"Barack Obama doesn't need to take a lesson in fiscal responsibility from a candidate who has called for $400 billion a year in additional high-income tax cuts and unlimited commitment to war in Iraq," is a choice moment from a recent chat I had with Austan Goolsbee.
Goolsbee is Barack Obama's main economic adviser, the University of Chicago prof who got in a bit of trouble over the perception that he told the Canadian government that Obama wasn't serious about reworking NAFTA. (And no, Goolsbee was not speaking to me from an undisclosed location; and rumors that the campaign stashed him away in the spot beneath the University of Chicago campus where they used to do atomic research are untrue. Well, I'm pretty sure they're untrue.)
Now, after talking with the always personable Goolsbee, it was clear to me how Obama, if nominated, is going to hit John McCain on the economy (boldface mine):
1) McCain's a big spender. Over and over, Goolsbee expressed astonishment and almost ridicule at McCain's decision to back extending the Bush tax cuts, as well as calling for a cut in the corporate income tax:
After $400 billion a year in high-income tax cuts, they are going to have a serious revenue problem, and the problem facing the economy is not that high-income people do not have enough money. So I find it extremely strange that the solution that they keep putting forward is to cut taxes more for the people whose incomes have been growing very rapidly.
2) The Bush tax cuts—which McCain now supports— may actually be a cause of the slowdown and possible recession. As Goolsbee and Obama see it, the economy's big problem is that the middle class is struggling, and instead of helping them for the past seven years, Bush has been cutting taxes for the rich:
It is Obama's view that in the last eight years there's been a lot of economic policy geared around an unsustainable economic philosophy that says let's just keep cutting taxes for the very highest-income people whose incomes were already growing and that that's the key to successful economy.... This downturn is not a random business-cycle event that just happened. It is the very culmination of six to eight years of really serious struggle for ordinary American s in which their incomes are flat, the cost of energy, education, healthcare , and now food are up dramatically, leaving zero margin for error , and that is the root.
3) Both Obama and McCain want to cut taxes; one wants to cut middle-class taxes, the other taxes for the wealthy. This is probably going to be an effective political argument—it is the old 1992 Bill Clinton approach—and I am not sure how McCain is going to answer it. Here is what Goolsbee said:
The single biggest item in Obama's budget is tax relief for ordinary Americans. His point is that if we are cutting taxes and providing relief to people , not only should they be the people who need it but the people for whom it would be best for the economy to cut taxes. And that is ordinary Americans , because the squeeze on ordinary Americans is the thing that is pulling the economy down now. It's not that high-income people need to have their capital gains [tax rate cut from] 15 percent to 10 percent. They aren't the people who are struggling, and they aren't at the root of the economic downturn we are facing.
4) McCain wants to cut Social Security benefits instead of making the payroll taxes more equitable. Goolsbee made it clear that Obama wants to raise payroll taxes, by taking off the income cap at some income level—and that to not do so is unfair.
In his view the place to start is with the regressivity issue of the payroll tax. It is my own view that the majority of Americans do not understand how the payroll tax works. How it is that a guy making $90 million a year is paying the same tax as a guy making $97,000 a year? I think that at best it would strike them as highly weird and at worst grossly unfair. But he has not called for uncapping it completely, and there are several different ways to do it, but before anybody starts talking about cutting benefits, let's address that issue. It would also get the trust fund to last another 50 or 60 years. An increase in the payroll tax of 6 percentage points phased in over many years or decades doesn't strike me as a dramatic move. They have uncapped the top rates in Ireland, and they have grown extremely well.
My take: Using Ireland—a favorite country of economic conservatives because of its low taxes—is dirty pool by Goolsbee. But beyond that, it sure sounds as if McCain had better be able to aggressively defend his newfound belief in the worth of the Bush tax cuts, because Obama's argument against them is very similar to the reasons McCain gave for voting against them: They were too heavily tilted toward the wealthy.
I wonder if McCain wouldn't be better served by instead coming up with a completely new tax reform plan that changes the debate away from the Bush tax cuts. After all, the parts that are easy to defend—like the expanded kiddie tax credit—Obama is supporting, too. And indeed, some conservatives have been pushing McCain to offer a greatly expanded child tax credit as a way of appealing to middle-class voters directly. His desire to eliminate the alternative minimum tax only keeps them at the status quo.