How to Counter Obama’s Tax Plan
Barack Obama proposed a tax plan on Monday, which he said would result in 95% of Americans receiving a tax cut, and 5% having to pay more.
Although such a plan would go well with voters, the reality of the situation is that his plan does not constitute a tax cut of any kind. Rather, his plan would give a tax credit to 95% of Americans. First everyone would have to pay taxes, after that the government would (give some of) it back.
The above gives room enough for criticism from fiscal conservatives, but there’s more; not only would the government give (some) money back, it would actively redistribute wealth. 33% of Americans do not pay taxes, yet they will receive the so-called ‘tax credit.’ If you do not pay taxes, yet receive the tax credit, you receive welfare pure and simple.
Which gives John McCain the room he needs to offer an alternative plan, with great appeal to middle and high income households.
The first thing McCain should propose is to make the Bush tax cuts permanent. He has already done so, of course, but he needs to talk about it more regularly. He needs to explain to voters why these tax cuts do not merely benefit the rich, but the rest of the country as well.
Bush’s tax cuts help the rest of the country because they allow higher income households to spend more. These individuals have enough money to go around. They do not need the money to pay off debts, or to put it on a savings account for times of trouble. Rather, when they have more money, they spend it. They consume. The more they consume, and thus the more demand goes up, the more companies have to produce. When production goes up, more jobs are created. This is the theory, and it worked rather well as economic statistics showed in recent years.
Secondly, instead of offering a ‘tax credit,’ McCain should propose a true tax cut for the middle class. Middle class voters are important; they compromise the majority of the population. Without significant support among middle class voters, you cannot win elections. Now, the beauty of these voters is that their own financial interest plays an important role in their decision making process on who to vote for. If Obama promises to give them money via a tax credit, McCain will have to offer them something else well.
And what best way to offer them money by a tax cut? They will not have to wait for the government to give (part of) their money back; they will have it at once. No government official will touch it. They will keep their money. It will be earned, and kept in their wallet.
That is especially appealing because Americans greatly dislike taxes. Everyone, everywhere dislikes them, but Americans seem to be allergic to them. In the end, taxes were the immediate cause for American independence. Progressive politicians seem to forget this, but as any other serious student of American culture and history will tell you, antipathy towards taxes is deeply ingrained in American society, and in individual Americans. Appealing to this caracteristic of Americans will almost automatically result in McCain surging in the polls.
Additionally, he could argue, as with tax cuts for high income households, that cuts for the middle class result in them spending more and thereby stimulating the economy. It does not take a rocket scientist to comprehend that a true tax cut for the middle class will stimulate the economy more than any tax ‘credit.’
McCain has been wondering for what weeks what he could do to make a comeback in the polls. Obama has just given him the opportunity he needs. He can now present an alternative plan for the American economy, a plan rooted in fiscal conservatism, rather than fiscal progressivism, as Obama’s plan is.
We will see whether he will be able to do so. If nothing else, recent developments can be considered yet more proof that Republicans made a mistake by nominating a person whose main strength is foreign policy, and who has little to no economic knowledge. If they had nominated a fiscal conservative, whose main strength was the economy, they would not be trailing Obama by as much as 8% in the poll now, and they would probably have closed the gap entirely before the end of the week.
Michael,
And for those that do pay taxes, does the tax credit make up for the increase of taxes that happens if the Bush tax cuts expire?
I think the charge that McCain doesn’t ‘understand’ is way overblown. Yes, he said in an interview that he needs to become better informed (that was several years ago, BTW) but this is a case of someone being honest and then getting bludgeoned for it. He seems to often be self deprecating like that and will acknowledge too much, which allows his opponents to use his own words against him.
I think in order to know whether Obama or McCain understands the economy more, we’d have to hear an actual discussion of economic principles by either one of them. Obama gets credit merely because he is a Democrat in a time when an economic crisis hit with the GOP in the White House. Obama also garnered some well known and well respected economists for his economic advisors, but personally I think it’s questionable whether those advisors really understand how to handle the current situation (not that anyone really seems to know that.) But my point is, why hasn’t anyone considered the fact that Obama’s relatively liberal economic policy might have been appropriate in flush times, but not in hard times? How can one advocate redistributing wealth (beyond safety nets) when job creation and flow of capital are so needed?
And I haven’t seen ANY tendency for Obama to quickly rethink his previous positions or change his policy prescriptions to meet the current situation. That’s not to excuse McCain, of course- he didn’t have a coherent economic policy before other than spending cuts, and he hasn’t exactly been quick to address the meltdown situation either.
But my point is, why hasn’t anyone considered the fact that Obama’s relatively liberal economic policy might have been appropriate in flush times, but not in hard times?
I think that’s a very fair point indeed. I am one of those old fashioned European conservatives, who believe that whatever the government does in economic crisis, spending more and trying to ‘redistribute wealth’ (or “spreading the wealth around” as Obama calls it; terms meaning the exact same thing) is not exactly a wise thing to do. If you’re going to do that, do it when the country is experiencing an economic boom.
And for those that do pay taxes, does the tax credit make up for the increase of taxes that happens if the Bush tax cuts expire?
Of course not. That’s because the “Bush tax cuts” only benefit the rich, according to the fiscally unconservative narrative.
I completely agree with Michael van der Galien’s comments on middle class tax cuts. Since the era of Reagan, the Republican Party has many times been in the position to roll out a middle class tax cut big enough to create a sea change in attitude to the Party. I understand and appreciate there are many other facets of the Republican Party’s platforms like abortion, gay marriage and the like; but until they deliver a tax policy that lowers middle class tax burdens to the level enjoyed by the WWII and Postwar generations we will always be caught in the back and forth over economics with the Democrats whenever the economy cools off. And while they are caught in that tug of war, the middle class will never have time to pay attention to the moral and social issues of the day.