Pocketbook policies

Campaign 2008 | Competing economic proposals reveal much about presidential candidates' values and views on government

Issue: "Home again," July 12, 2008

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.

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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.


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