Can the economic chaos work to McCain’s advantage?
By Nick Ragone | Related entries in 2008 Election, Barack, Economy, McCain
Before I jump into my contrarian point, a quick introduction. My name is Nick Ragone, and I’m an author (government and presidential history, mostly) and regular contributor at Fox News and Fox Business, as well as blogger at www.nickragone.com.
I think the news about Lehman, Merrill, and AIG might actually work to McCain’s advantage — that is, if his campaign has the smarts to seize upon it.
The crew at CNBC’s “Squawk Box” made a great point to Governor Corzine of NJ this morning, an Obama backer. Joe Kernan asked him if raising taxes was really a great idea while the financial markets are in complete meltdown. Corzine stammered through his talking points, but you could tell he really wanted to answer honestly, which would have been “Um, no.”
The truth is, much has been made of McCain’s lack of specifics the past few weeks, but Obama hasn’t offered up any details on his plan to jump start the economy, other than raising taxes on income and capital. Team Obama is certain to paint today’s news as more of Bush-McCain’s doing, but McCain has an opportunity to drive home his anti-tax hike position, and effectively turn this issue to his advantage.
Neither candidate is particularly strong on the economy, but at least McCain isn’t advocating massive tax hikes in the teeth of a full-blown depression-style meltdown. McCain has an opening - will he take it?
This entry was posted on Monday, September 15th, 2008 and is filed under 2008 Election, Barack, Economy, McCain. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
September 15th, 2008 at 1:13 pm
I disagree. So does his campaign adviser. http://politicalwire.com/archives/2008/09/12/mccain_adviser_says_next_president_must_raise_taxes.html
So does Alan Greenspan. http://www.examiner.com/a-1585551~Greenspan__Country_can_t_afford_McCain_s_tax_cuts.html
September 15th, 2008 at 1:18 pm
McCain’s tax plan versus Obama
http://blog.prospect.org/blog/ezraklein/updatedtaxtable.html
Obama has larger tax cuts for all but the top of America. Will raising the taxes on the top of americans destroy our economy? Are these people going to stop trying to make money? Start laying people off? McCain is not proposing any solution to the current crisis which would involve some regulation. A word that is anathema to McCain and his adviser Phil Gramm. McCain does not even admit there is a problem which is the first step to fixing a problem. Not all news is good for McCain.
September 15th, 2008 at 1:31 pm
Massive tax hikes on small businesses like mine are a given under Obama. All you s-corp closely-held family companies…be prepared…you are rich! And between social security and income taxes, your company will be working through June just for the federal government. So, yes, to answer Gaucho’s question — if you lay off workers in will have a positive effect on the bottom line because that will be 7.5% less you’ll be paying on payroll taxes.
September 15th, 2008 at 1:44 pm
J. Harden?
Isn’t this the same old bull conservatives put out when Clinton was looking to do something not all that different. Hmmmm, where did that get us again? Out of deficit and into the black? Way into the black.
Let’s look back to Reagan, yep righties, I’m going after the old man. Where did reagan get us? Deficit. Where did it leave Bush I? Having to raise taxes. Where do you think Bush II’s policies is going to bet us, now that he’s impressively gotten us into Deficit? Yeah, poor ole McCain will be forced to raise taxes, but he’ll raise it on the middle class and keep tax cuts for the wealthy. All this trickle down shit, keeps on failing over and over.
September 15th, 2008 at 2:12 pm
Wow, a Fox News contributor thinks a poor economy favors McCain. How contrarian.
September 15th, 2008 at 2:57 pm
Ed: thank you for summarizing my thoughts so nicely.
September 15th, 2008 at 3:12 pm
I still don’t get how raising taxes on profits, small businesses, and income is going to stave off a recession. The Clinton tax hikes of 1993 are a poor anology; the economy actually grew at 4% in the 4th quarter of 1992, meaning the recovery had begun under George HW Bush’s watch. If anything, Clinton retarded the expansion with his tax hikes. I want to see Obama explain, in detail, how taking liquidity from the economy is a good thing. I still haven’t seen him defend that position. Would love to know ..
September 15th, 2008 at 3:28 pm
Nobody still believes in this trickle down, er, sorry “supply side economics” nonsense except the rich.
Even it’s chief proponents like David Stockman and Bruce Bartlett say that while it had merit at the time, it just doesn’t work anymore–but that doesn’t stop the right from pushing the idea to continue the obscene transfer of wealth from the middle toupper class.
Bartlett said back in April that the current conservative fiscal rhetoric regarding supply-side economics is outdated. “We have a completely different economic situation, completely different fiscal and tax situation and I think people are still using rhetoric that was appropriate at one time for a situation that in which it is no longer appropriate.”
Bartlett has become a pretty big critic of W. Bush and the economic horror he has wrought, and the right has lambasted him for it, because they don’t want to admit the truth.
September 15th, 2008 at 3:37 pm
That still doesn’t address the question: how does taking money out of the economy make it stronger? That’s not a supply side argument; that’s a liquidity argument. It’s contrary to every economics textbook ever printed. This is a sector recession — wall street and the housing market. The economy still grew at 3.3% last quarter — how did that occur? The stimulus package accounted for 1%. Where did the other 2% come from? magic? Pixie dust? Barack Obama’s sole plan for the economy is to basically strip it even further of desperately needed liquidity. Good luck selling that. No wonder his numbers are in free fall.
September 15th, 2008 at 3:40 pm
Nick,
As part of the 1993 Economic Plan, President Clinton cut taxes on 15 million low-income families and made tax cuts available to 90 percent of small businesses, while raising taxes on just 1.2 percent of the wealthiest taxpayers.
He later cut the tax rate in 1997 on the highest percentile by 2.6 percent, so what exact tax hikes are you talking about?
Did they get the 18 percent the Republican congress wanted to give them? No, but to cry about the modest 1.2 percent tax hike when Clinton did something the Republicans have not been able to do since Eisenhower–balance the budget–is ludicrous.
September 15th, 2008 at 3:48 pm
Here is a litany of the Clinton tax hikes:
* An increase in the individual income tax rate to 36 percent and a 10 percent surcharge for the highest earners, thereby effectively creating a top rate of 39.6 percent.
* Repeal of the income cap on Medicare taxes. This provision made the 2.9 percent Medicare payroll tax apply to all wage income. Like the Social Security payroll tax base today, the Medicare tax base was capped at a certain level of wage income prior to 1993.
* A 4.3 cent per gallon increase in transportation fuel taxes.
* An increase in the taxable portion of Social Security benefits.
* A permanent extension of the phase-out of personal exemptions and the phase-down of the deduction for itemized expenses.
* Raising the corporate income tax rate to 35 percent.
It led directly to the Republicans taking control of Congress, and it was the Republicans who drove tax cuts and a balance budget. Newt was driving that car; Bill was in the back seat with a girl.
September 15th, 2008 at 3:52 pm
Fannie Mae, Freddie Mac, Enron, Foreclosures, Mortgage Meltdown, Depressed Home Sales, Bailouts, Higher energy prices…ONE name keeps popping up. Phil Gramm
Who helped cause the biggest financial catastrophes of our time? McCain’s economic advisor, Phil Gramm.
Who was chairman of the Senate banking committee when it kept turning down Securities and Exchange Commission requests for money to police Wall Street? McCain’s economic advisor, Phil Gramm.
Who pushed through banking deregulation that destroyed Depression-era firewalls between commercial banks, investment banks, insurance companies, and securities firms? McCain’s economic advisor, Phil Gramm.
Who pushed through legislation that exempted energy trading from regulatory oversight and allowed Enron to run rampant, wrecked the California electricity market, and cost consumers billions before it collapsed? McCain’s economic advisor, Phil Gramm.
Whose wife joined the Enron? Phil Gramm’s wife, Wendy Gramm. Her salary and stock generated income between $915,000 and $1.8 million for the Gramm household before Enron’s collapse.
Who pushed legislation that now contributes to higher energy costs from speculators? McCain’s economic advisor and lobbyist friend, Phil Gramm.
Whose bill caused unregulated swaps that were “the heart of the subprime meltdown? McCain’s economic advisor, Phil Gramm.
What was Phil Gramm’s response to the suffering he helped cause from foreclosures, bank failures, pension fund collapses, and SURGING gas prices?
“We have sort of become a nation of whiners,” he said. “You just hear this constant whining.
What does McCain call Phil Gramm? An “Economic Guru.” (Wall Street Journal)
McCain and Gramm go way back. They worked together to fight health care reform during Clinton’s term. Today, 50% of all foreclosures are due to medical costs. John McCain believes that Swiss Bank lobbyist, Phil Gramm, is the best person in the country to advise him on economics. That makes me question his judgement.
John McCain has been in Washington politics since 1982. During the last two administrations, he was a top lieutenant for the Bush administration. As a powerful Senator, he consulted with President Bush hundreds of times. His party dominated Washington politics.
What better time to make change than then?
Dr. Phil says that the past is a good indication of future behavior. The GOP fooled us once…. and fooled us twice. But a threepeat? We deserve judy what we will get.
Senator McCain didn’t change Washington when he had the most powerful allies throughout Capitol Hill.
Now he’s an elder statesman with recurring health problems, a VP with no Washington experience, and a Democratic Congress? He will continue the 12 Billion War to Nowhere. He will mess up Social Security and keep giving tax breaks to the top 5%. He prefers drilling for oil which takes another decade for results when there are better alternatives available. He wants to clean up the mess his party made by bringing in party insiders to advise him.
How does he expect to fix the economic mess when his advisor is the man who helped create the mess millions face today? McCain and his Highway to Heaven sidekick will cause more division. I’m just a housewife and grandmother so I may not know much. However, I can tell the difference between fact and spin. If I can do a Reality Check on McCain and Gramm, so can others. McCain will duplicate the failed policies of total deregulation. Obama will work with Congress to improve oversight policies while helping small businesses suffering from the high costs of providing health care. He will create millions of jobs with green technology. It’s time to be better than the past, not worse.
September 15th, 2008 at 4:16 pm
Would that be those same republicans who between Reagan, Bush I and Bush II have created almost 70 percent of the $9 trillion deficit this country has rung up in its entire history?
It was Clinton who proposed balanced budgets, not the Republicans, and it was not because the GOP pushed him into it. Clinton was talking about concern for a balanced budget years while a drunk Republican congress kept saying “deficits don’t matter; Ronald Reagan proved that.”
It’s a great piece of fiction, the republican fantasy that you can cut taxes, raise spending and not care about deficits, but it just doesn’t come clean in the wash anymore.
I’ll grant you that Clinton raised some taxes, but he didn’t raise all taxes and he certainly did not push through the largest tax increase in history as the GOP is fond of lying about.
We can play tax games all you want and for every study you can point to I can find another. How’s this one–if you use the effect on revenue effect as a percentage of Gross Domestic Progress, the biggest tax increase since 1946 was the Tax Equity and Fiscal Responsibility Act of 1982 (I’ll give you a hint who signed that one–it was a guy with the initials RR), which rescinding some of the effects of a huge tax cut passed the year before after some president realized he had severely screwed the pooch when cutting taxes so much he was bankrupting the country.
But, to get back to the original question–taking liquidity from the market is not a good idea, if that is what you are doing. Obama is not proposing that. Obama plans to grant tax cuts to the vast majority of the population. The problem with giving tax increases to the rich is that they already have everything they need and with the exception of a few luxury items, they really cannot spur the economy because they are too few in number to make a signficant dent spending wise unless they spend their money ridiculously.
Give that same money to the middle class who will spend it rather than horde it, and that is how you get the economy moving.
September 15th, 2008 at 5:34 pm
“How does taking money out of the economy make it stronger?”
Two things -
1) Reducing the deficit will help to reduce the crowding out effect. Massive deficits (that translate into debt which result in massive interest payments to the tune of 10% of total government expenditures…please compare with 1.7% earmark expenditures) run up interest rates and “crowd out” private investment. Maybe this could counter your argument that Clinton restricted the full growth potential…if he opened up greater avenues for private borrowing he may have encouraged all of the 90s internet, hardware and software start-ups.
2) There is the thought that crowding out is not as important as it seems because public spending generates demand for private goods (multiplier effect). For one, public spending paying off enormous interest rates I doubt falls much into this category. Second, tax cuts for families and individuals below the 250k mark encourages this sort of spending and demand for private goods.
One, reduce the deficit and reduce the crowding out effect (raise taxes above 250k) while two increasing private demand (cut taxes below 250k).
I don’t know if you’ll believe this website, but this is an interesting little addendum if you are curious.
http://alchemytoday.com/willobamaraisemytaxes.html
September 15th, 2008 at 5:44 pm
Nick,
Let’s start with something I’ve been saying for a long time. We’ve had 8 years of unmitigated supply side economics. The 2001 and 2003 tax cuts gave a massive amount of money to the top bracket, especially the tippy-tip-top of it.
We’ve had 8 years of pretty much unregulated financial markets. The Bush administration achieved this feat by hiring freezes in the financial regulatory agencies as well as using political appointees to deflect regulation. Look at the FDIC as a prime example. Too few people chasing too many questions.
We’ve had 7 years of total control of the gears of federal government by the GOP. No real need for an incisive example.
Let’s not forget the Fed.
The first decade of this century has been a near perfect laboratory experiment in GOP mythology. And what we’re living through is the best they could do.
As far as taxes, here’s how it seems to shake out:
Give money to the poor, and it’s expanding the welfare state
Give money to the middle class, and it’s class warfare
Give money to the rich, and it’s job-generating, economy lifting supply-side economics.
Supply-side has been proven to be nothing more than a tactic, not a method of managing the republic. Had the rich did even 60% of what the Bushies and the rest of the conservative economists had said they’d do with the tax cuts, we wouldn’t have the problems we have today.
They weren’t good stewards with the money we gave them. So we want it back. We’ve taken money away from poor people for being bad stewards, we can take it away from the rich.
The growth of the past few years has been borne on the credit cards and HELOCs of the middle class. The rich did something, and defense spending helped–but middle class spending drove this economy, as it always does. Give the money to the people who will spend it, and get this consumer economy back on track. The rich people might have to wait a few quarters, but the money will come to them as the middle class begins to spend again. They’ll see the money in increased sales and profits from their businesses and corporations.
Or is it that the rich can’t wait because they don’t want use the market to compete for it?
Or think about it like this, if supply side really works, then why didn’t we give the recent stimulus to the rich? Why did we give it to the middle class? We already know the answer. Supply side is a political tactic.
Had Karl Rove given the 2001 and 2003 tax cuts to the middle class, he’d have his Permanent Repbulican Majority as well.
On to small business tax cuts. From About.com, a known snakes nest (:-) of liberalism on Obama’s small business tax plan:
“Provide Tax Relief for Small Businesses and Start Ups: Barack Obama believes that we need to reduce burdens on small business owners, many of whom are struggling to succeed as health care and energy costs continue to skyrocket. Barack Obama will support small business owners by providing a $500 “Making Work Pay” tax credit to almost every worker in America. Self-employed small business owners pay both the employee and the employer side of the payroll tax, and this measure will reduce the burdens of this double taxation. Barack Obama will also eliminate all capital gains taxes on start-up businesses to encourage innovation and job creation.
Senator Obama also has a plan to help small businesses get loans:
Expand Loan Programs for Small Businesses: Access to capital is a top concern among small business owners. Barack Obama cosponsored the bipartisan Small Business Lending Reauthorization and Improvements Act. This bill expands the Small Business Administration’s loan and micro-loan programs which provide startup and long-term financing that small firms cannot receive through normal channels. Obama will work to help more entrepreneurs get loans, expand the network of lenders, and simplify the loan approval process.”
I’m sure there’s more, and I’ll look to see where and if there are increases. I’ll report in either way.
Nick, you may say that Obama has no plans for the AMT, which may raise taxes on the middle class. I would say “what section of the middle class are you worried about”? The AMT is an option for my current white collar, professional $200k/year+ 40-something household. It’s not an option for my employees, the guys that come to service my central air and furnace, or the people who work in the pharmacy across from me. There’s a lot more of people like them than people like you and me. So he’s not raising taxes on the whole middle class.
I’m happy to say that his cuts will save me $12/year. If I end up losing the money, I’m OK. If I was in the top 5%, or the top 1%, I should be smart enough to set aside an extra hundred thousand or so out of the millions or tens of millions or hundreds of millions I have in the bank.
September 15th, 2008 at 6:02 pm
Nick,
Just got back from the Tax Policy Center’s site. Couldn’t find anything on how Obama will raise taxes on small business. If you’ve got something from a place that’s more credible than the McCain site, Heritage, or AEI, etc, I’m sure it would add value to the conversation.
September 15th, 2008 at 6:05 pm
If “trickle down” economics didn’t exist, then all those big financial firms who bought all those bogus securities propped up on frail mortgages would be the only ones who would be suffering right now. It wouldn’t “trickle down” to us working folk, and only the rich would suffer.
September 15th, 2008 at 6:20 pm
Jimmy,
These are serious times for serious people; if you don’t want to be serious stay out of the conversation.
September 15th, 2008 at 7:30 pm
Just remember folks, Nick’s question is bogus. It’s complete BS. It is based on a false premise that any money paid in taxes has no effect on the economy once it enters the government coffers, as though nothing is done with it at all. None of it gets circulated back in to the economy as wages for construction projects, air traffic controllers, product safety inspectors or any of those useless occupations. This is the great intellectual failure of the never stop cutting taxes crowd, the pretense that there is some black hole that prevents government revenues from going back out into the economy in a way that contributes to our country.
September 15th, 2008 at 7:59 pm
Yes, of course. We know that the government efficiently spends your tax dollars, and that a dollar into their coffers = a dollar into the economy lol … You get more rate of return and Lehman Bros stock than a government expenditure.
September 15th, 2008 at 8:27 pm
Nick,
All your arguments seem to end up in the conclusion that Republican tax policies work for the average man, and the economy. Yet history says something else.
Gov’t expenditures got us out of the depression. But that’s easy to ignore when you consider all the other “hand-outs” that those policies initiated. Your rhetoric only works in good times.
September 15th, 2008 at 8:42 pm
All I needed to know about the replies to this blog post were summed up in one sentence:
[quote]Dr. Phil says…[/quote]
September 15th, 2008 at 8:47 pm
Nick,
One of the two things George Ryan did here before marching off to jail (and rightly so) was Build Illinois. It was an infrastructure program that paved roads, fixed bridges, etc. It wasn’t funded by taxes but by bonds. A lot of bonds.
Turns out it was very successful. It helped grow and keep blue collar jobs and poured money into rural counties. Amazingly enough for Illinois, it was administered with a modicum of graft.
One thing about the program stood out, and it’s something that you’re missing in your thinking. A very good friend of mine is a civil engineer. Build Illinois meant more jobs for his firm, which in turn expanded, meaning more hiring of engineers, construction workers, etc. It made the effects of the program more personal to me, and prompted me to think a little deeper about these programs.
The unfortunate thing about Build Illinois was that the current governor, Rod “Fourth Dumbest Politician on the Planet” Blagovevich cancelled it.
September 15th, 2008 at 11:22 pm
Nick,
Private corporations don’t spend my money all that efficiently once they have it either. The Republican meme of all government evil, all businesses good just doesn’t cut it any more. We’ve seen where it gets us. How well the health insurance corporations spend money…working to deny legitimate benefits. How amazingly efficient and inerrant our major financial institutions are has been revealed this past year. I don’t like religious fundamentalists and that includes the members of the Holy Church of Free Market Inerrant.
And your response to me is just as bogus as your initial argument. I did not say anything about efficiency. I pointed out the fallacy of your argument that relies on the idea of it simply vanishing with no effect on the private economy.
September 16th, 2008 at 12:31 am
Jim, you said what I wanted to, but you put it much better than I could have.
I would add executive compensation and golden parachutes as further examples.
September 16th, 2008 at 5:07 am
The economy just doesn’t feel like a winning issue for McCain.
If it helps at all, it’s the fact that it may change the subject quickly from the just starting to catch on, “he’s a liar” meme.
Getting back to the issue itself …
I can see the argument that raising taxes in a down turn is probably not the best idea.
However …
I watched an interview about a week ago on CNN with Sen. John Kyl where they hit on this issue. I’m paraphrasing a little bit (and I wish I had a video clip) , but in response to a question about why John McCain now supports the Bush tax cuts that he originally opposed, the answers went something like this …
“The Bush tax cuts are one of the best things that ever happened for the U.S. economy … but, we can’t repeal them Now because of the tough economic times we’re facing”
I’m not joking … that’s what he said.
Does anybody else see the contradiction there?
… and that’s the “product” that John McCain has to try to sell if this becomes an economic debate.
No, I think if you give his campaign a choice, they Definitely want to talk about other stuff … preferably how sexist people are treating Sarah Palin … if they can ride that horse for 50 more days, they just might win. ;-)