Part 2 in my 'Breaking it Down' series about the issues in the US Presidential Election - Tax policy and Jobs.
Sorry for the late post - I hope some of you find this helpful.
Okay, regardless of what you attribute the recession we have gone through in the past 3 years...it was up to the current administration to take action to help minimize the impact and move the economy back out. That is the angle from which I plan to look at each candidate's record and/or plans for taxes and job growth.
Bush:
There is an accepted theory of Macroeconomics that says the government can stimulate growth through tax cuts. The real reason behind this has a lot to do with the money multiplier, etc. Suffice it to say that the theory holds that a dollar in the hands of consumers goes further toward increasing growth than one spent by the government.
It is also accepted that a government might have to cut taxes so much that they are spending more than is coming in via taxes (deficit spending) because, once the economy is back up and running, you will get more money flowing in and can pay off those deficit years.
The other key method the government has to expand growth is by influencing the interest rates.
Obviously, since for most of this administration, interest rates have been about as low as they can possibly go - this was an option not available.
So, in the grand scheme, a series of tax cuts, especially from a Republican administration and Congress were the way to go.
Now, Macroeconomic theory does not dictate how these tax cuts should be structured. In theory, they should work based on the amount of money sent back into the economy - without much regard for who gets that money...however, theory also doesn't consider there to be much difference between consumers (at least in the most basic forms of macroeconomics).
So, the Bush administration pushed for an across-the-board tax cut. Mostly a straight percentage reduction in tax rates. This seems fair, and can be argued as such. Of course, 1% of $250,000 is a slightly larger amount than 1% of $20,000.
However, it can also be argued that giving larger dollar amounts to people who are already well-off will result in less of that money being spent on goods and services and generating economic growth.
The Bush administration has also pushed through legislation to make the tax cuts permanent...whoa, back up the truck...economic stimulus packages like tax cuts should, by their very nature, be temporary. Once the economy is cooking again, you can put the tax code back the way it was to help pay for the deficit spending. Unfortunately, this is where the Bush administrations use of economic policy goes off-track (if you ignore the possibility that giving wealthier individuals a larger percentage of the tax cuts might not result in the same benefit of giving it to people living paycheck-to-paycheck).
Kerry:
Senator Kerry has proposed tweaking the tax cuts pushed through by the Bush administration in order to help pay for additional programs and services for taxpayers. This would be achieved by rolling-back the tax cut given to people making over $200,000 a year - putting a very large percentage of the tax code back where it was before the recession.
This would be coupled with a further tax cut for the middle-class (or taxpayers earning less that $200,000 per year). This would mainly be in the form of health-care and educations tax credits.
What about the economic stimulus to get us out of the recession? Well, technically, economists believe we are already out of the recession. Also, much of the benefit of the tax cuts were partially offset by increases in local taxes and costs to consumers brought on by a lack of federal funding (through under-funded mandates like homeland security and 'no child left behind'). This means that while the federal income tax rate went down, overall costs to consumers in some cases were higher than if the tax rates had not been cut. In this case, rolling back a portion of the previous cuts and restructuring the tax system to provide additional cuts to the middle-class will likely have a more stimulative effect than the Bush cuts.
You might be wondering about questions raised by the Bush campaign about Kerry's record on tax increases. Well, much like the national security issue, a lot of this has to do with interpretation of voting record. The Bush campaign has gone through and counted each time Senator Kerry has voted for an increase in any fee for any reason - this means that if there was an amendment to a bill about fishing in the Atlantic proposing an increase in the federal fee per ton of fish caught of 1/2 of 1% and Kerry voted for the amendment but ultimately the whole bill either died or was voted down - the Bush campaign would count this as a vote to increase taxes (and suggest that because of this vote to increase fishing fees - that he might be inclined to increase taxes on the middle-class).
According to the Kerry campaign, if you accept this accounting method, Senator Kerry has voted for tax cuts over 6x more often than tax increases.
-Scott K
