Taxes under Obama and McCain

William G. Gale and
William G. Gale The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Senior Fellow - Economic Studies, Co-Director - Urban-Brookings Tax Policy Center

Ben Harris

October 30, 2008


A good tax system raises the revenues needed to finance government spending in a manner that is as simple, equitable, stable, and conducive to economic growth as possible. Virtually no one thinks the current system is very good. It is not surprising, then, that tax policy has been a major issue in the Presidential election campaign, with both candidates proposing extensive changes.

The candidates take very different approaches to tax policy. The main differences are two: first, McCain’s plans would reduce revenues by significantly more than Obama’s; and second, McCain’s would be substantially less progressive, especially among very highincome taxpayers, which is a fancy way of saying that Obama’s claim that McCain’s plan gives big tax cuts to the wealthy is spot on.

From the standpoint of growth or simplicity, both plans disappoint. It is hard to believe that either set of changes would have significant growth effects on the economy. Neither simplifies the tax code.

The biggest failure of their plans stems from a failure of our political system. Tax cuts appear to buy votes, but long-term projections of sacrosanct programs like Social Security and Medicare make clear that more, not less, revenue is required. Reality cannot be avoided forever, though we have avoided it for another election cycle. On this score, Obama fares less poorly than McCain as he doesn’t cut taxes as much.