No Focus on Job Creation in the McCain Economic Plan
According to yesterday's WaPo, one of the "starker contrasts" in this year's presidential election is "between McCain's emphasis on job creation and reducing regulation and Obama's focus on immediately easing financial problems."
Right.
Here's Dean Baker's response:
While Obama has certainly made a point of crafting policies that are intended to ease the financial problems of low and moderate income families, most notably providing universal health care, it would be difficult to characterize Senator McCain's agenda as focusing on job creation.
Senator McCain's economic proposals center on maintaining the tax cuts put in place under the Bush administration. The economy has sustained the slowest pace of job creation on record during the Bush years, creating jobs at annual rate of just over 700,000 a year (0.5 percent). By contrast, it created jobs at almost a 3 million annual rate during the Clinton years.
It would be wrong to attribute the entire falloff in the pace of job creation between the Clinton and Bush administrations to President Bush's tax cuts, but it would be difficult to argue that an economic policy that centers on maintaining these tax cuts has a "emphasis on job creation" as the Post told readers.
See also, Krugman.
I should probably also mention, that one of the drawbacks to high- and progressive income taxation (i.e. high earners pay an ultra-huge marginal rate), is that it causes wealth to concentrate itself among a 'privileged elite' class which isn't necessarily affected by high income taxation. It's a form of economic centralization that leads to a modern-day aristocracy. We can probably assume that Buffett/Hilton/Gates all advocate high income taxes--because they themselves aren't affected! To them, it's better that YOU shoulder the nation's tax burden, not they themselves.
This negative effect can be avoided by inducing VAT into the system (or simply raising state sales taxes), because it gives high income people a more balanced choice between personal/luxury consumption (for which they pay VAT) and investing in productive enterprises (with pre-tax saved money).
For example, instead of buying a new Benz (for which he'd pay VAT), the doctor can save his money to buy an MRI machine. Ultimately, having more MRI machines in use brings down the price of medical diagnosis for consumers. Of course, we can extrapolate to include all industries, not just medicine. The resulting decentralization might even have a downward effect on CEO pay.
Under a high- and progressive income tax scheme, that's less possible. And under the current system, which is really screwed up, the doctor is induced into buying as big a house as possible with that money! And perhaps also the Benz. Whereas he should continue to have that choice, I believe the choice itself shouldn't be so lopsided.
BTW, didn't doctors previously drive Buicks?
I'm dismayed by all the controversy over Bush's tax cuts, because it diverts attention from more important structural changes that are necessary. For example, the regressive mortgage interest deduction should be phased out completely over time.
Fortunately, lowering income taxes (via Bush's cuts) actually helps to mitigate that harmful deduction--which is good!
But eventually, perhaps there will be a need to raise money to pay for the national debt. That's fine too, because it'll be a perfect opportunity to launch a national VAT--which, unlike income taxes, actually CAN be implemented as a progressive tax. By that, I mean it is both conceptually and politically possible. It works all over Europe and the world, you know. Hence, it's a no-risk proposition.
Unfortunately, it would take such a minor financial crisis (national debt) to actually make it happen, but the end result is what counts. If people keep focusing on reversing Bush's tax cuts, then it'll only forestall the the transition away from the current system.