The good news: it's the beginning of the end. The general campaign is underway, and we're finally slouching towards November. Not the home stretch yet, but one can harbor a glimmer of hope that this longest campaign season ever will eventually end.
The bad news: the debate is already off the rails, and misinformation is swirling like balloons at the convention. Here are some low-lights, mostly re tax policy, along with a highly naïve plea for a better debate.
We won't get fooled again: There's a new and fascinating sleight of hand in the McCain economic plan that's worth some close attention. A few weeks ago, I posted this piece noting that the ten-year cost of McCain's tax cuts amount to $5.7 trillion. Well, according to a new analysis by the same group (the Tax Policy Center, or TPC), his plans have changed, and the cost of the cuts is significantly reduced, down to $3.7 trillion (Obama's tax plan costs one trillion less, according to the TPC). How'd that happen?
One of the ways they cut the costs was to employ the same kinds of phase-ins and sunsets that the Bushies used to disguise the true costs of their tax cuts. In this particular card trick, you hold down the revenue losses by scheduling your tax cuts to end in a given year. That way, when the authorities score the plan (estimate its impact on the budget), it costs less than if the revenue losses kept piling up.
But, and note the connection to the very debate we're having today, when the day's over and the sun is scheduled to set, i.e., the time comes for the tax cuts to expire, you a) insist on making them permanent, and b) accuse anyone who disagrees of raising taxes. As we speak, Congressional Republicans are running around yelling that the Democrats are trying to pass the largest tax increase in history.
The TPC recognizes this tactic: "like President Bush's tax cuts, the true cost of McCain's policies may be masked by phase-ins and sunsets...that reduce the estimated costs." They score the phase-ins and sunsets as cutting about $400 billion off of McCain's price tag, but the Obama campaign finds that "measured realistically McCain's tax cuts would be well more than $1 trillion more expensive than the Tax Policy Center estimates."
Noise and Fog: Basically, McCain's line on this is that he's the big tax cutter and Obama's going to raise your taxes through the roof. That's not just a little bit wrong, as in "I'm exaggerating a real difference to make my case." It's a lot wrong.
As noted, according the TPC, compared to scheduled law, which is the way these ideas are scored in the budget, they both cut taxes pretty deeply. But the similarities stop there.
Tables 1 and 6 in the TPC report (link above) tell the story. Obama's middle class tax cut is more than three times bigger than McCain's (about $1,000 vs. $300); 81% of households get a tax cut under O's plan; for McCain, it's 56%.
The biggest differences are at the top of the scale. Obama allows the Bush cuts to sunset for those with incomes over $250,000, which ends up as an average tax increase of $116,000 for the top 1%. Conversely, McCain's biggest cuts go to the top 1%, whose tax liability falls by over $45,000.
Upstaircase, Downstaircase: While the TPC's work is extremely useful for quantifying the candidate's priorities re tax policy, their analysis is by definition incomplete. As we've seen, McCain has changed his plan, both in terms of the timing tricks just noted, as well as scaling back his ambitions (e.g., according the TPC analysis, he no longer eliminates the alternative minimum tax--his website as of Sunday morning, 6/15, however, still says its toast).
There's also this little matter of Congress, which tends to want to have some input re tax policy.
But whatever the ultimate details, perhaps the most important message from the TPC study is the picture they paint in their Figure 1, the average percentage change in income after taxes, by income group. The Obama plans maps out as a downward staircase; the McCain plan paints an upward one.
That means that the impact of Obama's tax plan is to raise after-tax incomes more for lower income families than higher ones, and visa versa for McCain. In econo-parlance, Obama's tax changes are progressive, McCain's, regressive.
A Very Naïve Plea: Nobody, and I mean nobody, is guiltless when it comes to campaign spin, and, truth in advertising, I'm informally advising the Obama squad. But as I stressed above, on this part of their economic plans, McCain's claims would lead you to believe he's holding the TPC's figure 1 upside down.
I very naively plead to his team to drop that nonsense and have a truly useful argument about whether the country needs progressive or regressive tax cuts. (Frankly, a much better argument would be whether the country needs tax cuts at all, but apparently, you can't run for office anymore without going there, so that argument will have to wait for a more enlightened time.)
Granted it's a tough argument for the McCain team. Inequality inducing market forces have delivered a level of pretax inequality that we haven't seen since 1927. Why would they want to exacerbate market-generated inequalities with an even more skewed post-tax outcome (economist Alan Blinder throws a flag on this play, calling it "unnecessary roughness")? The only answer this have is supply-side economics, the belief that if you cut the taxes of high-income people, they generate more economic activity than they would have otherwise, and the benefits trickle down to everybody else.
Only thing is, they don't. The 2000s, in particular, provide us with a natural economic experiment of this strategy. As I stress here, unless by "down," they mean "up," trickle down has been found to be a dismal failure. Yet McCain wants to double down.
You Can't Get There From Here: Obama's plan adds some much needed balance back into the tax code, and these days, it takes a lot of courage to take this stand during a presidential campaign--it's much easier to just say you're going to cut, cut, cut.
But there's no way you can offset the forces driving inequality solely through the tax code. The fundamental problem is that too few people are fairly benefiting from the economic growth they themselves are creating. Their diminished ability to bargain for their fair share of growth is behind the productivity/income split--the fact that the American workforce is working harder, longer, and smarter to bake a bigger economic pie, yet ending up with smaller slices. Obama, Clinton, and Edwards know this and stressed it repeatedly during the primary.
It's not that the tax discussion is a sideshow. It's obviously key, in no small part because we can't rebalance our economic system without an adequately funded public sector. But it's not the whole shooting match. It's one piece of the blueprint in a policy architecture designed to reconnect economic growth and broadly shared prosperity.
You can read about more of the blueprint here, or more pointedly, on the campaigns' websites. But--and again, forgive my naivety--it's going to be tough to have that debate if the other side is holding the graph upside down.