Saturday, August 09, 2008
Obama Versus McCain on the Economy
"It's a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise revenues in the long run is to cut the rates now." Those are the words of President John F. Kennedy in 1962. He went on to say, "The purpose of cutting taxes now is not to incur a budget deficit but to achieve the more prosperous, expanding economy which can bring a budget surplus." What's more, in Kennedy's annual message to Congress, circa 1963, he said: "In today's economy, fiscal prudence and responsibility call for tax reduction, even if it temporarily enlarges the federal deficit. ... Why reducing taxes is the best way open to us to increase revenues."
Today, in this presidential debate over a 21st century economic growth agenda, it is ironic that John McCain is far closer to JFK policies than the presumptive Democratic candidate, Barack Obama. Obama has proposed raising tax rates, raising tariffs and expanding government regulations, all of which, in the words of Nobel Prize winning economist Robert Mundell, would plunge the United States into a big recession and further weaken the dollar.
McCain and Obama have now each proposed detailed economic policies, and the contrast between the two could not be more dramatic. We believe the overriding and dominant political question in this election is whose economic policies would be best for the future of our wobbly economy and our weak currency.
Unlike John Kennedy, Barack Obama has proposed not to cut tax rates, but to increase every single major federal tax, except for his "George McGovern-like" tax rebate of $1,000. Barack has proposed to increase individual income tax rates to 39.6 percent. He has proposed to increase capital gains taxes, from 15 percent to somewhere between 20 percent and 28 percent. Incredibly, he has proposed to more than double the tax rate on dividends, from 15 percent to 39.6 percent. He has proposed to increase payroll taxes on workers earning over $250,000 a year to 12.4 percent on income above that threshold and to restore the estate tax to the confiscatory rate of 55 percent. Ugh!
Amity Shlaes, author of "The Forgotten Man," a new history of the Great Depression, has argued that along with his protectionist policies on trade, Obama has proposed the exact same policy mix that led to the Depression of the 1930s. During the primaries, Obama railed against free trade, proposing even to renegotiate our free trade agreement with our two largest trading partners, Canada and Mexico. Inexplicably, he opposes the Colombian Free Trade Agreement, even though it primarily removes tariffs on U.S. exports into that country.
In sharp contrast to "Obamanomics," John McCain has pledged tax rate cuts to promote economic growth and strengthen the U.S. dollar.
As president, McCain has would reduce the corporate income tax rate from 35 percent to 25 percent, which is absolutely essential to making U.S. manufacturing more competitive in the global economy.
McCain has proposed immediate expensing for capital investment, which means that investment capital can be deducted in the year it is incurred, like all other business expenses, rather than spread over many years under arbitrary depreciation schedules. Making the Bush tax cuts permanent would leave the top individual income tax rate at 35 percent, and the capital gains and dividends tax rates at 15 percent, with a 15 percent rate on estates. John would also double the personal exemption for children and other dependents from $3,500 to $7,000 and eliminate the Alternative Minimum Tax (AMT).
John McCain understands that you cannot create more employees without creating more entrepreneurs and that the Obama war on capital formation poses a direct threat to our beleaguered financial institutions that now have to raise capital from sovereign wealth funds from Asia to the Middle East. Schemes to redistribute wealth don't hurt the rich, they only hurt the poor and the middle class who hope to get rich. You cannot get rich on wages alone -- you have to be able to earn, save, invest and reinvest.
On federal spending, the two could not be further apart, either.
Again in sharp contrast, McCain proposes to strictly limit overall spending, pledging to balance the budget by the end of his first term. He proposes a one-year freeze on all federal discretionary spending outside of defense and veterans benefits, and to limit overall federal spending growth to 2.4 percent, about one-third the annual increases since 2000.
On energy, their policies are also dramatically divergent. John McCain would expand domestic oil and natural gas exploration and production, both domestically and on the outer-continental shelf, which would unambiguously reduce the price of oil and natural gas. Obama, however, makes no pledge or promise to drill anywhere in order to reduce gas or oil prices.
McCain has also pledged a revival of nuclear power, which would also sharply increase energy supply. He would seek 45 new nuclear plants by 2030 and 100 new plants over the long run. Obama says, "There is no future for expanded nuclear power without first addressing four key issues: public right to know, security of nuclear fuel and waste, waste storage, and proliferation."
Except for the badly confused carbon cap and trade plan, which McCain unfortunately shares with Obama, his economic program of cutting taxes, sharply restraining spending, balancing the budget, free trade and increased energy production are exactly what our economy needs right now. We believe John McCain's policies give us the best chance for a new economic boom in the 21st century, such as that we had in the 1960s under President Kennedy, and in the 1980s and 1990s under Presidents Reagan and Clinton.
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