[Opinion] – Taxing Rhetoric

As financial markets reel from the liquidation of Lehman Brothers, an investment bank, both presidential candidates have leapt into action pledging their sympathy and vowing action. That both Barack Obama and John McCain are quick to react is a good thing; how they have reacted, however, is less so. By simply calling for greater regulation, neither is attempting to address the fundamental shortcomings of the economy. But that may not be all that surprising âÄî after all, the most common talking point during elections, taxation, is easily the most slavish to rhetorical pugilism. During elections, both Republicans and Democrats vie to present themselves as the champion of the average American. Taxes are often the tool for doing this. Democrats rail against the solipsistic aversion conservatives have to taxes, while the GOP frets over the liberal redistributionist agenda. Unfortunately, taxation, like economics, is a dry topic that only the unconventional few find interesting (a fact that likely contributes to this correspondentâÄôs bachelorhood). It is known as the dismal science, after all. Still, taxes need to be thought of as more than how to define economic classism. Mark Twain once wrote that there are three kinds of lies: âÄúLies, damned lies, and statistics.âÄù McCain likes to talk about the tax percentage Americans will have under ObamaâÄôs tax plan. Obama frequently proclaims that the past eight years have seen the rich leap ahead while the rest of the country has stagnated. Another fun talking point is the projected 2008 $400 billion budget deficit, of which roughly half is tied up in war spending. Obama occasionally cites facts and numbers, but they are specious. It is true that George W. Bush pushed through tax cuts that are more beneficial to the rich. But economic policy does not have immediate effects. Indeed, if the rich began to reap benefits that their more humble compatriots did not eight years ago, this process likely began late under the Clinton administration. Some even blame former Federal Reserve Chairman Alan Greenspan more than Bush. Still, Obama aiming his diatribe at Republicans is understandable, annoying as it can be. His answer is to increase taxes on the upper income levels while lowering those of the rest of the nation (more than McCain would, it should be noted). This is a sound idea, but needs to be advocated in a different way. We agree that some progressivity in the tax structure is beneficial âÄînecessary, even. Unfortunately, apologists of this policy make it out to be less sound economic policy and more punitive towards those who have gathered wealth. That is wrong. Success should never be punished. The right way to frame a higher tax policy is in the name of macroeconomic stability and deficit reduction. And according to the Tax Policy Center, those affected by the increase will only lose a modest 1.5 percent of their income. Some economists, however, question the wisdom of lowering the taxes of the rest of the populace, for the U.S. budget deficit is massive. This yearâÄôs Sundance Film Festival saw the release of âÄúI.O.U.S.A.,âÄù a documentary about the massive coming debt crisis hailed as powerful and important as âÄúAn Inconvenient TruthâÄù was. The projected deficit is expected to be $9 trillion, or roughly $30,000 per person. Since most of that comes from entitlement spending, which Obama also wants to increase, his tax policy may need to be re-evaluated. Obama also seeks to raise both corporate and capital gains taxes, which we are markedly less enthusiastic about. While they would help reduce the deficit as well, that has to be balanced with other factors. First of all, the U.S. corporate tax rate is, on average, 50 percent higher than other rich nations. Though Obama pledges to discourage companies from outsourcing their operations, he sure will give them good incentive to do it. A high capital gains tax also serves to discourage foreign investing in the United States, which would certainly be a boon during a time of malaise in the economy. What Obama has seemed to make abundantly clear is that he perceives investment bankers and investors to be the only connotatively negative source of economic stimulus. Frivolously taxing Wall Street will only worsen economic woes. McCainâÄôs tax plan is hardly any better. Indeed, as the election has stumbled on, he has held increasingly doctrinaire to the supply-side economics of BushâÄôs administration. We, in fact, long for him to return to the fiscally austere man he was before running for president. His plan currently is growth-friendly only in the short run âÄî as it happens, his plan will actually increase the deficit more than ObamaâÄôs by a whopping $1.2 trillion. His claims of job creation are also exaggerated. Furthermore, McCainâÄôs message of sacrifice for the good of the nation is entirely inconsistent with his calls for ever-lower taxes. The analysis of either plan is pointless, it can be argued. In January there is no telling what the economy will look like. Obama may well have to keep BushâÄôs tax cuts in the short term, because they will lead to a speedier economic recovery. McCain may well decide that he no longer needs to pander to the Republican base, and return to fighting government waste and pork spending. If the economy is bad enough, the policies that either candidate would implement may be identical. The tax wars will undoubtedly rage on. A break from the mold of discourse by the candidates would be most welcome. But donâÄôt expect it, for it is another of Mark TwainâÄôs quotes that best sums up economic rhetoric: âÄúI would rather tell seven lies than give one explanation.âÄù Indeed. Those at St. JamesâÄô Street welcome comments at [email protected] .