Second in a series examining presidential candidates' positions on campaign issues
When John McCain squeezed into an upstairs room of the Martin County Courthouse in Inez, Ky., this spring, he won over at least one Democrat in a room packed mostly with Republicans.
Greta Ward, a county magistrate and a long-time Democrat, gushed over the senator after he talked about economic policy in one of the most economically depressed regions in the country. "Oh, I just loved him, he gave all the right answers," said Ward.
Less than two months later, when Barack Obama talked about the economy at the State Fairgrounds in Raleigh, N.C., the senator won over at least one Republican in a crowd of Democrats.
Pamela Cash-Roper, an unemployed nurse and a lifelong Republican, said she looked to the government for help during a recent family medical crisis, "but help was nowhere to be seen." She says she supports Obama because he works for "hard-working Americans like us."
With presidential elections less than four months away, the economy dominates polls as voters' top political concern. High gas prices, rising unemployment, a housing downturn, and predictions of a recession have pushed concerns like immigration and the Iraq War farther down the list.
When it comes to the economy, the candidates offer sharply contrasting visions that underline their fundamental views about the role of government. Meanwhile, economists are uncertain how realistic either candidates' plans might be.
For both, one piece of economic policy is a campaign centerpiece: taxes. At every stop on a recent two-week tour, Obama promised a $1,000 tax reduction for families earning $150,000 or less. He also suggested additional tax breaks with an immediate $50 billion economic stimulus package.
For higher-income workers, Obama promised to end tax cuts: The candidate said he would let President Bush's tax cuts expire for Americans making more than $250,000. "The tax code has been written on behalf of the well-connected," Obama said during a debate last spring.
The candidate would also increase a handful of other taxes, including the capital gains tax: The tax placed on profits gained from selling assets like stocks, bonds, and properties currently stands at about 15 percent, one of the highest rates in the world. Obama has said he would raise the tax as high as 28 percent. Tax expert and Yale professor Michael Graetz told CNN that would be too high: "The truth is you can't go above 25 percent without losing a lot of money. People won't sell."
McCain offers a nearly opposite tax plan: Keep income tax rates the same, including extending President Bush's tax cuts for workers making over $250,000 a year.
McCain originally voted against the cuts for higher-income Americans in 2001. In 2006, he changed his mind, saying the tax cuts would be appropriate if balanced with spending cuts in the federal budget, and the candidate says he would make the needed spending cuts to offset tax breaks.
McCain says he would also phase out the Alternative Minimum Tax, saying the tax originally aimed at higher-income workers hasn't been adjusted for inflation and is looping in less wealthy taxpayers. He says he would also double the exemptions for taxpayers with dependents.
On other taxes, the candidate says he would reduce the corporate tax rate by 10 percent and let new businesses write off investments in new technology and equipment.
Critics say McCain's plan primarily benefits the wealthy and corporations, and that it would bloat the federal deficit. Jared Bernstein, an informal economic adviser to Obama, says when it comes to tax cuts McCain is "President Bush on steroids."
But McCain says the cuts are critical to stimulating the economy over a longer period of time. McCain senior policy advisor Douglas Holtz-Eakin told MSNBC: "If you cut that corporate rate, we don't see jobs go to another country, we don't see workers get laid off, we don't see them lose their health and retirement benefits."
Obama's critics say his economic policy represents a tax-and-spend policy that would also bloat the federal deficit. Obama's advisers defend the plan, saying it benefits "ordinary Americans."
So far, neither candidate has fully satisfied a key question about their tax policies: How would they keep them from adding to the deficit?
Obama's economic plan calls for broad spending, including a health-care program that could cost $65 billion in the first year. He says he would generate revenue by raising taxes on wealthier Americans and using funds from a scaled-down Iraq War effort. But it's war spending Democrats have charged has added to the current deficit.
The left-leaning Tax Policy Center says Obama's plan to allow tax cuts to expire for higher-income workers would raise about $1.2 trillion in revenue over 10 years. But even if that figure is accurate, it wouldn't cover all of Obama's spending plans.
Others are dubious about Obama's plan to use Iraq War funds to pay for programs, saying that money should be considered emergency spending. During the primary season, Clinton economic adviser Gene Sperling said: "When Iraq spending goes away, it goes away. You don't use it as a pay-for."
McCain's tax cuts would equal about $650 billion a year, and McCain says he would make up for the breaks by reducing federal spending. He proposes eliminating all congressional earmarks and cutting spending by about $160 billion a year. "We're going to scrub every institution of government," McCain told ABC.
But even fiscal hawks aren't sure McCain could secure the necessary cuts. Robert Bixby of the Concord Coalition, a group that promotes fiscal discipline, called McCain's chances of making such deep cuts "nonexistent." That's partly because a Congress likely controlled by Democrats would fight such an agenda.
J.D. Foster, a senior fellow at the Heritage Foundation, says each candidate's approach to the economy offers insights into their broader philosophy of government. He says Obama's approach communicates: "Big government is good" and that "we're wiling to give up a fair amount of economic growth if we can redistribute the fruits of our economy more broadly."
McCain's philosophy, says Foster, is "more eclectic." The senator's economic proposals promote smaller government, lower taxes, free trade, and shoring up the economy before redistributing wealth, but a few questions remain.
For example, McCain isn't as clear about his views on the regulation of industry: The senator supports an expensive cap-and-trade program to reduce greenhouse emissions. The proposal would impose stiff regulations and cost billions and would have widespread consequences for other areas like financial markets, labor laws, and consumer protections. "You can go too far in all of these areas in ways that are really harmful," says Foster. "And right now McCain's views aren't clear."
One thing is clear: Americans are worried about the economy and aren't pleased with Bush. A recent Wall Street Journal/NBC poll found 73 percent disapprove of the president's performance on the economy. That includes 41 percent of Republicans.
When a reporter suggested to McCain that the economy could be a daunting issue for him, McCain replied: "An astute observer."
- Give middle class a tax break, including a $1,000 tax cut for workers making below $150,000.
- Allow tax cuts to expire for higher-income workers, and raise capital gains tax.
- Create a $10 billion fund to ward off home foreclosures.
- Renegotiate terms of North American Free Trade Agreement (NAFTA).
- Double the tax exemption for families with dependents.
- Maintain current income tax rates.
- Lower corporate tax rate, and keep unchanged the capital gains tax.
- Phase out Alternative Minimum Tax.
- Strongly support NAFTA.