 billion (again over the subsequent decade). Subsequent legislation cut taxes further: $146 billion in 2004, $142 billion in 2006, $51 billion in 2007, and $125 billion in 2008. The tax cuts total almost $2.2 trillion over ten years, and that total may be vastly understated if some or all of the cuts are extended beyond their scheduled expiration date of 2010.

Today, we have a national public debt in excess of $9.5 Trillion dollars. This week congress passed a bill that will increase the debt limit to nearly $10.5 Trillion. President Bush will certainly sign it into law. This debt is a burden of epic proportions, if it is not taken care of, it will bring this nation to its knees, especially as China, Russia, Brazil, among other begin to take hold of our once economic dominance. Our children and our children's children will have to endure our recklessness. That debt is costing us $500 Billion a year in interest. After defense, Health and Human Services, it is the third largest expenditure.

Although, supporters of the tax cuts say that it encourages investment, saving, entrepreneurialism and ultimately increases economic development and growth, the fact of the matter is, it doesn’t. In fact, following each of the tax cuts, including the disastrous AMT, business investment is down, the savings rate is at a post-World War II low and the labor participation rate has declined, just look at the numbers.
Furthermore, the belief that rich taxpayers would invest their money and invest in the right way – domestically, is a grave mistake. There was no guarantee that investment was aimed for the U.S. Someone who is rich could invest the money in Brazil or India, with little benefit for the United States. Since the dollar is so low, a product of increase national debt, many investors, Berkshire Hathaway, being one of them, is buying foreign currency and investing in assets elsewhere. Even smaller, non-institutional investors are looking elsewhere for investment.
Now, I will concede that revenue did increase slightly during this time, however, the revenue was not fueled directly by taxpayer dollars, it was fueled by increasing federal debt as spending increased. In essence, Bush’s so called “booming” economy, per the mantra of tax cutting logic, the public debt should be going down. Yet it is still growing, he continues to spend more. Using government projections, US debt will double under at its current pace.
The two Presidential candidates have offered drastically different economic plans, from funding healthcare to changing the tax structure and both have promised additional fiscal responsibility. Both have proposed tax cuts.

Under Sen. McCain’s plan, he wants to permanently extend the tax cuts of 2001, 2003, and 2006. Tax cuts would primarily benefit those with very high incomes, raising their after-tax incomes nearly twice the average of all households. Households at the bottom of the income distribution would get tax cuts and those tax cuts would be small portion of their after-tax income.
In contrast, Sen. Obama’s tax cuts would be much more broad and equitable. It would benefit 95% of Americans, and give larger tax breaks to low- and middle-income taxpayers. The wealthy, over $250,000 would receive marginal tax cuts, and those making $500-1,000,000 would have a greater rate increase.
The top marginal rate for McCain’s plan would be 35 percent on individual income and 25 percent on corporate income. Obama’s would be more, at 39.6 and 35 percent, respectively. However, Obama encourages corporations that invest in the U.S., in alternative energy, etc. McCain wants to extend cuts to corporations, oil companies, etc. In addition, Obama promised that senior citizens, making under $50,000/year would not pay any taxes. This would help with medical costs among other expenses.
Although, the two candidates want to decrease taxes, the long-term effects from the McCain plan will continue to stifle the economy, as it continues to go further in further into debt. A fire-sale to China. By giving money to working-class American’s and encouraging regulation, projection, and domestic investment and interests, Obama will be able to decrease spending and balance the budget and fix many of the other problems that continue to weight down on American’s and our true growth.
Where have all traditionalist republicans, the debt hawks, like myself gone? It seems many others have exchanged their fiscal conservativism for greed and short-term gains. This kind of ideology, and recklessness is what has brought us into the most severe financial crisis since the Great Depression. More regulaion. More U.S.A., that is truly being a Patriot.
Folks, the bottom line iswe’ve got to start paying our bills. Any savvy business man would not run a business like those in Washington are running government. We would have file for bankruptcy long ago, probably beginning with Reagan.
Like Clinton, Obama will eventually balance the budget and restore America.
Truly, take the time to know the Issues. Don’t Vote along party lines. Think for yourself. Don’t be greedy!

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