Would Trickle-Down Policies Really Help All Americans?

There is an editorial in the WSJ today by Martin Feldstein and John Taylor that is - surprise! - supportive of McCain's economic policies, and dismissive of Obama's. Two policies they highlight are "a package of tax incentives that will create jobs and raise earnings by inducing firms to invest more in the U.S.," and "doubling the personal exemptions for families with children, which will reduce the tax burden on working Americans.":

Here a response from the Wonk Room:

In Wall Street Journal, McCain Econ Advisers Claim McCain’s Tax Plan Benefits ‘All Americans’:  Today, Martin Feldstein and John Taylor, two of Sen. John McCain’s (R-AZ) economic advisers, published an op-ed in the Wall Street Journal claiming that McCain’s tax plan is designed to help “all Americans,” “especially those in the hard-pressed middle class,” and that “Mr. McCain will bring the budget into balance.”

In reality, McCain’s plan will significantly favor the ultra-rich and America’s largest corporations over the middle class, while driving up the federal deficit. Here is a dissection of the McCain campaign’s argument, and why McCain’s plan doesn’t really help “all Americans”:

CLAIM: John McCain’s tax policies are designed to create jobs, increase wages and allow all Americans — especially those in the hard-pressed middle class — to keep more of what they earn.

FACT: McCain’s tax plan delivers almost half its benefits to the top 1% of taxpayers, and gives the top 0.1% a $1 million tax cut. The only middle class tax cut his campaign can cite is “drill, drill, drill.”

CLAIM: Mr. McCain’s plan will significantly ease the tax burden on American families with children by doubling the personal exemption to $7,000 from $3,500.

FACT: According to the Tax Policy Center, “although this provision is sometimes described as a doubling of the personal exemption, that is true only in the first year, and then only for lower-income married couples,” leaving everyone else out. Every other family’s exemption is not fully phased in until 2016, and “because it is not refundable, it is worth nothing to poor families and little to many in the working-class.” Over 100 million families receive no tax cut under McCain’s plan.

CLAIM: Mr. McCain will bring the budget into balance.

FACT: As the Wonk Room has previously noted, McCain could not balance the budget with his current tax proposals, even if he cut ten cabinet agencies. His budget would create the largest deficit in 25 years.

Of course, the McCain campaign already has a history of disconnect between what it says and what it means. This op-ed is no exception: when McCain says his plan helps all Americans, he means the wealthy and the Fortune 200.

The plan involves tax breaks for the wealthy and for corporations, which the editorial says will increase productivity, and the hope is that jobs and income trickle down to those who really need it.

We've seen this argument before, and we know how supply-side policies turns out. Lots of gains at the top, nothing in the middle and the bottom leading to rising inequality, little evidence that the tax cuts stimulate economic growth, and rising deficits that places the burden of the tax cuts for the wealthy on future taxpayers.

This is supposed to help all Americans?

Comments

[Obama is Bu...:]

Does this article have anything to do with investing?

There are loads of blogs and websites where Mr Thoma can babble on and on about his political leanings. If he doesnt have any investment ideas, he should not be writing here.

2008 Sep 02 05:17 PM

[now seriously:]

I could not agree more with you gramps2. Mr. Thoma should take this somewhere where people want to read the babble. And since its a cut & paste from thinkprogress.org he should have just left it there! Are we going to have to listen to all this cut and paste babble from those that find more joy in disrespecting (and misquote) the other side's guy, than promoting the views and positions of their own guy!

2008 Sep 02 06:44 PM

[degrees_of_...:]

"Does this article have anything to do with investing?"

Um, yes. Not only does tax policy affect the economy at large but directly affects how much money you have to invest. As the author points out, if you're in the top 1%, you'll have a lot more to invest under a McCain administration. If not, expect to get trickled down on.

McCain and the WSJ cling to the wacko supply-side economics that were proven disastrous during the early years of the Reagan administration. It took the later Reagan policies, the Bush #1 policies after read-my-lips proved equally idiotic, and the Clinton policies under the influence of Robert Rubin to repair the damage. Then Bush #2's policies of never vetoing a Republican Congress spending bill and borrowing to make up for lowering taxes for the rich, accompanied by Greenspan's free-market-needs-no-s... philosophy, screwed the country again.

Investors should well be wary of McCain's continuation of Bush economics, especially with Phil Gramm steering the boat.

2008 Sep 02 07:59 PM

[degrees_of_...:]

In my above comment, it should read "Greenspan's free-market-needs-no-r... philosophy".

2008 Sep 02 08:03 PM

[degrees_of_...:]

Once more try: in my above comment, it should read "Greenspan's free market needs no regulation philosophy".

2008 Sep 02 08:05 PM

[Matt Blackman:]

I for one, am sick and tired to Thoma's continuous attempts to promote the Obama administration. Just look at his articles and you'll see his highly distorted leftist views liberally (pun intended) spouted for anyone who will read them. He continually bashes McCain quoting data from leftist group claiming to be tax experts, the Tax Policy Center.

If this guy is not a paid-Democratic promoter he should be.

What is his political propaganda doing on an investment/market site?

2008 Sep 02 08:16 PM

[Xyrus:]

Obama support? Where? All he's doing is pointing out the policies of McCain and how they really would affect people.

Just because you're anti-McCain does not make you pro-Obama. Neither candidate is going to do what is really necessary and both of them will continue to pile on debt. Obama's plan is a bit friendlier to the lower class and won't run up deficits quite as high as McCain's, but neither candidate is a prize.

Basically, if you're happy about the past 8 years and are happy having the country continue on it's downward spiral, vote for McCain. If you're not happy about the past 8 years and think Democrats will make any difference (unlikely), vote for Obama. If you're sick of both parties and want to see some real change, vote for a third party.

~X~

2008 Sep 02 10:41 PM

[carey_jim:]

The next election has everything to do with the future economy and, therefore, with investing.

2008 Sep 03 11:07 AM

[robert.b.fe...:]

While the article has very little to do with investing directly it's interesting to note that SEN Obama will rais taxes on investing of all types from interest on savings accounte to capital gains. Therefore if you have a SIV (IRA/401K) your retirement plan will take a hit. If you invest in a brokerage account either margin or cash your investment proffit will take a hit. So in that respect SEN Obama's plan will hurt the very people he claims to want to help. As a general rule a rising tide floats all boats I don't want to get punnished because of class warfare among politicos. Bear in mind that the "working poor" do not pay taxes so a tax cut for them is out of the question. I suppose we could give them a some sort of hand out oh yea we already do we call it earned income credit. Taking a few more crumbs from wealthy people and giving it to the least wealthy among us will not solve thier problems.

2008 Sep 03 12:30 PM

[Steven Hansen:]

does anyone believe congress will adopt either mccains or obama's tax plans? they are going to create the ultimate abortion of a plan. vote everyone in congress out.

2008 Sep 04 06:04 AM

[Obama is Bu...:]

Read my lips, I did not have sex with my intern, WMDs are a slam dunk-- I will fix the economy and bring hope to struggling Americans... please. They fooled you once, shame on them -- but they have fooled you so many times its getting very embarrassing.

I don't want bother reading all the political blogs anymore, because I am tired of **ALL** politicians lying. None of them have solutions for anything other than taking ever more money and liberty away from everyone.

I resent people like Mr Thoma who try to turn every single forum in the world into their own personal political rant box. How can you possibly be so pompous as to think your political opinion is so important / informed that you need to post it on an investment website?

Mr Thoma: either talk about investing, or keep your comments confined to political blogs (somewhere else). Seeking Alpha is for investment ideas.

2008 Sep 04 04:45 PM