continued a steady stream of bad economic news -- more than 400,000 jobs have been lost since December -- forcing the presidential candidates to return to discussion of the economy.
Both candidates gave speeches Monday on the subject. While no earth-shattering proposals came to light, the candidates continued to squabble over whose economic plan offers job growth. Not surprisingly, neither candidate correctly stated the facts.
Sen. John McCain (R., Ariz.) began by attacking Sen. Barack Obama (D., Ill.) on familiar territory: taxes. He claimed Obama would raise taxes on small business owners who are a mainstay of job creation in the U.S. economy:
Senator Obama's tax increases will hurt the economy even more, and destroy jobs across this country. If you are one of the 23 million small business owners in America who files as an individual rate payer, Senator Obama is going to raise your tax rates. If you have an investment for your child's education or own a mutual fund or a stock in a retirement plan, he is going to raise your taxes.
McCain made a large mistake -- and not for the first time -- stating individuals with retirement plans would be subject to capital gains taxes. He should know better and know the rules. He voted in favor of creating retirement accounts while serving in Congress, and whether you choose a Roth IRA and pay income taxes upfront or a 401(k) avoiding income tax, neither involves capital gains.
McCain's other claims prove only partially correct. Obama would raise taxes to pay for proposals, but who would absorb higher rates?
The Obama campaign said Obama would raise taxes on only those people who earn more than $250,000 a year. Their taxes would go back to the same rates -- 39% -- seen under President Bill Clinton. I would guess that very few small business owners actually make that much. The 23 million number also likely included people who have a job and a small business on the side who take tax exemptions for expense purposes.
Obama responded to McCain's claims:
And if Senator McCain wants a debate about taxes in this campaign, that's a debate I'm happy to have. Because if you're a family making less than $250,000, my plan will not raise your taxes -- not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes.
He incorrectly states on whom he would raise taxes. Obama would raise the payroll cap tax on Social Security to include many now presently exempted at $97,500, which would help to solidify the future of the entitlement program.
And Obama definitely would raise capital gains taxes. He has said they would return to 20% and could go as high as 28% in order to pay for his expansive domestic agenda. This would affect anyone who sold a long-term capital position whether or not they make $250,000 or more a year.
What's Needed: Clear Budget Plans
Both candidates will face challenges
McCain claims he would balance the budget by 2013, saying:
We must also get government's fiscal house in order. American workers and families pay their bills and balance their budgets, and I will demand the same of the government. A government that spends wisely and balances its budget is a catalyst for economic growth and the creation of good and secure jobs.
I asked his economic adviser, Douglas Holtz-Eakin, how he plans to accomplish it. The answer remains fuzzy. McCain would cut earmarks from spending bills, which accounts for $18 billion or so. Holtz-Eakin said he would also review the nonmilitary budget and find necessary cuts.
McCain would need to find massive cuts, however. His extension of the Bush tax cuts along with his new tax cuts would increase the federal deficit. He has no formal budget plan, nor has he specified which nonfunctioning government programs he would cut.
Both campaigns have begun to claim peace dividends from reduced activity in Iraq. Is this a safe bet?
McCain claimed victory would come soon and thus allow for reduced expense. It would be nice to know what exactly "victory" means. Nevertheless, this would lead to only some reductions, and according to analysis by the
, his budget adds trillions of dollars to the deficit. He would still fall short.
The Obama campaign has stated he would pay for any proposal using pay-as-you-go rules. But his economic adviser, Jason Furman, in a conference called Tuesday admitted they have no formal budget. Some of their proposals would depend on a steady withdrawal of troops from Iraq without any flare-ups in terrorist activity.
Betting on a stable Iraq may prove a mistake. What the candidates must do is: Tell the truth and present a budget. Americans deserve to understand the candidates' policy priorities and how they plan to pay for them.