Obama, McCain and the Truth About Taxes

Tuesday, 16 September 2008 12:20 By Maya Schenwar, t r u t h o u t | Report | name.

Obama, McCain and the Truth About Taxes
(Illustration: The New Yorker)

    Unless you make more than $2.87 million per year, Barack Obama will not raise your taxes. In fact, he will probably cut them.

    This reality has been trampled, twisted, turned inside out and scribbled over so many times by the McCain campaign that it is hardly recognizable amid the clutter, but the fact remains: Obama's plan would grant tax cuts to all Americans making less than $226,982 per year, with the largest cuts going to the poorest individuals. Only the wealthiest 0.1 percent of earners would have to pay more.

    McCain's plan, in contrast, would decrease taxes for all, but the largest decreases would go to the highest-earning bracket of taxpayers, as well as to corporations. The lowest-income Americans would benefit the least from McCain's tax cuts, with only a 0.2 percent decrease. They'd get a 5.5 percent tax cut under Obama's plan.

    Since most Americans do not make more than $226,982, most Americans would receive a larger tax cut if Obama became president, according to a recent study by the nonpartisan Tax Policy Center that compared the two proposals.

    Additionally, under Obama's plan, low-earning seniors would pay no income tax at all.

    McCain-onomics

    Despite McCain's self-promoted image as a "maverick" and innovator, his tax policy appears to be driven by the same motivations as his GOP forebears, according to Jonah Gelbach, a University of Arizona economics professor who has written extensively on the presidential campaign.


(Graphic: The Washington Post)

    "McCain has signed on to the Republican Party's generation-long view that the rich just aren't rich enough," Gelbach told Truthout.

    The McCain campaign holds that padding wealthy (and corporate) pocketbooks is the best type of economic stimulus. Under this logic, tax cuts for the highest earners encourage those individuals to give more back to the economy - starting new enterprises, expanding their businesses and spending more cash.

    "Entrepreneurs are at the heart of American innovation, growth and prosperity," the campaign's platform states. "Entrepreneurs create the ultimate job security - a new, better opportunity if your current job goes away. Entrepreneurs should not be taxed into submission."

    Yet Gelbach points to the fact that tax rates are lower now than they were during the Clinton era, a period which, despite the warnings of conservative doomsayers, proved prosperous.

    Moreover, small-town, working-class "values voters" - key Republican targets - would gain little from McCain's plan, according to Gelbach. Hefty tax cuts for the rich would eventually need to be balanced out, either by increasing taxes for lower-income brackets or by slashing spending. Given the McCain campaign's commitment to a large military presence abroad, funding cuts would likely affect the domestic programs that provide assistance to working-class Americans.

    Stanford professor Myron Scholes, the 1997 Nobel Prize winner in economics, lauds McCain's emphasis on slashing taxes. Speaking to reporters at a late August conference, he called Obama's plan a "policy of redistribution." However, he noted, a McCain presidency would likely see an uphill battle on taxes.

    "All things being equal, we'll probably have a Democratic Congress," Scholes said. "So McCain can say he wants to produce lots of different tax cuts, but it'll be hard to get that through."

    Obama's Fairness Doctrine

    Like McCain's, Obama's economic plan claims the "tax relief" mantra. However, instead of adhering to trickle-down logic, it focuses on the middle class.

    "Obama will restore fairness to the tax code and provide 150 million workers the tax relief they need," his platform states. After tax credits, 10 million Americans would pay no income tax at all.

    "Restoring fairness" means substantially cutting taxes for lower earners and raising them for the super-wealthy. But it also means a whole range of programs to even up access to health care, education and housing. Obama's proposal would reduce insurance costs across the board and offer tax credits to employees who buy insurance. It would also add a $4,000 tax credit for families to send their kids to college.

    The conservative Heritage Foundation released a memo in June linking the Obama plan to "European levels of taxation," calling it a "return to the bad old days" of the Carter administration and accusing it of "raising taxes on the successful." The question for voters then becomes a personal and philosophical one: to what extent should the wealthy be asked to give back to their country and community?

    The 95 percent of working families that would receive a tax cut under an Obama administration might come up with a different answer than the Heritage Foundation.

    War and Taxes

    One factor that the McCain campaign doesn't emphasize is exactly where the tax dollars that are collected will be going. Though McCain's plan drastically reduces taxes, it doesn't reduce the amount of money allotted to one of the most expensive government endeavors: the Iraq war.

    The Obama campaign's Brian Deese recently told the Chicago Sun-Times that comparisons of the two candidates' economic plans don't "count the impact of current Iraq war spending," adding that "if McCain's plan drives the deficit up and puts upward pressure on interest rates, that increases costs for families and could force really Draconian, across-the-board spending cuts."

    By straightforward logic, a substantial withdrawal of troops from Iraq, as proposed by Obama, would ease the burden that status-quo military policies have placed on taxpayers, according to Gelbach.

    "Getting out of Iraq faster will certainly reduce the present value of federal tax dollars necessary to raise, unless you think that getting out will make things worse and force us back in an even more expensive capacity," Gelbach said. "McCain has at various times made arguments to this effect, but his record on Iraq judgment has not exactly been stellar.... McCain's campaign has tried to claim they can count on military savings from leaving Iraq, even as he has both endorsed in principle a 100-year US presence and refused to sign on to the timeline that the Maliki government is now working out with the Bush administration. He has repeatedly said we will leave only with victory, yet he has refused to define 'victory.'" Thus, it is hard for an objective observer to determine exactly when or under what conditions McCain would actually leave Iraq. And the cost of our presence in Iraq - whether in full-on combat role or otherwise - would ultimately have to be paid with actual tax dollars."

    According to the recent Tax Policy Center study, both candidates' plans would increase the national debt. However, Obama wins here on the fiscal conservation front: McCain's proposal would cost the Treasury $3.7 trillion, while Obama's would cash in at $2.7 trillion.

    The power of the purse ultimately rests with Congress, and neither candidate would be able to singlehandedly change the course of economic policy upon taking office. Still, when it comes to taxes, Obama and McCain would guide the country in sharply different directions.

    Looking past the McCain campaign's misleading rhetoric and convoluted logic, the problem boils down to this: Who should be first in line for tax relief: the rich or the poor? It's no secret where each candidate's priorities lie.

Last modified on Tuesday, 16 September 2008 14:04