Relative Burdens

Tax policy in a nutshell:

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Econ 102

McCain pounds away on the tax issue, lying along the way:

“These are tough times. Tough times in Wisconsin. Tough times in Ohio. Tough times all over America,” McCain told thousands packed into the picturesque downtown of Cedarburg, Wis. “My opponent will raise your taxes. My tax cuts will create jobs. His tax increases — increases, he wants to increase your taxes! — he’ll eliminate ’em!”

First of all, I rather doubt many people in that crowd would pay more under Obama’s tax plan. Second, why does the GOP keep getting away with the taxes/jobs meme when according to the Congressional Research Service (warning, PDF) economists say tax changes at this level don’t make much difference in macro-economic performance?

Brookings Lays Out Tax Differences

If you’re looking for an explanation of how McCain and Obama differ on tax policy and how those differences would affect you, the Brookings Institution has it (warning, PDF file). It’s a lot to get through and I don’t have any immediate reaction.

McCain’s Health/Tax Plan Scrutinized

The Dallas Morning News has a look at McCain’s proposal to tax employer health benefits as income. It’s just the start of the publicity this will get, I think. It’s also the kind of thing that can turn an election.

North Texas employers are not saying they would drop employee coverage altogether if Mr. McCain’s plan were enacted.

But some do say the plan, which Mr. McCain detailed in July, would encourage young and healthy workers to forgo company coverage, purchasing insurance on their own rather than paying income taxes on the benefit. That would leave employers with only the costly sick workers to insure.

And that, they said, could eventually lead to the death of company-provided health plans.

Health care economics is an almost impenetrable morass, but the debate starts with risk pools. You need healthy people in the pool to balance out the costs paying for the sick.

Bob Queyrouze, who oversees benefits for 1,200 workers at the Federal Reserve Bank of Dallas, calls Mr. McCain’s plan “radical.” “Long term, it would be destructive to the system,” Mr. Queyrouze said.

He adds that he doesn’t think the health insurance industry could respond quickly enough to handle a large influx of individuals looking to buy their own, more affordable policies.

I’m not exactly seeing that myself. These companies are bureaucratic. They don’t turn on a dime.

McCain supporters say the tax credits were intentionally set lower than the amount typically spent on employer-provided health plans. That is to encourage individuals as well as employers to shop for less expensive policies, said John Goodman, president of the Dallas-based National Center for Policy Analysis, a conservative think tank, and a health policy adviser to Mr. McCain’s campaign.

This would help rein in the nation’s ballooning health care costs, Mr. Goodman argued.

Some of the inflation in the health care market clearly is happening because too much money is chasing too few services. But only some, and while I get the theory, in practice there’d be a lot of short- and medium-term pain as people go through the transition.

The tax credit “would not subsidize bells and whistles [marriage counseling, acupuncture, etc.] as the current system does,” Mr. Goodman said in an e-mail.

I don’t know what kind of health plan this guy has, but mine doesn’t cover any of that.

Lawrence Louie, a 40-year-old Plano telecommunications worker, is one of those. He doubts the McCain tax credit will be large enough to buy insurance on the open market for himself and his wife.

“Basically, I would be forced to choose between paying the increased taxes [on the company-paid premium], or pay at least $4,000 out-of-pocket per year for private insurance, after adjusting for the value of the tax credit,” he said.

“Anyone with good insurance is not going to find this acceptable.”

Nope.

McCain/Obama Tax Comparisons

Let’s see … Obama wants to give me a tax cut, and eliminate taxes for seniors making under $50K a year. The latter would be good for my 80-year-old mom, who is under the threshold, lives totally on Social Security and investments, and is getting socked with big tax bills every year. 

McCain likely would cut the tax rate on my income too, but also wants to take away the tax break that now allows me to buy employer-provided health insurance without counting the benefit as income, even as my salary remains flat thanks to the state of the industry I work in.

What would a rational voter do here?

The real question, though, is how much of a stink will Obama make about McCain’s health-care tax proposal. The negative ads write themselves.

High Speed Rail Referendum

Robert Cruickshank runs an advocacy blog in support of the California High Speed Rail initiative that’ll be on the ballot this fall in my home state. In his latest post, countering anti-rail/anti-initiative comments from the Howard Jarvis/Prop 13 group, he makes an excellent point:

What prosperity California still has today is the product of past public spending – the bay bridges, the freeways, the aqueducts, the universities. All of those were paid for by taxes, and Californians reaped the rewards. But those investments need to be renewed, in a way that suits the new conditions of the 21st century, specifically energy, environment, and climate.

What he neglects to mention is that investment in all those things basically dried up by the end of the 1960s. Since then, opposition on one side by anti-tax forces and on the other by environmentalists has all but stopped new infrastructure projects in the state. And California is but a microcosm of the entire country in this regard. We’re living off the achievements of our grandparents.

Back to the Future, Tax-Wise

Obama’s top economic advisers have an op-ed in the WSJ laying out their guy’s tax plan. Interesting point of emphasis is to peg many of its provisions to the Clinton era’s tax structure. That’s a good move, strategically, as it sets up the question, “Are you better off now than you were eight years ago?” A lot of the voters Obama’s targeting will say no, particularly if inflation continues to spike. The Bush tax cut and the deficits it caused were the first triggers for inflation, followed in no particular order by loose interest rates, rising global demand for energy and materials, and uncertainty in energy markets. And the idea that a return to Clinton tax policy would spike the economy refutes itself when one remembers that the late 1990s featured the best economy anyone of Obama’s age has ever worked in.