Obama and McCain's approaches to economy, taxes, and Iraq

McCain & Obama

John McCain and Barack Obama both have sophisticated strategies to deal with the struggling economy. The McCain policy is based on old-school Republican economics. For example, the McCain plan calls for the lowering of trade barriers, based on the principle that lowering these barriers gives American firms greater access to international markets. In recognition of the fact that globalization is shifting American manufacturing jobs overseas, McCain's plan also calls for the protection of workers who suffer such job loss. This program includes modernizing unemployment insurance and provided relocation and retraining assistance.

Obama is against what he terms as "trade agreements that undermine our economic security." He would seek to amend NAFTA and pull out of CAFTA. His plan for the shift of American jobs overseas is to end tax breaks for corporations that shift jobs overseas and to implement tax credits for companies that create jobs in America.

Both candidates' economic plans include sections on small businesses. McCain proposes to cut the corporate tax rate to 25%, expense equipment (rather than depreciate it), and establish an R&D tax credit. He also incorporates small businesses into his health care plan, theoretically reducing the cost of health care with his $5,000 credit to individuals. Obama's plan for small business development is to eliminate capital gains taxes on start-ups and set up a network of small business incubators.

In terms of the subprime crisis, both candidates voted in favor of the $700 billion Wall Street bailout. McCain has wavered in terms of his commitment to greater regulation, but has in recent weeks been calling for it. Obama intends to increase regulation on the subprime mortgage industry. In general, though, both candidates address this issue in generalities. McCain favors a freeze on government spending, elimination of earmarks and reforming both social security and Medicare. Obama favors supporting job creation and company incubation funds, middle class tax cuts, and funding for government agencies so that they may continue to create jobs.

The McCain tax plan incorporates several items. He proposes to reduce the corporate tax rate from 35% to 25%. He also proposes to keep tax rates at their same levels, while phasing out the Alternative Minimum Tax. He also proposes other tax cuts for business, and a ban on Internet taxes. Obama proposes to eliminate income taxes for seniors earning less than $50,000 per year. He will create a tax credit for 150 million workers, and simplify the tax return process dramatically. He would also create a windfall profits tax on oil companies' profits and redistribute $1,000 to American families.

The candidates have dramatically differing views on the Iraq war. McCain's plan is less concrete, based more on philosophy. His view is that America should not leave Iraq until the government of Iraq is able to run its country and safeguard its people. He supports the "surge," the counterinsurgency strategy launched in 2006. He feels that at this time it is important for Iraqis to know that Americans will not abandon them. He takes an aggressive stance on Syria and Iran, blaming them for much of the violence in Iraq.

Obama views the Iraq War as flawed from the outset. His take is that al-Qaeda and the Taliban are the greatest threat to America, and that the war in Iraq is a needless distraction from the task of eradicating them. He would set a new objective for Iraq, to end the war. He feels the Iraqi government, with its $80 billion surplus, has not been held responsible for taking control of the county, and he intends to do that. His position is that the U.S. military is stretched beyond sustainability and maintenance of the war in Iraq leaves the U.S. exposed. He would hasten the withdrawal and refocus on al-Qaeda in Afghanistan and Pakistan. Obama will deal with Syria and Iran through a "surge" in diplomacy, with the objective of keeping outside countries from meddling in Iraq's internal politics. Under such conditions, a withdrawal could be completed by 2010.

It is my belief that neither candidate is in a position to manage the economic crisis. For instance, both have made energy independence a strong component of their policies, yet energy independence is a decade or two away. This is a noble long-term goal but will not address today's economic issues. McCain's economic ideologies are rooted in 20th century economic logic. His reliance on the trickle-down approach fails to recognize that capital is fungible. Therefore, applying more capital to the top of the economic food chain will not necessarily increase wealth at the bottom. It may merely be investing outside the country if opportunities overseas are better, which at present they often are. Holding the line of taxes will not spur growth, nor will it reduce consumer debt. Moreover, he cannot balance the budget in light of his lack of a withdrawal plan for Iraq and support of the $700 bailout. His tax strategies do not address to inequities of the current tax system. Moreover, lowering corporate taxes from 35% to 25% will not address the myriad of other political and economic factors that companies take into account when deciding where to set up shop, such as wages, market opportunities and trade barriers.

Obama's economic plan is more trickle-up, which is stronger in principle but there are limitations. American consumer debt, for example, is a constraint on growth and represents a transfer of wealth overseas. Obama's tax cuts are unlikely to translate into a reduction in consumer debt. More likely, that money will go to China via Wal-Mart and Saudi Arabia through the oil companies. This is an oversimplification, but more money in the hands of consumers is not going to stop the massive transfer of wealth overseas. Increasing taxes on the wealthy and the windfall profits tax on the oil companies will generate more public wealth, but the impacts of using that money to fund incubator programs will take many years to manifest. His support of the $700 bailout will burden the U.S. economy as well. He stands a better chance at balancing the budget if he can get out of Iraq safely, however, which will help finance his plans.